This Littler Lightbulb highlights some of the more significant employment law developments in federal courts of appeal in the last month.

Fifth Circuit Vacates DOL Tip Credit Rule

The FLSA permits employers to take a “tip credit” when paying the wages of “tipped employees,” paying these employees $2.13 per hour, below the federal $7.25 per hour minimum wage, based on the presumption that tips make up the difference.  In Restaurant Law Center v. U.S. Department of Labor, __ F.4th __ (5th Cir. 2024), the Fifth Circuit vacated the U.S. DOL’s “80/20/30 Rule,” which defined three categories of work:

• directly tip-producing work (e.g., a server “providing table service”);
• directly supporting work (e.g., a server “setting and bussing tables”); and
• work not part of the tipped occupation (e.g., a server “preparing food”).

Under the DOL rule, if more than 20 percent of an employee’s workweek or more than 30 continuous minutes is spent on directly supporting work, the employer cannot claim the tip credit for that time, or any time spent on work not part of the tipped occupation.  This approach, the Fifth Circuit stated, “applies the tip credit in a manner inconsistent with the FLSA’s text.” Noting that the FLSA does not ask whether duties comprising a tip-producing occupation “are themselves each individually tip-producing,” the court held that tip-producing work “cannot be twisted to mean being ‘engaged in duties that directly produce tips, or in duties that directly support such tip-producing duties (but only if those supporting duties have not already made up 20 percent of the work week and have not been occurring for 30 consecutive minutes) and not engaged in duties that do not produce tips.’”

Moreover, the Fifth Circuit held, the DOL’s final rule is arbitrary and capricious in that it “discounts many core duties of an occupation when those duties do not themselves produce tips…. [and] ties the tip credit not to the character of these various duties as integral to their respective occupations, but to the amount of time that these duties take…. [T]his temporality requirement can be found nowhere in the statute. In short, as to supporting work, the Final Rule replaces the Congressionally chosen touchstone of the tip-credit analysis—the occupation—with one of DOL’s making—the timesheet.”

For more information see Littler’s ASAP.

Fourth Circuit Affirms Summary Judgment for Employer on FMLA Claims

Shipton v. Balt. Gas & Electric Co., 109 F.4th 701 (4th Cir. 2024), involved a plaintiff’s claims for interference and retaliation in violation of the FMLA when he was dismissed following FMLA leave. The plaintiff, who had diabetes, had been granted intermittent FMLA leave in 2017 based on medical certification that he experienced episodes of hypoglycemia. In 2018, the plaintiff took time off for severe foot pain caused by diabetes-related neuropathy, and submitted letters from his doctors, including one stating that he had not suffered from hypoglycemia since 2017. When questioned by the company, the plaintiff stated he believed his certifications provided a “generalized statement about diabetes” and that he was able to use FMLA leave for neuropathy. He subsequently submitted a new medical certification regarding his neuropathy.  The company told him it was troubled by the “conflicting medical documentation” and terminated his employment.

The district court granted summary judgment to the company on the plaintiff’s claims, and he appealed to the Fourth Circuit. Stating that “employers must be able to investigate and address plausible allegations that employees have been dishonest in their medical leave claims,” the court emphasized that suspected dishonesty related to FMLA leave is not evidence of discriminatory intent.  Instead, the court held, the focus must be on the “perception of the decisionmaker.” Based on the undisputed evidence that plaintiff’s medical paperwork and statements were contradictory, the Fourth Circuit found that the company had a credible reason to terminate the plaintiff’s employment and that the termination did not violate the FMLA.

Evidence of Non-Discriminatory Reasons for Employer’s Actions Dooms Teacher’s Age Bias Claims in Fifth Circuit

In Yates v. Spring Indep. Sch. Dist., __ F.4th __ (5th Cir. 2024) a teacher in his late sixties claimed the school district that employed him discriminated and retaliated against him because of his age in violation of the ADEA, Title VII, and the ADA by reassigning him to a “push-in” position in which he was no longer a lead teacher responsible for his own classroom but was instead located inside another teacher’s classroom, putting him on support plans, and placing him on administrative leave for four months.

In response, the school district provided what the Fifth Circuit found were “legitimate, nondiscriminatory reasons for its actions,” including concerns about the teacher’s preparation and performance substantiated through the school principal’s walkthrough evaluations, numerous instances of constructive feedback from supervisors about the teacher’s performance, and complaints from students and a parent that the teacher yelled at students and did not allow them to use the restroom or visit the nurse’s office during class. In contrast, the court found, the plaintiff “failed to offer adequate summary-judgement evidence to show that the reasons offered were a pretext for age discrimination,” and affirmed summary judgment for the school district.

Ninth Circuit Holds Corporate Jet Pilots Exempt from FLSA as Highly Compensated Employees

The plaintiffs in Kennedy v. Las Vegas Sands Corp., __ F.4th __ (9th Cir. 2024), were corporate jet pilots who claimed they were misclassified as exempt employees and filed suit seeking between $1,000,000 and $1,500,000 in overtime pay. Following a bench trial, the federal district court held that the pilots were exempt under the FLSA, and the Ninth Circuit agreed.

