white collar exemption

Authored By Alex Passantino

As we’ve reported previously, among the items the Department of Labor identified earlier this year in its Regulatory Agenda was a Notice of Proposed Rulemaking (NPRM) seeking to rescind portions of a 2011 rule that restricted tip pooling for employers who do not use the tip credit to satisfy their minimum wage obligations. On October 24, 2017, that NPRM was sent to the White House Office of Information and Regulatory Affairs (OIRA) for review and approval. One of the cases challenging the validity of the 2011 rulemaking may be on its way to the Supreme Court, with the Administration’s response to a cert petition due on November 7. With that deadline looming, it’s possible that the Administration is seeking to moot the issue before the Supreme Court has the chance to address some of the issues related to agency deference.

After OIRA clears the NPRM, it will be sent to the Federal Register for the public to provide comments in response to the Department’s proposal. At that time, we’ll know the specifics of the proposal and will be able to provide more guidance on what this means for employers. Stay tuned.

 

Authored by Alex Passantino

Seyfarth Synopsis: On July 26, 2017, the U.S. Department of Labor will publish its anticipated Request for Information on the White-Collar Overtime Exemption in the Federal Register. The RFI will give the regulated community 60 days to provide its comments in response.

The RFI seeks input on a wide variety of topics, many of which involve issues that have been raised since the Department published its final rule increasing the salary level over a year ago. With the salary level on hold, the Department has the opportunity to revisit the level–or at least to take the temperature of the regulated community.

The issues on which the Department seeks comment are:

  • Should the 2004 salary test be updated based on inflation? If so, which measure of inflation?
  • Would duties test changes be necessary if the increase was based on inflation?
  • Should there be multiple salary levels in the regulations? Would differences in salary level based on employer size or locality be useful and/or viable?
  • Should the Department return to its pre-2004 standard of having different salary levels based on whether the exemption asserted was the executive/administrative vs. the professional?
  • Is the appropriate salary level based on the pre-2004 short test, the pre-2004 long test, or something different? Regardless of answer, would changes to the duties test be necessary to properly “line up” the exemption with the salary level?
  • Was the salary level set in 2016 so high as to effectively supplant the duties test? At what level does that happen?
  • What was the impact of the 2016 rule? Did employers make changes in anticipation of the rule? Were there salary increases, hourly rate changes, reductions in schedule, changes in policy?  Did the injunction change that? Did employers revert back when the injunction was issued?
  • Would a duties-only test be preferable to the current model?
  • Were there specific industries/positions impacted? Which ones?
  • What about the 2016 provision that would permit up to 10% of the salary level to be satisfied with bonuses? Should the Department keep that? Is 10% the right amount?
  • Should the highly compensated employee exemption salary level be indexed/how? Should it differ based on locality/employer size?
  • Should the salary levels be automatically updated? If so, how?

Of course, the value of these responses ultimately is dependent on the Fifth Circuit’s decision on whether the salary test is permissible to begin with. Should the Fifth Circuit rule in the Department’s favor on that issue, the RFI responses will provide the Department with the information it needs to proceed on a new rulemaking adjusting the salary level…assuming the employer community responds.

For additional information on how to respond to the RFI, please contact OTRuleHelp@seyfarth.com or Alex Passantino at apassantino@seyfarth.com. We’ll continue to update you as additional information becomes available.

Authored by Alex Passantino

Seyfarth Synopsis: The Wage & Hour Division announced its regulatory plan for the next year and it is less ambitious than some may have anticipated.  A request for information on the overtime rule and a proposal to rescind a limited tip credit regulation are all that is on the immediate horizon for employers.

Each spring and fall, Washington waits with bated breath as the Executive Branch releases its regulatory agenda. As the first pronouncement of some of the specifics of the Trump Administration’s regulatory plans, this year’s agenda was anticipated more than most. And now we have it

The Wage and Hour Division’s initial plans include the announced Request for Information on the white collar exemptions, which is expected to be published this month. An as-of-yet-unannounced action, however, is a notice of proposed rulemaking (NPRM) that would rescind aspects of the Department’s 2011 rule related to tipped employees. Specifically, the NPRM would seek comment on the Department’s proposal to rescind the portion of the rule that restricts tip pooling for employers who do not use the tip credit to satisfy their minimum wage obligations. That rule has been the subject of much litigation, with mixed results. One of the cases may be on its way to the Supreme Court, with the Administration’s response to a cert petition due on September 8. With the NPRM slated for an August publication, it’s possible that the Administration may be seeking to avoid review by the Supreme Court on some of the touchier issues related to the proper deference a federal agency should be afforded. We’ll keep you posted.

