VOLUME I Chapter 8 Fair Labor Standards Act

• Jurisdiction: South Carolina

Chapter 8 Fair Labor Standards Act

Amy Y. JenkinsMcAngus, Goudelock & Courie, LLC

I. Introduction

The Fair Labor Standards Act of 1938 (FLSA),¹ establishes minimum wage, overtime pay, recordkeeping, and child labor standards for covered private employers and for federal, state and local governments. In passing the Act, Congress sought to correct oppressive labor conditions that were "detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers" in the United States "without substantially curtailing employment or earning power."² The Wage and Hour Division of the United States Department of Labor ("DOL") administers and enforces the FLSA in the private sector.

The Act requires most employers to pay each of their non-exempt employees at least $7.25 per hour, and overtime wages for each hour worked over 40 hours in a work week.³ In addition, it prohibits "oppressive child labor" in the workplace by placing strict limitations on the employment of minors.⁴

II. Coverage

The FLSA applies in all States of the United States, as well as the District of Columbia, Puerto Rico, the Virgin Islands, the "outer Continental Shelf lands," America Samoa, Guam, Wake Island, Eniwetok Atoll, Kwajalein Atoll, and Johnston Island.⁵

A. Employees and Employers

The FLSA protects "employees," which is defined as individuals who are suffered or permitted to work by an employer.⁶ This broad definition is meant to encompass most types of workers. How an employer classifies a worker (e.g., employee versus independent contractor or volunteer, for instance) is not determinative. Likewise, whether the employer had any intention of creating an employment relationship is irrelevant. Rather, courts apply an "economic realities test" to determine whether a traditional employment relationship exists.⁷ Application of the test turns on six factors: (1) the degree of control that the putative employer has over the manner in which the work is performed; (2) the worker's opportunities for profit or loss dependent on his managerial skill; (3) the worker's investment in equipment or material, or his employment of other workers; (4) the degree of skill required for the work; (5) the permanence of the working relationship; and (6) the degree to which the services rendered are an integral part of the putative employer's business.⁸ No one factor is dispositive, and courts look to the totality of the circumstances.⁹

While the FLSA is intended to expansively cover most workers, there are some exceptions. First, bona fide interns are not employees and thus not covered by the FLSA. In January 2018, the US Department of Labor abandoned its traditional six-part test for determining whether interns qualify as employees and adopted the "primary beneficiary" test focusing on economic realities. The more flexible approach, weighing seven factors, is set out in the Department's updated Fact Sheet #71.¹⁰ Second, true independent contractors are not covered by the Act.¹¹ Third, partners in a business may not be "employees" under the FLSA.¹² Fourth, "volunteers" are not employees under the FLSA.¹³ To be a "volunteer," an individual must donate his or her services, usually on a part-time basis and without pay, to a non-profit organization or public agency. In order for an individual to be able to "volunteer" at the same non-profit organization or public agency at which he or she is employed, the "volunteer" services must not be coerced or required by the individual's employer, must take place outside of the employee's normal working hours, and may not be the same type of work that the employee is employed to perform by the employer. For example, an administrative staff person for a civic club may volunteer to serve as a chaperone for the civic club's weekend dance. The time spent chaperoning would not be compensable because it occurred without expectation of compensation, was outside of normal work hours and was not the same type of service the employee normally performed for the civic club. However, there is no permissible volunteering of services to a for-profit employer in the private sector, and all work performed by such alleged "volunteers" must be compensated.¹⁴

Notably, there have been recent cases holding that even illegal, undocumented workers are "employees" within the meaning of the FLSA and thus are entitled to its protections.¹⁵ This trend can be expected to continue. Most courts rationalize that if the employer is going to benefit from the services of workers, it must compensate them fairly for their time, regardless of whether they are illegally within this country. If the FLSA did not cover illegal aliens, employers would have an incentive to hire them and pay them a substandard wage. By forcing employers to pay such workers the legally required minimum rate as well as overtime, employers should be dissuaded from the outset from hiring the illegal workers.¹⁶

The FLSA applies only to "employers." An "employer" is "any person acting directly or indirectly in the interest of an employer in relation to an employee ... ."¹⁷ Again, the reach of the FLSA is great, so as to cover most workers. Employers may include public agencies, corporations, partnerships, associations, corporate officers or agents, and individuals. Non-profit agencies are generally not covered by the FLSA unless they engage in competitive commercial activities.¹⁸ One or more entities or individuals may be "joint employers" under the FLSA.¹⁹ Whether an employment relationship exists is determined by applying the "economic realities" test described above.

