On October 27, 2016, the Nevada Supreme Court issued two separate 6-0 en banc decisions settling hotly contested issues of law regarding the Nevada Constitution’s Minimum Wage Amendment, Nev. Cost. art. XV § 16 (“MWA”).  Those cases were MDC Restaurants, LLC et al v. The Eighth Judicial Dist. Court, 132 Nev. Op. 76¹ (Oct. 27, 2016) and Perry v. Terrible Herbst, Inc., 132 Nev. Advance Op. 75 (Oct. 27, 2016).²  The key holdings of these two decisions are: (1) the MWA’s direction to “provide” health insurance requires employers to offer health insurance, not enroll employees in that insurance; (2) a two-year statute of limitations applies to the MWA; and (3) when calculating the cost of insurance premiums for employees, employers may not factor in the employees’ tip income.  The Court also held that its rulings on these issues were retroactive to the inception of the MWA.  These decisions will likely have a major impact on numerous pending class actions and affect most Nevada employers. 

These issues arose from the following relevant portion of the MWA, which established a two-tiered minimum wage in Nevada:

Each employer shall pay a wage to each employee of not less than the hourly rates set forth in this section. The rate shall be five dollars and fifteen cents ($5.15) per hour worked, if the employer provides health benefits as described herein, or six dollars and fifteen cents ($6.15) per hour if the employer does not provide such benefits. Offering health benefits within the meaning of this section shall consist of making health insurance available to the employee for the employee and the employee’s dependents at a total cost to the employee for premiums of not more than 10 percent of the employee’s gross taxable income from the employer.

Providing Health Insurance Means Offering Health Insurance

The first issue before the Court in MDC Restaurants involved the meaning of the term “provide” as used in the MWA’s requirement that employers “provide” qualifying health benefits in order to pay employees at the lower-tier minimum wage.  The employers argued that an employer need only offer qualifying health benefits in order to pay an employee the lower-tier minimum wage.  The employees argued that the employer must actually enroll the employee in qualifying health benefits before it could pay the lower-tier rate.  Had the Court adopted the employees’ argument, it would have invalidated portions of several regulations implemented by the Labor Commissioner in 2007 defining employers’ obligations under the MWA.  Instead, the Court held that reading the MWA as a whole, the meaning is plain and health benefits need only be offered or made available for the employer to pay the lower-tier minimum wage.  The Court emphasized that the sentence immediately following the directive to provide health benefits clearly explains that offering benefits under the MWA has certain requirements.  Thus, the Court held, “provide” and “offer” as used in the MWA are synonymous.  Therefore, an employer that offers qualifying health insurance, irrespective of whether an employee chooses to enroll in the same, is compliant with the MWA’s requirements and may pay the employee the lower-tier minimum wage.

A Two-Year Statute of Limitations Applies

The Perry matter involved the question of what is the applicable statute of limitations for violations of the MWA.  The employer argued that the two-year statute of limitations in NRS 608.260 from Nevada’s statutory minimum wage should apply to the MWA.  NRS 608.260 states that an “employee may, at any time within two years, bring a civil action to recover the difference between the amount paid to the employee and the amount of the minimum wage.”  NRS 608.260 (emphasis added).   The employee asserted that, since the MWA did not provide its own statute of limitations, the catch-all four-year statute of limitations applied.  The Nevada Supreme Court agreed with the employer and found that claims under the MWA are subject to two-year statute of limitations as the limitations under NRS 608.260 were the most closely analogous statute of limitations.  Therefore, employees wishing to bring claims under the MWA must do so within the two-year allotted time frame.

Tip Income Cannot Be Considered from the Employer

Also before the Court in MDC Restaurants was a second issue involving a challenge asserted in the consolidated case State of Nevada v. Hancock.  The plaintiff in that case challenged the regulations promulgated by the Labor Commissioner under NAC 608.104(2) allowing employers to include tips in employees’ income from the employer to meet the MWA’s requirement that health benefit premiums be capped at 10% of the employee’s gross taxable income.  The Nevada Supreme Court ruled against the state on that issue and found that under the plain language of the MWA, employee tips do not count toward income “from the employer.” 

Implications

Employers may continue the practice of satisfying the MWA’s requirement to offer health insurance by making the same available to their employees paid below $8.25 per hour.  This is a huge victory for Nevada employers who have relied on regulations promulgated by the Nevada Labor Commissioner over nine years ago.  Moreover, the time frame that applies to the alleged underpayment of minimum wage will remain at two years.  On the other hand, employers may no longer meet the 10% premium requirement by including tips in the taxable income of their minimum wage employees.  Additionally, employers should be aware that the issue of what type of “health insurance” must be offered under the MWA is another unsettled issue that is pending before the Nevada Supreme Court in a second MDC Restaurants petition for writ.

Recommendations

Employers paying any employees below $8.25 per hour should evaluate whether the premiums for the health insurance plans they offer those employees exceed 10% of the employees' pre-tip gross taxable income.  Tips may not be included in this calculation.  This may require constant monitoring.