Finally, WHD has identified a long-term plan to revisit the Section 14(c) program. Section 14(c) of the FLSA permits, under certain circumstances, employment of individuals with disabilities at subminimum wages. It is a politically sensitive program, and one in need of updating. No timetable has been provided for the Department’s review.

Authored by Alex Passantino

Today, the DOL’s Wage & Hour Division (WHD) sent its anticipated Request for Information (RFI) on the overtime rule to the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). Review of the RFI by OIRA is one of the final steps before publication in the Federal Register.

The RFI is expected to ask the regulated community for information regarding the impact of last year’s final rule increasing the salary level for exemption to $913/week. As our readers know, that rule was enjoined and the injunction is now before the Fifth Circuit Court of Appeals, with the Department’s reply brief due later this week. The RFI is likely to ask employers that made adjustments to their pay or operations in anticipation of the expected salary increase what the economic consequences of those adjustments have been thus far. Similarly, for employers that did not implement planned changes, the RFI likely will inquire as to what the expected consequences would have been.

Employer responses to the RFI will be critical in assisting WHD in determining next steps in the regulatory process (e.g., withdrawing the final rule, making a new proposal with a different salary level, maintaining the status quo). Be on the lookout for additional information on how to participate.

Authored by Sheryl Skibbe

On Wednesday, the Fifth Circuit Court of Appeals granted the Justice Department’s additional unopposed request for a 60-day extension to figure out its position on the new FLSA overtime exemption rules.

The stated reason for the government’s unopposed request was to “allow incoming leadership personnel adequate time to consider the issues.” Nevada v. DOL, No. 16-41606, Motion For Extension to File Reply (Feb. 17, 2017).

Presumably, the request for additional time is to permit the Senate to confirm the Trump administration’s new Labor Secretary, Alexander Acosta, and let him weigh in on the new rules. But the extension runs only to May 1, and it is not clear that the Senate could confirm Mr. Acosta and permit him to guide the government’s position by this new deadline.

Meanwhile, the district court in Texas is still considering the business groups’ motion for summary judgment to permanently invalidate the new rules and the Texas AFL-CIO’s motion to intervene in the case. A decision granting the summary judgment motion could moot the appeal if the district court enters a permanent injunction before the Fifth Circuit rules.

Authored by Seyfarth’s Wage & Hour Litigation Practice Group

Late Tuesday afternoon, Judge Amos Mazzant of the United States District Court for the Eastern District of Texas issued an order enjoining the U.S. Department of Labor’s implementation and enforcement of the new overtime exemption rules that were set to go into effect on December 1, 2016. The court granted a motion for preliminary injunction filed by the attorneys general of 22 states, in which the states argued among other things that the new rules were unlawfully promulgated and would be likely to cause irreparable harm to the states that requested the injunction. The court also considered amicus arguments made by various chambers of commerce and trade associations, which filed a companion case asserting similar and separate grounds for overturning the DOL’s new rules. Although the court’s order leaves some room for confusion on this point, it appears to apply to all public and private sector employers nationwide.

Although an important and exciting step in the right direction, this is not the final word.

First, this is a temporary injunction. It contains strong suggestions of what the court might ultimately do with a final determination regarding whether to invalidate the new rules. It explains various reasons why the rules are unlawful. But, at this time, all of those reasons and the results they might ultimately justify are preliminary.

Second, unlike most pre-judgment orders, an order granting or denying a preliminary injunction is immediately appealable. On appeal, the appellate court applies an abuse of discretion standard. Generally speaking, a court abuses its discretion by (1) committing an error of law, such as applying an incorrect legal standard, (2) basing the preliminary injunction on a clearly erroneous finding of fact, or (3) issuing an injunction that contains an error in form or substance. There are aspects of the court’s order that the federal government might argue prove each of these points. But it is fair to say that the Fifth Circuit Court of Appeals, which is the court that would hear the government’s appeal, rarely overturns orders granting preliminary injunctions. Within the past several decades, it has done so very few times.

