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The suspense is over – the Department of Labor announced yesterday the revised Overtime Rule, which will set the minimum salary threshold for the Fair Labor Standard Act’s white-collar exemptions at $684 per week, or $35,568 per year. The rule, which will expand overtime pay obligations to an estimated 1.3 million additional workers, will take effect on January 1, 2020. The big question is what do you need to know about this breaking news?
It seems an eternity ago when President Obama directed the U.S. Department of Labor (USDOL) to revise the regulations governing the outdated white-collar exemptions of the Fair Labor Standards Act (FLSA). The proposal eventually released by the USDOL would have radically altered the federal compensation rules. Most notably, the agency would have more than doubled the salary threshold and applied, essentially, a formula to update the amount every three years. This minimum threshold was set to become effective on December 1, 2016, and the “updating” would begin, ironically, on January 1, 2020.
But concerned states and business groups sought to block the rule from taking effect, and, at the last minute, a federal court issued a preliminary injunction preventing the rule from being implemented on a nationwide basis. Since the Texas court put the final nail in Overtime Rule 1.0’s coffin by striking down the rule once and for all in August 2017, employers have been patiently awaiting a revised rule.
Under the current administration, USDOL leadership indicated that it would no longer advocate for the $913 per week proposal but would instead undertake further rulemaking to determine what the salary level should be. In what seemed like a painstakingly long process, the agency held public forums, issued a request for information, and sought comments on a proposed rule that, like Overtime Rule 1.0, focused solely on the pay component but without completely overshadowing the duties tests. After all, the FLSA authorizes the agency to define and delimit the executive, administrative, and professional exemptions – not supplant them. Today, finally, all of the work culminated in the release of Overtime Rule 2.0.
After the drama surrounding the last-minute injunction blocking the 2016 proposal, it would be natural for employers to feel gun-shy about adjusting to these changes. After all, isn’t there a chance that another court will once again block these changes and put us in yet another state of limbo? While there is always a chance for litigation to unfold in such a way that it would impact the implementation of this rule, there are several reasons why you should be preparing as if this rule will go into effect as planned on January 1, 2020.
First, while there is no magic number for setting the salary threshold (that’s the whole point), there is something to be said for certainty. The new rule skirts some of the more problematic areas that existed with the first attempt at revisions. The $684 per week threshold will require the reclassification (or pay increases) of some employees, but a far less significant portion than would have seen increases had the $913-per-week proposal of three years ago was adopted.
Second, while the rule contains some of the same flaws as Overtime Rule 1.0, they generally are not the kinds of concerns that were previously raised in lawsuits. Employer advocates will have more difficulty taking the position that this particular threshold eclipses the duties tests. Likewise, while employee advocates might feel that the threshold is set at too low a level, meeting the pay component does not make someone exempt in and of itself, so this argument is more philosophic in nature and may not warrant the rule being blocked.
Finally, the USDOL must be well prepared at this point to defend the rule. Even aside from the litigation, it has received voluminous public feedback on an increase from $455 per week numerous times, including those shared in 2015, 2017, and 2018. So, while litigation seems inevitable, employers should not be idle in preparing for this rule to take effect.
As recounted above, the drama surrounding Overtime Rule 1.0 was a painfully long process for employers as they waited to see what might happen. The best practice, though, is to assume Overtime Rule 2.0 is the real thing. That said, you should not run out tomorrow and make immediate changes to your compensation structure. Instead, you should use this time to start evaluating not just whether changes will be necessary, but how best to make those changes (timing, communications, etc.).
If you made changes in 2016 in anticipation of the $913 per week threshold, you are certainly ahead of the curve. If you did some of the work but decided to wait to implement once the preliminary injunction was put in place, you also have a great head start. Nonetheless, in both cases, you must keep in mind that three years have passed and it is possible that an employee’s work has changed in the interim.
It is imperative to confirm your prior findings at least for any employee that might receive a salary increase to qualify for exempt status under Overtime Rule 2.0. No employee is automatically entitled to be treated as exempt; in contrast, increasing the salary for an employee that does not meet the duties tests can only make matters worse.
Right now, you should begin:
Courtesy of Fisher Phillips LLP
2018 has seen quite a few changes in labor and employment law. But with the New Year having just rung in, it’s time to look forward rather than backward. The question on the tip of everyone’s tongue is: what’s next? