9/24/2019 Court upholds $1.

1 million overtime pay order – Minnesota Lawyer

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Court upholds $1.1 million overtime pay order

 By: Barbara L. Jones  September 19, 2019

Baywood Home Care provides home health aides who reside in the homes of people in need
of assistance. They are paid for 16 hours of a 24-hour shift, to allow time for sleep.

They are paid one rate for the first 5.5 hours of a shift and 1.5 times that for the next 10.5
hours of a shift. If they work five days a week, they put in 80 hours. But they are not paid
overtime after working more than 48 hours a week, as required by the Minnesota Fair Labor
Standards Act.

Until now, under a Supreme Court decision upholding a Department of Labor and Industry
compliance order directing Baywood to pay affected employees $1,115,426 — half of that for
back overtime pay and half liquidated damages. The Supreme Court reversed the Court of
Appeals, which had held that the department was following an invalid unpromulgated rule
that could not be the basis for agency action.

The case involves not only the issue of the appropriate amount of overtime pay but also the
authority of the Labor and Industry Department to enforce an “unpromulgated rule” either
administratively or as a “litigation position.”

The Supreme Court split 4-3 on the case, with Justice Natalie Hudson writing for the
majority. Justice G. Barry Anderson dissented, joined by Chief Justice Lorie Gildea and
Justice Paul Thissen. The case is In the Matter of Minnesota Living Assistance Inc., d/b/a
Baywood Home Care.

The department issued to Minnesota Lawyer an email statement by Commissioner Nancy

Leppink, which read: “All Minnesotans deserve to be paid every dollar they are owed for the
work they perform. But too many workers are not being paid their full wages. With this
decision, these employees are now one step closer to being correctly compensated for their
work and for the harm they experienced. Our department is pleased with the court’s decision
and proud of the efforts of its staff and the Attorney General’s Office to ensure employees
receive the pay they are entitled to under the law.

“The ruling makes clear that employer schemes — old and new — that are used to deny
workers the wages they are legally owed will not withstand the scrutiny of the department
and of the Minnesota Supreme Court and that the court will ground its interpretation in the
law’s stated purpose, ‘to maintain workers’ health, efficiency and general wellbeing.’”

Administrative ruling

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9/24/2019 Court upholds $1.1 million overtime pay order – Minnesota Lawyer
After the department issued a compliance order, the matter went to a contested-case
proceeding before the Minnesota Office of Administrative Hearings, which granted a
summary disposition to the department. The administrative law judge said Baywood did not
pay on a split day plan, and if it did, it had to include the premium payments for hours 5.5 to
16 as part of the regular pay rate. The ALJ also ruled that even if Baywood paid its
employees using a split-day plan, Baywood was required to pay time-and-a-half for every
hour worked after the first 48 hours, not just hours 5.5 to 16 of each day.

On certiorari review, the Court of Appeals reversed and remanded. It concluded that a
genuine issue of material fact existed as to whether Baywood paid its employees using a
split-day plan. The court also concluded that the department’s position that premium
payments for hours 5.5–16 could not be excluded from an employee’s regular rate was an
unpromulgated rule, and thus invalid.

Hudson, in her opinion, wrote, “This case requires resolution of three issues. First, we must
determine which hours of employment require time-and-a-half compensation by interpreting
Minn. Stat. § 177.25, subd. 1. Second, because the amount of time-and-a-half compensation
due depends on employees’ regular rate of pay, we must determine how the regular rate of
pay is calculated by interpreting the administrative rules implementing Minn. Stat. § 177.25,
subd. 1. Third, because we conclude that the statute and rules prohibit split-day plans, we
must address Baywood’s argument that it should still prevail because the Department did not
promulgate additional rules that unambiguously resolve the first two issues.”

Time-and-a-half
Under Minnesota law, a workweek for hourly employees is limited to 48 hours unless
overtime is paid by Minn. Stat. § 177.25, subd. 1. The court agreed that the law prohibits
the split-day pay system because it plainly requires time-and-a-half for employment in
excess of 48 hours.

