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Federal Policy Update - Oct 20, 2017

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TAX REFORM

Bloomberg news alert (BNA), “Are Trump, Ryan at Odds Over State Tax Deduction?”-- House Speaker Paul D. Ryan (R-Wis.) said Oct. 12 that conservatives are as unified as ever on elimination of the federal deduction for taxes paid to state and local governments. But President Donald Trump may have reservations over ending it. The Republican tax framework, released Sept. 27, would eliminate many deductions for individuals, including the break for state and local taxes. Eliminating the deduction would generate $1.3 trillion over 10 years to pay for tax cuts in the GOP plan, but Republicans from states with higher taxes have expressed concern it could raise taxes for their constituents. They are trying to convince the House Ways and Means Chairman Kevin Brady (R-Texas) and other GOP leaders to soften the blow of cutting the tax break. Ryan, however, said he is convinced that when congressional members look at the final tax package as a whole, elimination of that and other deductions, “carve-outs,” and “loopholes” won't matter as much. Conservatives, he said, understand and support the need to trim the deduction. However, some top Republicans have hinted that wiggle room may exist on the deduction, including White House economic adviser Gary Cohn and Senate Finance Committee Chair Orrin G. Hatch (R-Utah). Cohn and Hatch were among the six people, along with Ryan, Brady, Senate Majority Leader Mitch McConnell (R-Ky.), and Treasury Secretary Steven Mnuchin, to develop the framework. And President Trump has grown angry over the plan to ax the deduction after learning it would hurt some middle-income taxpayers, two sources familiar with his thinking told Bloomberg. The tax break in question—which allows households to deduct state and local taxes on their federal returns—has emerged as a key flash point in the tax debate, one that could determine whether Trump has enough votes or will fail again on one of his top legislative priorities.

LABOR

Bloomberg news reports, “Labor Department Nominee Offers Views on Overtime Rule” – Senators had a short window to press Cheryl Stanton, the nominee to run the Labor Department’s Wage and Hour Division, on how she would address the Obama administration’s rule to expand overtime access to millions of workers. But her Oct. 4 hearing before the Health, Labor, and Pensions Committee concluded without many clear answers. Stanton, the White House choice for Wage and Hour Division administrator, suggested that issuing a new overtime rule may be a more effective approach than continuing to defend the previous administration’s rule in court. If confirmed, she said she would want to ask administration lawyers “whether we want to look at promulgating a different rule that would be more likely to withstand litigation and would then go into effect faster.” The Trump Justice Department has until the end of October to decide whether to appeal a federal judge’s permanent injunction of the Obama rule. That regulation would have lifted the annual salary threshold below which workers qualify for overtime pay to $47,476 from $23,660. Stanton did not directly respond to the question of whether she would appeal this decision, saying she would need to seek legal counsel on her options, if confirmed. Stanton was never asked to address topics such as which industries to target for investigations, how to balance compliance assistance with enforcement, and whether she would settle cases by pursuing double damages on top of back wages owed.

Bloomberg news reports, “Shuffling Pizza Workers Around Manhattan Proved Overtime Scheme” -- The owner of four Gina La Fornarina pizzerias in Manhattan willfully violated the Fair Labor Standards Act by manipulating worker assignments to avoid paying overtime wages, a federal district court in New York said Oct. 12. The court ordered the Gina La Fornarina owner to pay more than $300,000 in unpaid overtime wages and other damages. The decision illustrates the risk of a costly liquidated damage award when the Labor Department investigates and prosecutes a civil action against an employer that is out of compliance with the FLSA. Employees testified that they were given multiple assignments at different locations and received separate paychecks from four different corporations owned by Paola Pedrignani. The employees often worked more than 40 hours per week, but their assignments and schedules were arranged to avoid showing them working overtime hours at any individual restaurant. Granting the Labor Department's request for a judgment against Pedrignani and her corporations, Magistrate Judge James C. Francis of the U.S. District Court for the Southern District of New York said the employer's extensive juggling of employee schedules showed the overtime violations were reckless acts that supported the DOL's request for more than $180,000 in back wages and an equal amount in liquidated damages under the FLSA.

