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After more than 15 months of waiting, the U.S. Department of Labor has issued a Notice of Proposed Rulemaking (“NPRM”) announcing the Department’s intention to shrink dramatically the pool of employees who qualify for exempt status under the Fair Labor Standards Act.
The 295-page NPRM, released June 30, contains a few specific changes to existing DOL regulations: more than doubling the salary threshold for the executive, administrative, and professional exemptions from $455 a week currently to $921 a week (with a plan to increase that number to $970 a week in the final version of the regulation), as well as raising the pay thresholds for certain other exemptions, and building in room for future annual increases. More ominously, the Department invites comment on a host of other issues. This opens the door to many further significant revisions to the regulations in a Final Rule after the Department reviews the public’s comments to the NPRM.
Background
On March 13, 2014, President Obama directed the Secretary of Labor to modernize and streamline the existing overtime regulations for exempt executive, administrative, and professional employees. He said the compensation paid to these employees has not kept pace with America’s economy since the Department last revised regulations in 2004. The President noted that the minimum annual salary level for these exempt classifications under the 2004 regulations is $23,660, which is below the poverty line for a family of four.
Since the President issued his memo, the Department has held meetings with a variety of stakeholders, including employers, workers, trade associations, and other advocates. The Department has raised questions about how the current regulations work and how they can be improved. The discussions have focused on the compensation levels for the exempt classifications as well as the duties required to qualify for exempt status.
The NPRM
The NPRM expressed the Department’s intention to increase the salary threshold for the white-collar exemptions from $455 a week (or $23,660 a year) to $921 a week ($47,892 a year), which the Department expects to revise to $970 a week ($50,440 a year in 2016) when it issues its Final Rule. Under this single change to the regulations, it is estimated that 4.6 million currently exempt employees would lose their exemption right away, with another 500,000 to 1 million currently exempt employees losing exempt status over the next 10 years as a result of the automatic increases to the salary threshold.
The NPRM acknowledges that roughly 25% of all employees currently exempt and subject to the salary basis requirement will be rendered non-exempt under the proposed regs. The Department recognizes that employers are likely to reduce the working hours of currently exempt employees reclassified as a result of these regulations, and that the reduction in hours will probably lead to lower overall pay for these employees.
Related changes in the regs include increasing the annual compensation threshold for exempt highly compensated employees from the present level of $100,000 to a proposed $122,148, as well as raising the exemption threshold for the motion picture producing industry from the present $695 a week to a proposed $1,404 a week for employees compensated on a day-rate basis.
Perhaps not surprisingly, given the likely impact of the proposal, almost all of the NPRM is devoted to economic analysis and justification for the steep increase in the salary thresholds. Nevertheless, the NPRM touches on some other topics as well. The Department states that it is considering, and invites comment on, a wide range of topics, including:
What Comes Next?
The proposed regulations are subject to a 30-day public comment period. Now is the time for any employer or trade association dissatisfied with the proposed regulatory text, or concerned about changes the Department is weighing for inclusion in a Final Rule, to submit comments. The Department has put the regulated public on notice: it is considering sweeping changes to the regulations not described specifically in the proposed regulatory text, such as altering the duties tests for exempt status. Employers may not have another opportunity to comment on the content of a Final Rule.
Following the public comment period, the Department will issue a Final Rule that may add, change, delete, or affirm the regulatory text of the proposal. The Office of Management and Budget will review the Final Rule before publication. This process is likely to take at least six to eight months. A Final Rule is not expected before 2016.
The U.S. Equal Employment Opportunity Commission (EEOC) recently issued proposed new rules clarifying its stance on the interplay between the Americans with Disabilities Act (ADA) and employer wellness programs. Officially called a “notice of proposed rulemaking” or NPRM, the new rules propose changes to the text of the EEOC’s ADA regulations and to the interpretive guidance explaining them.
If adopted, the NPRM will provide employers guidance on how they can use financial incentives or penalties to encourage employees to participate in wellness programs without violating the ADA, even if the programs include disability-related inquiries or medical examinations. This should be welcome news for employers, having spent nearly the past six years in limbo as a result of the EEOC’s virtual radio silence on this question.
A Brief History: How
Did We Get Here?
In 1990, the ADA was enacted to protect individuals with ADA-qualifying
disabilities from discrimination in the workplace. Under the ADA,
employers may conduct medical examinations and obtain medical histories as part
of their wellness programs so long as employee participation in them is
voluntary. The EEOC confirmed in 2000 that it considers a wellness
program voluntary, and therefore legal, where employees are neither required to
participate in it nor penalized for non-participation.
Then, in 2006, regulations were issued that exempted wellness programs from the nondiscrimination requirements of the Health Insurance Portability and Accountability Act (HIPAA) so long as they met certain requirements. These regulations also authorized employers for the first time to offer financial incentives of up to 20% of the cost of coverage to employees to encourage them to participate in wellness programs.
But between 2006 and 2009 the EEOC waffled on the legality of these financial incentives, stating that “the HIPAA rule is appropriate because the ADA lacks specific standards on financial incentives” in one instance, and that the EEOC was “continuing to examine what level, if any, of financial inducement to participate in a wellness program would be permissible under the ADA” in another.