B. Interstate Commerce Requirement: Enterprise and Individual Coverage

Even if a worker and the entity or person she works for each fall within the statutory definitions of "employee" and "employer" respectively, there must be either "enterprise coverage" or "individual coverage" under the FLSA in order for the FLSA to protect that particular worker. Essentially that means the employer and/or the employee must be involved in interstate commerce in order for the FLSA to apply.

If there is enterprise coverage, all of the employer's employees are covered by the FLSA, irrespective of the nature or amount of their work.²⁰ Alternatively, even if the test for enterprise coverage is not met, an employee might still be covered by the FLSA under the individual coverage theory.²¹

Enterprise coverage exists if: (a) the employer is a school, health care facility or public agency; or (b) the employer has annual gross sales or business of at least $500,000 and has two or more employees engaged in interstate commerce or the production of goods for interstate commerce.²² Whether an employee is engaged in interstate commerce is interpreted broadly. For example, if an employee handles products moving in interstate commerce or engages in interstate communications (e.g., by mail, telephone, facsimile, e-mail, or otherwise) or works on an instrumentality of interstate commerce (e.g., builds a runway for an airport), he or she will be deemed involved with interstate commerce and thus covered by the FLSA. Family-owned and operated small businesses are, however, exempt from enterprise coverage under the Act.²³

Even if the employer is not subject to enterprise coverage (e.g., because it has annual gross sales of less than $500,000), individual coverage can exist under the FLSA if: (a) a particular employee is engaged in interstate commerce on a regular basis; or (b) the employee is engaged in the production of goods for interstate commerce.²⁴ Thus, the focus is entirely on whether the employee is involved with interstate commerce as part of his or her job, and the size and nature of the employer's business are irrelevant. If an employee's job functions change from week to week, he or she might be covered by the FLSA during some weeks and not others, and the employer must carefully monitor the situation to comply with FLSA requirements during weeks where there is "individual coverage."

III. Minimum Wage

Although there are some narrow exceptions, the minimum wage provisions of the FLSA require most covered employers to pay wages of at least $7.25 per hour to each employee for each hour worked in a work week.²⁵

A. What is Meant By Wages

"Wages" include cash and negotiable instruments payable at face value, as well as the "reasonable cost" or "fair value" of furnishing an employee with board, lodging and other facilities that are voluntarily accepted by the employee.²⁶

However, scrip, tokens, credit cards, coupons and similar devices are not considered "wages" under the Act.²⁷ Similarly, whether in cash or some other form, "wages" cannot be deemed paid by an employer unless the payment is final and unconditional. This rule is designed to prevent employers from evading the Act's requirements through employee kickbacks and similar schemes.²⁸ The FLSA does not require wages be paid on a particular day. However, the South Carolina Payment of Wages Act requires employers to notify each employee in writing at the time of hiring of the normal hours and wages agreed upon, the time and place of payment, and the deductions which will be made from the wages, including payments to insurance programs. Failure to pay wages on the date so specified can result in liability under state law.²⁹

B. Tip Credit Exception

For employees who customarily and regularly receive more than $30 per month in tips, the FLSA permits employers to count those tips toward the minimum wage requirement as long as the employer pays each tipped employee at least $2.13 per hour apart from the tips.³⁰ The Department of Labor has defined "tip" generally as "a sum presented by a customer as a gift or gratuity in recognition of some service performed for him."³¹ Thus, a compulsory service charge added automatically to a customer's bill is not considered to be a "tip" under the FLSA even if the employer distributes the proceeds of the service charge...