The pilots argued they were manual laborers because they performed “‘physically demanding tasks in connection with their jobs,’ repetitively used their hands to operate the airplanes, and received training via apprenticeship and on-the-job training instead of via formal education.” Rejecting this argument, the Ninth Circuit found that pilots are distinct from manual laborers under the FLSA regulations because of “the complex mental decision-making required to safely operate an airplane.” As to the training issue, the court stated, “we disagree that the regulations draw a sharp line between formal education and on-the-job training…. While retention of an advanced degree may be a sufficient condition to prove that work is non-manual, it is not a necessary condition.”

The pilots, who were paid between $125,000 and $160,000 annually, also satisfied the FLSA salary threshold for exempt employees and, the court found, customarily and regularly made significant discretionary decisions. The court rejected the pilots’ argument that the use of established procedures and checklists make their decisions non-discretionary, citing the DOL regulations that state: “[The] use of manuals, guidelines or other established procedures containing or relating to highly technical, scientific, legal, financial or other similarly complex matters… does not preclude exemption” under the FLSA or its regulations.

Finally, the court held, the pilots were not entitled to overtime pay for their on-call time based on several factors including, most significantly, evidence that they “enjoyed personal pursuits that made their on-call time virtually indistinguishable from an average person’s free time.”

Fifth Circuit Determines Welding Inspector Was Independent Contractor, not Covered by the FLSA

The plaintiff in Gray v. Killick Grp., L.L.C., __ F.4th __ (5th Cir. 2024), who performed welding inspection services for the defendant, sued for wages and overtime under the FLSA claiming he was an employee, not an independent contractor.  In determining the plaintiff’s employment status the Fifth Circuit considered “five non-exhaustive factors…: (1) the degree of control exercised by the alleged employer; (2) the extent of the relative investments of the worker and the alleged employer; (3) the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship.”

Assessing these factors, the court found the plaintiff performed his work independently and without supervision; had his own company and marketed his services to the public; supplied his own vehicle, machinery, and other supplies to perform his work; had extensive autonomy and made decisions that affected his profitability; and worked for the defendant on a project basis, performing work for at least one other company at the same time. Based on these factors, the court concluded, the plaintiff was an independent contractor “outside the purview of the FLSA.”

Eleventh Circuit Affirms Summary Judgment for Employer in ERISA Class Action

In Pizarro v. Home Depot, Inc., __ F.4th __ (11th Cir. 2024) plaintiffs claimed the company breached their fiduciary duty under ERISA, resulting in losses to the company’s 401(k) retirement plan.  Specifically, the plaintiffs claimed that the plan’s financial advisor fees were excessive and that the company should have dropped four funds from the plan when they supposedly underperformed. The federal district court granted summary judgment to the company on loss causation, finding the plaintiffs had not shown that any losses they incurred were caused by the company’s alleged failure to appropriately monitor, investigate, and evaluate the plan’s investments.  The Eleventh Circuit agreed. It is the plaintiffs who have the burden of proving loss causation and that the investments made were “objectively unreasonable,” the court held. 

In this regard, the court noted:

[T]he fact-laden, judgment-heavy nature of investment decisions. An ERISA fiduciary’s management of an employee-benefit plan does not consist of a series of yes-or-no, up-or-down choices in a vacuum. In any single set of circumstances, there might be—indeed, likely will be—many objectively prudent choices a fiduciary could make. ERISA recognizes that managing an employee-benefit plan “will implicate difficult tradeoffs” yielding a range of reasonable options. No one—not even the most diligent fiduciary—can predict the future. Different prudent fiduciaries, facing the same set of circumstances, can exercise their judgment and reach different conclusions in light of that uncertainty.

Applying this standard, the court found no evidence that the company’s financial advisors’ fees were unreasonable in comparison to their competitors, or that investments in the four challenged funds were “objectively imprudent.” Indeed, the court stated, plaintiffs “cannot show that a fund is objectively imprudent by just ‘pointing to another investment that has performed better in a five-year snapshot of the lifespan of a fund that is supposed to grow for fifty years.’”

Fifth Circuit Reverses Denial of Summary Judgment to Employer in Motor Carrier Act Exemption Case

Under federal law, the FLSA overtime pay provisions do not apply to employees who are covered by the Motor Carrier Act (MCA) and engaged in transportation in “interstate or foreign commerce.”  In Escobedo v. Ace Gathering, Inc., 109 F.4th 831 (5th Cir. 2024), tanker-truck drivers who transported crude oil solely within Texas sued for overtime wages under the FLSA claiming they did not meet the MCA interstate or foreign commerce transportation requirement. The district court agreed and denied the employer’s motion for summary judgment.

On appeal, the Fifth Circuit emphasized “the ‘elemental’ principle that ‘a carrier is engaged in interstate commerce when transporting goods . . . ultimately bound for destinations beyond Texas, even though the route of the particular carrier is wholly within one state.’”  Accordingly, the court held, “purely intrastate transportation rises to the level of interstate commerce when the product is ultimately bound for out-of-state destinations, just as the crude oil was here,” reversing the district court.