Take Two: Alabama’s City Versus State Minimum Wage Dispute to Get Full Appellate ReviewMinimum wage laws invite controversy, and Alabama’s latest tug-of-war between the state and its largest city is going to get another wider review. You may recall that back in 2015, Birmingham, Alabama, passed a local minimum wage law. On the heels of that move, the Alabama Legislature then passed a state-wide minimum wage law, preempting local city laws. In response to the state’s new law, some Birmingham citizens, along with the NAACP, contended that the law discriminated against minorities and filed suit. After the federal district court dismissed the case, in July 2018 a three-judge panel of the Eleventh Circuit reversed, finding the plaintiffs asserted a plausible 14th Amendment claim. Under that decision, the litigation could go forward. That ruling, however, was recently vacated, and now every judge on the Eleventh Circuit court will weigh in on the matter.

Minimum Wage Controversy

In April 2015, the Birmingham City Council passed a resolution calling on the Alabama Legislature to raise the minimum wage to $10 per hour. The Alabama Legislature declined, so the Birmingham City Council adopted its own ordinance to raise the minimum wage, first to $8.50 per hour and then to $10.10 per hour.

Almost immediately thereafter, a state representative introduced a bill to quash the local ordinance and establish a uniform minimum wage throughout the state. The state has no minimum wage above the current federal minimum wage of $7.25 per hour. The Alabama House passed the bill in February 2016. In the meantime, the Birmingham City ordinance raising the minimum wage to $10.10 per hour went into effect, but only briefly. The next day, the Alabama Senate passed, and then Gov. Bentley signed, the Minimum Wage Act mandating the minimum wage be set at the federal minimum of $7.25 per hour and preempting all local laws. The law preempts all local labor and employment laws that a city or municipality might attempt.

Procedural Background

A few months later, a group of Birmingham residents, along with public interest groups, filed suit against the governor and state attorney general claiming racial discrimination under the 13th, 14th, and 15th Amendments of the U.S. Constitution and Section 2 of the Voting Rights Act. The plaintiffs contended that the state law has both a discriminatory purpose and effect. The state argued in response that the law is facially neutral. The federal district court dismissed all claims in February 2017, and the plaintiffs appealed to the Eleventh Circuit.

The three-judge panel of the Eleventh Circuit affirmed the dismissal of the claims under the 13th and 15th Amendments, as well as under the Voting Rights Act. However, it reversed the district court’s dismissal as to one claim, finding that the plaintiffs stated a plausible claim that the Minimum Wage Act purposely discriminated against Birmingham’s black citizens in violation of the 14th Amendment. In reversing, the panel highlighted that, according to the complaint, the act denied 37 percent of the city’s black wage earners a higher wage, compared to only 27 percent of white workers. Further, according to the complaint, black workers earn, on average, $1.41 less per hour in the city and $2.12 less per hour statewide than white workers. The panel’s ruling found it plausible that the act bore more heavily on black workers and that the plaintiffs had indeed stated a viable claim, deeming the legislative vote to have been “rushed, reactionary, and racially polarized.”

Shortly after the panel’s ruling, the State of Alabama and its attorney general filed a motion to have the matter reheard by the entire Circuit Court. In its motion, the state said the case “raises fundamental questions about the dignity of States, the efficacy of federal-court proceedings, the standard for finding state-sanctioned racism, and the role of courts in shaping public discourse” making it “an exceptionally important [case] that absolutely requires the full Court’s attention.”

Ruling Vacated and To Be Reviewed by Entire Circuit Panel

On January 30, the Eleventh Circuit granted the rehearing request (called “rehearing en banc”), thereby vacating the previous decision. Now the entire Circuit Court (12 judges) will review the claims and the district court’s dismissal. A rehearing of this nature is generally rare and granted only when necessary to maintain uniformity of decisions or for questions of “exceptional importance.” Reading the tea leaves of the decision suggests that the court will alter or revise the panel’s previous ruling in some way, but that is far from certain. Stay tuned for what will be a significant ruling related to Alabama’s minimum wage law and the discrimination allegations. For now, however, the minimum wage in Birmingham is still $7.25 an hour.