Shortly thereafter, the 2010 enactment of President Obama’s Patient Protection and Affordable Care Act (ACA), which regulates corporate wellness programs, appeared to put this debate to rest. The ACA authorized employers to offer certain types of financial incentives to employees so long as the incentives did not exceed 30% of the cost of coverage to employees.
But in the years following the ACA’s enactment, the EEOC restated that it had not in fact taken any position on the legality of financial incentives. In the wake of this pronouncement, employers were left understandably confused and uncertain. To alleviate these sentiments, several federal agencies banded together and jointly issued regulations that authorized employers to reward employees for participating in wellness programs, including programs that involved medical examinations or questionnaires. These regulations also confirmed the previously set 30%–of-coverage ceiling and even provided for incentives of up to 50%of coverage for programs related to preventing or reducing the use of tobacco products.
After remaining silent about employer wellness programs for nearly five years, in August 2014, the EEOC awoke from its slumber and filed its very first lawsuit targeting wellness programs, EEOC v. Orion Energy Systems, alleging that they violate the ADA. In the following months, it filed similar suits against Flambeau, Inc., and Honeywell International, Inc. In EEOC v. Honeywell International, Inc., the EEOC took probably its most alarming position on the subject to date, asserting that a wellness program violates the ADA even if it fully complies with the ACA.
What’s In The NPRM?
According to EEOC Chair Jenny Yang, the purpose of the EEOC’s NPRM is to
reconcile HIPAA’s authorization of financial incentives to encourage
participation in wellness programs with the ADA’s requirement that medical
examinations and inquiries that are part of them be voluntary. To that
end, the NPRM explains:
Each of these parts of the NPRM is briefly discussed below.
What is an employee
wellness program?
In general, the term “wellness program” refers to a program or activity offered
by an employer to encourage its employees to improve their health and to reduce
overall health care costs. For instance, one program might encourage
employees to engage in healthier lifestyles, such as exercising daily, making
healthier diet choices, or quitting smoking. Another might obtain medical
information from them by asking them to complete health risk assessments or
undergo a screening for risk factors.
The NPRM defines wellness programs as programs that are reasonably designed to promote health or prevent disease. To meet this standard, programs must have a reasonable chance of improving the health of, or preventing disease in, its participating employees. The programs also must not be overly burdensome, a pretext for violating anti-discrimination laws, or highly suspect in the method chosen to promote health or prevent disease.
How is voluntary
defined?
The NPRM contains several requirements that must be met in order for
participation in wellness programs to be voluntary. Specifically,
employers may not:
Additionally, for wellness programs that are part of a group health plan, employers must provide a notice to employees clearly explaining what medical information will be obtained, how it will be used, who will receive it, restrictions on its disclosure, and the protections in place to prevent its improper disclosure.
What incentives may
you offer?
The NPRM clarifies that the offer of limited incentives is permitted and will
not render wellness programs involuntary. Under the NPRM, the maximum
allowable incentive employers can offer employees for participation in a
wellness program or for achieving certain health results is 30% of the total
cost of coverage to employees who participate in it. The total cost of
coverage is the amount that the employer and the employee pay, not just the
employee’s share of the cost. The maximum allowable penalty employers may
impose on employees who do not participate in the wellness program is the
same.
What about
confidentiality?
The NPRM does not change any of the exceptions to the confidentiality
provisions in the EEOC’s existing ADA regulations. It does, however, add
a new subsection that explains that employers may only receive information
collected by wellness programs in aggregate form that does not disclose, and is
not likely to disclose, the identity of the employees participating in it,
except as may be necessary to administer the plan.
Additionally, for a wellness program that is part of a group health plan, the health information that identifies an individual is “protected health information” and therefore subject to HIPAA. HIPAA mandates that employers maintain certain safeguards to protect the privacy of such personal health information and limits the uses and disclosure of it.
Keep in mind that the NPRM revisions discussed above only clarify the EEOC’s stance regarding how employers can use financial incentives to encourage their employees to participate in employer wellness programs without violating the ADA. It does not relieve employers of their obligation to ensure that their wellness programs comply with other anti-discrimination laws as well.
Is This The Law?
The NPRM is just a notice that alerts the public that the EEOC intends to
revise its ADA regulations and interpretive guidance as they relate to employer
wellness programs. It is also an open invitation for comments regarding
the proposed revisions. Anyone who would like to comment on the NPRM must
do so by June 19, 2015. After that, the EEOC will evaluate all of the
comments that it receives and may make revisions to the NPRM in response to
them. The EEOC then votes on a final rule, and once it is approved, it
will be published in the Federal Register.
Since the NPRM is just a proposed rule, you do not have to comply with it just yet. But our advice is that you bring your wellness program into compliance with the NPRM for a few reasons. For one, it is very unlikely that the EEOC, or a court, would fault you for complying with the NPRM until the final rule is published. Additionally, many of the requirements that are set forth in the NPRM are already required under currently existing law. Thus, while waiting for the EEOC to issue its final rule, in the very least, you should make sure that you do not:
In addition you should provide reasonable accommodations to employees with disabilities to enable them to participate in wellness programs and obtain any incentives offered (e.g., if an employer has a deaf employee and attending a diet and exercise class is part of its wellness program, then the employer should provide a sign language interpreter to enable the deaf employee to participate in the class); and ensure that any medical information is maintained in a confidential manner.