Third, if it does not win reversal of the district court’s order in this case, it is conceivable that the government would seek review by the U.S. Supreme Court. Even if the Court of Appeals were to reverse, the States and Associations could petition the Supreme Court for review. Given the current composition of the Court, a 4 – 4 decision would leave the Fifth Circuit’s decision intact, leaving open the possibility that other Circuits, when confronted with the issue, could rule differently. That would create a difficult dilemma for employers that operate in multiple states across the country.

Fourth, if the plaintiffs ultimately prevail in securing the court’s judgment that the DOL’s new rules are unlawful, the federal government will have another opportunity to appeal. With the passage of time necessary for the parties to litigate their respective positions through judgment and then to wind their way through the appellate process, it is hard to predict whether an appeal would actually follow. The new administration, its new Secretary of Labor, and its new Solicitor of Labor would likely have much to consider by that point. And this sets aside for the moment the possibility that the congress will successfully pass—and the new president will sign—a Congressional Review Act resolution, mooting the need for further litigation at all.

To put it simply, the court’s ruling on Tuesday creates a significant amount of uncertainty that is going to last for a while longer. And it begs the enormous question: What should businesses do in reaction to the court’s preliminary injunction?

Many businesses are very far along in their plans to comply with the new rules by December 1. Many have already begun their communications with employees whose pay or classification would be impacted because of the new rules. Some have already effected changes impacting those employees. Further, those businesses that had not taken steps to comply have employees who have almost certainly heard about the rules and have assumed they would soon receive raises or become overtime eligible.

In that light, the injunction—though heralded as a positive development for businesses—has the potential to create significant risk and disruption. A careful hand is required. Obviously there is much to consider and much more to do. But here is a deft starting point:

  • If changes are about to be made, consider whether they can be postponed while stakeholders decide what further steps should be taken. The decision whether to postpone changes and what further steps to take must account for any payroll, timekeeping, and human resources changes are in progress. Can those changes be stalled as well, without unacceptable costs and other business disruptions?
  • If communications are set to be distributed to employees who would be impacted by the December 1 rule, postpone them while stakeholders develop their next steps plan.
  • If changes have not been made but communications have been distributed or begun, consider whether a revised communication plan can be executed while postponing the changes that have not yet been made. Any revised communications plan should begin with the fundamental explanation that: A federal court in Texas has issued an order that makes it uncertain how the FLSA’s overtime pay exemptions apply to employees who would be impacted by the new rules that were to go into effect on December 1. Because of the court’s order, those rules will not go into effect as expected. To ensure that it is able to follow the laws that govern how employees are paid under the FLSA, the company has revised its plans and will be reporting back to you soon about how this will impact you.
  • If communications have been distributed and changes have been made, stop and consider carefully how to proceed. Because this is an extremely positive result achieved by the plaintiffs in Texas, some business may be excited to quickly undo the changes that they made. Caution and care are advisable.
  • Employees who have been reclassified from exempt to nonexempt status or who have received pay raises will have begun to acclimate to their new status and pay. An abrupt change could cause them to seek assistance from a plaintiff’s lawyer, and could open a Pandora’s Box of potential (hopefully unjustifiable) claims.

For businesses that have not done anything to prepare for the December 1 rule, keep your eyes and ears open for further developments.

Of course, these are also not the final words on how businesses should adapt their actions to the turbulence that this otherwise positive court ruling could cause. What is important is that business stakeholders consider carefully what their next steps will be and to weigh carefully the costs and benefits of available options. A careful plan will help to avoid further business disruptions, unhappy workforces, and plaintiffs’ lawyers.

Authored by Alex Passantino

Seyfarth Synopsis: Two lawsuits related to the Department of Labor’s revisions to the white-collar exemptions have been filed in East Texas.

The first lawsuit, citing (among other things) the severe impact the impending salary increase will have on state and local government budgets, was filed by the Attorneys General of Nevada, Texas, and 19 other states (the “State AG case”). The State AG case makes a Tenth Amendment-based challenge to Congressional application of the FLSA to states. It also argues that the DOL exceeded Congressional authority with respect to the salary test, the highly-compensated employee exemption level, and indexing. The State AG case also argues that the DOL failed to follow the Administrative Procedure Act and/or that the Department exceeded its Congressional delegation of authority.