The majority rejected Baywood’s argument that nothing in the statute prohibits it from
paying employees time-and-a-half before an employee has worked more than 48 hours and
then crediting those payments toward the payments it would otherwise be required to pay.

“[T]he effect of Baywood’s interpretation would be that employees would not receive time-
and-a-half compensation for the first 5.5 hours of every shift worked after they have worked
48 hours,” the court said. “But by Baywood’s own admission, the payments for hours 5.5-16
in a day are not compensation for work that occurs after the first 48 hours; they are
payments for work that occurs before reaching 48 hours. This failure to pay time-and-a-half
wages for every hour after the first 48 hours violates the plain language of the statute.”

The court also said that nothing in the statute allows the “crediting” advocated by Baywood.

“Accordingly, we conclude that once an employee has worked 48 hours in a workweek, the
employer must pay that employee at a rate of at least 1½ times the employee’s regular rate
for any additional hours worked, regardless of how the employee was compensated prior to
working 48 hours.”

The next issue was the calculation of the “regular rate” to which the time-and-a-half rule
would be applied, or, in other words, what work constitutes “overtime.” The term overtime in
the rule is ambiguous because it “could reasonably refer to work ‘in excess of a set time
limit,’ here the statutory time limit of 48 hours, or it could reasonably refer to work
conducted ‘beyond the regular fixed hours’ of employment — but still within the first 48
hours of the workweek.

But the court did not address the ambiguity because the hours at issue did not meet either
definition. They were hours worked before the employee reached the statutory limit of 48
hours and they were not beyond the regular fixed hours, but were regularly scheduled hours
for which Baywood choose to pay its employees more.

“[W]e conclude that, although Minn. R. 5200.0140 is ambiguous, under either reasonable
interpretation of the rule, Baywood may not exclude the time-and-a-half payments Baywood
paid for hours 5.5-16 of each day for the calculation of the regular rate.”

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9/24/2019 Court upholds $1.1 million overtime pay order – Minnesota Lawyer
Unpromulgated rulemaking
The court then refused to credit the “unpromulgated rule” argument. “We conclude that the
Department’s decision not to explicitly define ‘overtime work’ by regulation does not preclude
us from performing our constitutionally designated role of interpreting the law,” Hudson
wrote.

Although the department did not promulgate a rule after notice and a hearing under the
Administrative Procedure Act, it still can ask the court to interpret the rule de novo in a way
consistent with the agency, the court said. “That an agency’s interpretation of an ambiguous
rule is recent does not preclude the agency from arguing for that interpretation; it merely
means that the agency’s position is a ‘litigation position’ that ‘does not warrant deference,’”
Hudson wrote.

Dissent: Rulemaking by adjudication

The crux of the matter for the dissent is “rulemaking by adjudication,” Anderson wrote.
According to the dissent, the department interpreted Rule 5200.0140 to penalize Baywood
without legal authority conferred by a rulemaking process under the Administrative
Procedure Act. Nothing in the overtime statute prohibits the kind of split-day payment
calculation used by Baywood or states that overtime must kick in after the first 48 hours
worked.

But the real problem with the case is the process, Anderson said. “Ultimately, however, the
reasonableness of any interpretation is less critical than the [Labor and Industry]
Department’s failure to resolve the ambiguity in the rule before imposing a $1 million
obligation on Baywood. The Department never told employers not to utilize split-day plans,
never publicly announced before imposing a substantial fine that it interpreted ‘overtime
work’ to mean work outside of ‘regularly scheduled’ hours, and never promulgated a rule to
that effect,” the dissent said.

That amounts to endorsing “a process that allows an agency to adopt and enforce an
unpromulgated rule without public notice or comment, so long as the agency persuasively
advocates for the unpromulgated rule against a party in litigation. According to the court,
any problems caused by ‘the Department’s failure to promulgate an interpretive rule’ are
rectified by ‘our responsibility to interpret the law,’” Anderson continued.

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