On January 2, the U.S. Department of Labor announced that Acting Wage and Hour Division Administrator Bryan Jarrett would step down as of January 4. In what was perhaps one of his final official acts, Mr. Jarrett signed two new Opinion Letters on December 21, 2018. The first weighs in on the issue of whether an employer can average an employee’s earnings over the workweek to meet minimum wage obligations or whether it must pay at least the minimum wage for each hour worked. The second letter extends the broad interpretation of the “ministerial exception” articulated by the U.S. Supreme Court in Hosanna-Tabor Evangelical Lutheran Church v. EEOC and finds that the exception applies to lay members of a religious community who live in a communal environment, ration all food and healthcare, and believe that work is indivisible from prayer.

Regular rate calculation

In U.S. v. Klinghoffer Bros. Realty Corp, the U.S. Court of Appeals for the Second Circuit approved a payroll practice that used an “average” to determine compliance with the minimum wage requirements under Section 6 of the Fair Labor Standards Act. Under the Klinghoffer rule, minimum wage compliance is determined by taking the actual compensation received by the employee for a given week and dividing it by the total number of hours the employee worked during the same time period. This hourly rate must meet or exceed the applicable minimum wage. If the employee’s total compensation exceeds the applicable minimum wage multiplied by all of the alleged hours worked, courts will generally reject an FLSA minimum wage claim.

However, in 2011, one district court judge in Massachusetts rejected the Klinghoffer approach and endorsed an hour-by-hour method whereby each hour stands alone and must be paid without averaging payments for paid hours with unpaid hours. At least two other federal district courts followed. Another district court in Rhode Island refused to endorse either rule. Under its approach, minimum wage claims are analyzed on a “contract measuring rod” theory, which assesses whether the employer requires the employee to perform work not otherwise required by the terms of employment at a rate below minimum wage.

It was against this background that the DOL issued FLSA2018-28. The employer, who provides home health aide services to clients, did not pay employees an hourly rate for travelling from client to client, but did pay the employees for time spent visiting with the client. The employer calculated weekly pay by multiplying an employee’s time with clients by his or her hourly pay rate for such work. The employer then divided the product by the employee’s total hours worked, which included both client time and travel time. The employer guaranteed that the final figure met both federal and state minimum wage laws. The employer reported that a typical figure was $10 an hour, including both client time and travel time, and that if an employee worked more than 40 hours (including travel time), the employee was paid time and a half for the overtime.

The opinion letter, citing to Klinghoffer, approved the employer’s compensation plan as being in compliance with the FLSA’s minimum wage requirements: “Although an employee’s average hourly rate may vary from workweek to workweek, the employer always ensures that the average hourly pay rate exceeds the FLSA’s minimum wage requirement for all hours worked.”

However, the opinion letter noted that the compensation plan might not comply with the FLSA’s overtime requirements: “If the employer always assumes a regular rate of pay of $10 per hour when calculating overtime due, then the employer will not pay all overtime due to employees whose actual regular rate of pay exceeds $10 per hour.” But for all employees whose actual regular rate of pay was less than $10 an hour, the compensation plan complied with the overtime pay requirements, as the employer was free to establish a minimum floor that exceeded the FLSA’s requirements.

Volunteers and ministers of a religious group

There is no reference to a ministerial exception in the FLSA. However, “since the passage of Title VII of the Civil Rights Act of 1964 . . .  the Courts of Appeals have uniformly recognized the existence of a ‘ministerial exception,’ grounded in the First Amendment, that precludes application of such legislation to claims concerning the employment relationship between a religious institution and its ministers.” In Hosanna-Tabor, the Supreme Court held that such an exception is required by the Establishment and Free Exercise Clauses of the First Amendment.

The DOL has recognized the ministerial exception in its Field Operations Handbook:

Persons such as nuns, priests, lay brothers, ministers, deacons, and other members of religious orders who serve pursuant to their religious obligation in the schools, hospitals, and other institutions operated by their church or religious orders shall not be considered to be “employees.”

In Hosanna-Tabor, a Title VII case, the Supreme Court declined to adopt a “rigid formula” in determining whether an employee qualifies as a “minister.” However, the court noted that the exception could, in appropriate circumstances, apply to those “not formally recognized as ministers,” and may also apply to those who perform primarily non-religious functions. In so holding, the Supreme Court reversed the U.S. Court of Appeals for the Sixth Circuit, which had held that the exception could not apply to “called” teachers who performed the same functions as the church’s “lay” teachers.

In FLSA2018-29, the DOL accepted the Supreme Court’s invitation in Hosanna-Tabor to adopt a broad view of the ministerial exception. FLSA2018-29 considered whether members of a small religious group qualified: The members gathered in “small communities, typically 150 to 300 people, dedicated to sharing ‘in a community of goods.’” They did so in conformance with beliefs and customs of early Christian communities. The religious group reported that all members give their “personal property and funds to the community when joining, and accumulate none thereafter.” Moreover, members “hold as a religious tenet that work is ‘indivisible from prayer’ and a ‘form of worship’ that cannot be reduced to ‘contractual obligations’ or ‘relationships based on control, as between a master and servant.’”  In addition, some members “work in two onsite ventures that generate income for the community: a venture that manufactures devices that help children and adults with disabilities become more mobile, and a venture that makes wood furniture for children and schools.” The ventures are nonprofit entities wholly owned by an apostolic organization with a “common treasury.”

The Opinion Letter found that the members of the religious society were not “employees” for two reasons: First, because they worked at a non-profit entity and did not expect to receive compensation in exchange for their services; and, second, because they fell “squarely within the ministerial exception” recognized in Hosanna-Tabor. The focus of the Opinion Letter clearly centered on the ministerial exception.

In considering the ministerial exception, the Opinion Letter said that all the community’s members were “ministers.” The DOL first noted that the religious members’ behavior resembled that of a monastic community, making it difficult to distinguish them from monks and nuns, who would clearly qualify as church ministers for purposes of the exception. Moreover, members of the community take a vow of poverty and reject the contract-based master-servant formulation of labor. Finally, the ministerial exception even extended to work performed at the society’s income-producing (non-profit) ventures, as “work at the ventures is an inextricable part of . . . religious communal life” and a “form of worship.” This conclusion was not altered, in Wage and Hour’s view, by the fact that community members may “provide services for which a potentially competing enterprise elsewhere in the economy compensates its employees,” because “to conclude otherwise would improperly extend the FLSA to govern a wide variety of volunteer, religious, and other activities to which it does not apply.”

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