The second lawsuit was filed by a broad coalition of Texas and national business groups and trade associations. This case alleges that the DOL exceeded its statutory authority under the FLSA, both by the dramatic increase in the minimum salary level required for exemption and by the provision that would require automatic updating of that level every three years.

Both cases seek a variety of declarations regarding the unlawfulness of the DOL’s actions, as well as temporary and permanent injunctive relief preventing the rule from becoming effective on December 1, 2016.

The filing of these cases, as well as recent efforts in Congress to stop the rule (or at least to revise it), may tempt some employers into taking their foot off the pedal with respect to ensuring compliance with the new salary level by December 1. As many have learned the hard way, however, legislation and litigation are less-than-certain solutions.

Employers should continue their efforts to be compliant by December 1. If we receive legislative or judicial relief at some point, it will be much easier to stop the process than it would be to start it much closer to the effective date. In other words, Congressional or judicial relief should not be your compliance strategy.

We will, of course, continue to keep you updated on the litigation and legislative efforts. In the meantime, keep your eyes on the December 1 deadline.

Co-authored by Richard Alfred, Brett Bartlett, and Noah Finkel

The Department of Labor’s release of the new exemption regulations appears imminent. As we have reported in a number of posts, these new rules are expected to nearly double the minimum annual salary level required for employees under the administrative, executive, and professional exemptions (currently $23,660 to between $47,000 – $50,440); impose an automatic annual (or, possibly, less frequent) indexing to inflation; and significantly increase the highly compensated employee exemption (now set at $100,000). Once issued, these new rules will significantly change employee eligibility for overtime and will impact virtually all employers operating in the United States. The rules are likely to become effective within 60 – 120 days, or possibly longer.

The overtime rule amendments will be the first major revisions to the “white collar” exemptions since 2004. Those modest changes in the regulations resulted in a dramatic increase in wage and hour litigation at that time. Consider this: in 2003, the year before the last amendments, the number of federal court wage and hour filings stood at 2,751, according to the Annual Report of the Director, Judicial Business of the United States Courts; a year later, in 2004, that number jumped to 3,617, an increase of almost 32%, followed by another double-digit percentage increase in 2005 to 4,039, up nearly 12%.[1]

With that as a backdrop, we have been predicting another surge in new wage and hour lawsuits following the anticipated new rules this month. That prediction has now been underscored by an article published late last week by the Bloomberg BNA Daily Labor Report. That article, “Plaintiffs’ Bar Plans Outreach on Overtime Changes,” leads with the not-so-subtle statement by an attorney at a well-known plaintiff-side law firm, “Once the regulation’s done, that’s only the beginning…” Reportedly, these lawyers are planning to “educate” employees about the requirements of the regulatory changes through techniques that may include “using radio, television and online advertising.” We can only assume that the aim of such “education” is to find new clients, who then become plaintiffs against employer-defendants.

Where Plaintiffs’ Counsel Are Looking

This effort may initially focus on previously exempt employees who, because of the minimum salary level increases, are reclassified as non-exempt. In some cases, these employees may continue to be paid a set weekly salary but for work limited to 40 hours per week, a perfectly lawful method of pay for non-exempt employees. Both employers and employees paid in this manner may not realize, however, that an overtime premium is due for work over 40 hours in a week, notwithstanding the salary method of pay.

Additionally, reclassified employees may feel that they are expected to continue performing the same duties they had as exempt employees, when they regularly worked more than 40 hours a week. As non-exempt employees, company policies may prohibit them from working beyond 40 hours without supervisory approval and will typically require them to keep track of and record their work time accurately. Those who fail to do so may be disciplined and may also later argue that they were denied overtime pay and seek compensation for such time, as well as liquidated damages, attorneys’ fees, and, under some state laws, penalties and interest.

As plaintiff-side attorneys “switch their focus from outreach to enforcement,” this article reports, new lawsuits will be filed for past alleged violations uncovered from increased scrutiny given to wage and hours issues more generally, in addition to alleged overtime violations seen as arising from the new rules. This is likely to result in claims alleging exempt status misclassification and off-the-clock unpaid work. “[T]his will only add to the recent swelling of private FLSA litigation,” and a further “surge in overtime pay lawsuits,” commented one labor and employment lawyer for this story.

Further adding to this expected spike in new wage and hour lawsuits is likely to be dissatisfaction among newly reclassified non-exempt employees who may see their reclassification as a form of demotion and reduction in status. Morale issues may follow, which could adversely impact productivity and may also provide an incentive among those workers to seek legal redress.