Does the Shutdown Shut Off FLSA Obligations to Unpaid Government Workers?The U.S. federal government shutdown has continued for more than a month, with no probable end in sight. While many government employees are furloughed, an estimated 420,000 others are deemed “essential employees” and are required to continue working without pay during the shutdown. Several essential employees have recently filed putative collective action lawsuits, claiming that the shutdown violates their wage-and-hour rights under the Fair Labor Standards Act because they are working without pay. Several of the plaintiffs are customs/border protection officers, as well as prison guards, and have been previously classified as non-exempt by the Department of Homeland Security.

Plaintiffs in these new lawsuits are likely to succeed based on precedent from several years ago. Non-exempt, essential employees brought a similar lawsuit during the 2013 government shutdown, and the court held that the government’s failure to pay these employees during the shutdown violated their rights to minimum wage and overtime pay. The court additionally awarded liquidated damages in that case.

Until the government reopens and the purse strings are untied, essential employees are going to continue to work without pay. Thus, it will be difficult for government employers to avoid allegations of wage-and-hour violations. Those employers can control, however, their responses to any employee complaints about pay (or lack thereof) so as to avoid a retaliation claim under the Fair Labor Standards Act. Government employers should proceed with caution in issuing any discipline or otherwise making employment decisions as to non-exempt essential employees until the shutdown ends and those individuals have received back pay for their work during the shutdown.

The Tipping Point:  DOL Rescinds 20 Percent Rule on “Side Work” for Tipped EmployeesIf you see your waiter or waitress grumbling during the holiday season, it could be due to the DOL’s Wage and Hour Division’s revision of the rules dealing with minimum pay due to “tipped” employees. Under the FLSA and accompanying regulations, employers can pay “tipped” employees (those who regularly receive not less than $30 a month in tips) not less than $2.13 per hour and take a “tip credit” for the difference they receive in tips up to the minimum wage. Waiters, bartenders, etc. are very familiar with this rule.

Dual Jobs vs. Side Work

Questions arise, however, when an employee may have “dual jobs.” For example, what if John, a hotel maintenance worker, also serves as a waiter in the hotel restaurant? In that situation, the employer can pay John as a “tipped employee” (i.e., $2.13/hour) only for the time he works as a waiter and must pay him at least minimum wage for the maintenance work.

What if, however, John is a server in the hotel restaurant and has regular “side work” that doesn’t generate tips (e.g., rolling silverware, wiping tables, or cleaning dishes)? Do you have to pay him minimum wage for the side work? Back in 1988, the DOL issued guidance stating that if 20 percent or more of a “tipped” employee’s work involved these non-tip-generating “side work” tasks, then the employer had to pay the full minimum wage for their time doing that side work. It’s not clear that this rule was ever aggressively pursued by the DOL, but it generated a lot of litigation. In January 2009, the Bush administration’s DOL explicitly rejected the 20 percent standard and instituted guidance stating that there was no limitation as long as the non-tip-producing duties were performed contemporaneously with the direct customer-service duties. Several months later, the Obama administration reversed course and re-instituted the 20 percent rule.

More litigation ensued over the 20 percent standard, including suits by restaurant advocacy groups claiming the guidance was unconstitutional. In November 2018, the Trump administration’s DOL went back to the 2009 Bush guidance and revoked the 20 percent standard. The DOL, in fact, simply re-issued the 2009 DOL letter on the guidance. Therefore, as it stands now, an employer can continue to use the “tip credit,” even if a server engages in more than 20 percent of their work in non-tip-generating work. However, that non-tip-generating work has to be contemporaneous with the customer-service work.

What Does All This Flip-Flopping Mean?

One of the reasons the 2009 letter (and now the 2018 letter) gives for changing the standard is to avoid all the confusion surrounding the rule. The letter cited a case where the court felt that the 20 percent rule could require “perpetual surveillance” or “precise time logs accounting for every minute” of an employee’s shift. However, even when the 20 percent rule was in place, it is unclear how much it was actually policed. The best takeaway for an employer faced with this situation is to evaluate the actual jobs being done by your employees. If you have a maintenance person who spends 85 percent of their time fixing things, but occasionally helps out with a shift behind the bar, you should not apply the tip rule to their maintenance duties. However, if you have your wait staff rolling silverware before their shift, you are probably OK continuing to apply the tip credit rule. Unless you have a HUGE amount of silverware.