Bloomberg’s BNA reports, “Employee Compensation Not Needed for Security Inspection Wait Time, Court Says” -- A retail store employee cannot continue a class action claiming that workers should have been paid under California law for the time spent on end-of-the-day security inspections, a federal district court ruled. The non-exempt store employee claimed the employer failed to pay employees minimum wage and overtime for time spent in connection with the exit inspections that occurred after employees clocked out. All employees were subject to off the clock exit inspections regardless of whether they were carrying bags. Because exit inspections could only be conducted by managers, supervisors, or contract security, employees trying to leave the store after clocking out sometimes had to wait at the exit until a proper inspection could be conducted. After the court certified the class, the employer retained an employment expert to conduct a time and motion study of how long it took to conduct exit inspections. The employee then retained an expert to critique the study rather than conduct his own. Based on evidence from the study and the managers’ testimony, an exit inspection can take between zero seconds and several minutes, the court said, adding that several minutes can be considered de minimis and not compensable. Recording the time spend in exit inspections would be difficult for the employer and inspections lasting several minutes were not a regular occurance, the court noted.

Bloomberg’s BNA reports, “Hhgregg Pay Plan Gets Mixed Review From Sixth Circuit” -- Retailers draw-on-commission structure complies with Fair Labor Standards Act but requiring commissioned workers to give back “draws” after termination may violate FLSA. Dissent says no violation can occur if company doesn't actually demand back draws. Hhgregg's week-to-week method of getting its commission-only pay system in line with minimum wage requirements is lawful, a federal appeals court held Oct. 12. But the retailer's policy requiring employees to repay debts to the retailer even after being terminated is more problematic, the court found. The company pays workers a “draw” whenever their commissions don't meet weekly minimum wage requirements. That draw is then deducted from future commissions and credited back to the company. This “draw-on-commission” policy is valid under the Fair Labor Standard Act because the deductions are taken from future commissions earned but not paid, the U.S. Court of Appeals for the Sixth Circuit said. But the company's additional requirement that terminated workers give back draws may violate the FLSA because it would make employees return wages already paid, the court's majority said. The majority said the pay policy could also violate the law if it encourages employee to work off-the-clock without compensation. It revived those claims for further proceedings at the trial level.

Bloomberg’s BNA reports, “Contractor to Pay $1 Million in Wage Settlement” -- A concrete company is to pay $1 million to settle charges of failing to comply with Illinois’s Prevailing Wage Act, Attorney General Lisa Madigan (D) said Oct. 4. The settlement resolves an action that claimed A Lamp Concrete Contractors Inc. submitted false payroll records and underreported hours employees worked for six years. The state entered into an administrative settlement with the company after charging it with denying workers prevailing wages and failing to comply with payroll record-keeping requirements, Madigan said. The company also agreed to pay $545,357 in unpaid wages to 24 employees to resolve a separate lawsuit in 2013. The settlement comes 16 months after the federal Justice Department filed related criminal fraud charges against two executives of the company, claiming that the company and the executives failed to pay workers the wage rate guaranteed under their contract with a labor union affiliate. The criminal action was resolved after a company co-owner and vice president pleaded guilty to mail fraud and was sentenced to 10 months in prison and one year of supervised release. A company supervisor was sentenced to one day in prison and one year of supervised release for his role in the fraud.

RETIREMENT SAVINGS

Bloomberg news reports, “Oregon’s Private-Sector Retirement Plan Sees First Legal Test” -- Oregon’s retirement savings plan for private-sector employees came under fire today after an employer industry group filed a lawsuit alleging federal law bars certain parts of it. The Employee Retirement Income Security Act expressly preempts the recently enacted Oregon law and its regulations that require employers who sponsor ERISA-governed plans to report on certain plan activities, according to a lawsuit filed in federal court in Oregon by The ERISA Industry Committee. The program, also known as OregonSaves, was launched July 1. It made Oregon the first state to launch a program expanding retirement savings to private-sector workers whose employers don’t sponsor retirement plans. The case is The ERISA Industry Comm. v. Read, D. Or., No. 3:17-cv-01605, complaint filed 10/12/17.

BPAA is pleased to provide the following biweekly update on federal policy. Please contact Tom Schreibel at tbschreibel@michaelbeststrategies.com if you have any questions or updates on activity in your state.

Visit BPAA’s website at http://bpaa.com/bpaa/government-affairs/government-affairs to read previous federal and state policy updates.

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