What Happened the Last Time the Regulations Changed?

It is no surprise to employers that wage and hour laws—both federal and state—are complicated, often difficult to apply, and the source of potentially crippling exposure from collective and class actions. In the decade following 2005, lawsuits under the FLSA and state laws have continued to increase in record numbers, more than doubling in federal court filings, alone (from 4,039 to 8,781 in 2015). We have discussed the causes contributing to this escalation in previous posts. As discussed, the 2004 amendments and the publicity that surrounded them led to an increase in awareness of the FLSA and state wage and hour laws. Other causes include:

  • The vague and ambiguous text of the FLSA and DOL regulations, adopted in 1938 and amended just nine years later with the Portal-to-Portal Act of 1947;
  • The workplace and our economy at that time were extremely different from now, and applying those legal requirements to today’s businesses is difficult and presents issues, the answers to which are often unknown and unknowable as courts struggle to reach consistent decisions; and
  • Large settlements and verdicts have given employee attorneys an incentive to focus more on procedurally advantageous collective actions in which the plaintiffs’ burden in obtaining conditional certification is lower than Rule 23 class certification and often easier to prove than claims of employment discrimination.

The same ingredients that led to the sharp increases in wage and hour litigation a dozen years ago are present today. The plaintiffs’ bar is gearing up by aiming its attention on the risks and hurdles that employers will face in complying with the soon-to-be released new regulations. The challenge for employers is to understand their current wage and hour policies, practices, and job classifications and how the new rules are likely to impact them. The opportunity is to plan for the implementation of the likely changes to the law so that necessary workforce adjustments can be made thoughtfully and consistently based on business goals and culture.

As we near the release of the new regulations, we repeat what we have said many times before: employers should assess their pay practices and classification decisions through an audit conducted by experienced in-house or outside wage and hour counsel. As plaintiff-side lawyers plan for another wave of wage-hour lawsuits, employers are well advised to take steps now to reduce their chances of becoming future litigation targets. We also invite you to visit Seyfarth Shaw’s FLSA Exemption Resource Center for more information and resources for employers on the new regulations.

[1] The source for all statistics of case filings in federal courts reported in this article is the Annual Report of the Director, Judicial Business of the United States Courts, available at http://www.uscourts.gov/statistics-reports/caseload-statistics-data-tables?tn=c-2.

Authored by Alex Passantino

The Department of Labor has submitted the final overtime rule to OMB for review. Typically, OMB review takes 30 to 60 days. Last year, OMB reviewed the proposed rule for just about 60 days before approving it. On this timetable, DOL is looking at the possibility of a May date for publication of a final rule.

While at OMB, the public has no details on the particulars. The specific provisions only will be revealed once the final rule clears OMB review and is published in the Federal Register.

We will, of course, keep you updated of further developments.

Authored by Alex Passantino

Pinning down a publication date for the DOL’s final revisions to the white-collar exemption rules has proven difficult for anyone outside of the agency’s headquarters. Sometimes, the answer seems to elude even those inside the Frances Perkins Building. From statements from the Solicitor last Fall that the rule would be out in “late 2016” (subscription) to the Department’s regulatory agenda setting a target date of July 2016 to Secretary of Labor Perez’s confidence that the rule would be out by Spring of 2016, we’ve seen a fairly wide range of expectations out of DOL.

At a recent meeting of the New York State Bar Association, we got yet another, although this one is in line with the Department’s official target: the Solicitor of Labor told a group of attorneys that the overtime rule would be issued in early July.

The Department proposed to increase the salary level required for exemption to $50,440, and the salary required for the highly compensated employee exemption to $125,000. The Department also proposed to automatically increase the salary on a regular basis, based on inflation or other factors. DOL inquired into a number of issues related to the duties tests, including the propriety of changing the standards for determining an employee’s “primary duty,” but did not afford the regulated community the opportunity to comment on any specific proposal.

DOL received nearly 300,000 comments in response to its proposal. It is in the process of reviewing those comments and finalizing the rule. Once DOL has finalized the rule and publishes it in the Federal Register, employers likely will have between 60 and 120 days to come into compliance with the new standards. Given the short timeframe, employers should be starting to review their potentially impacted positions now.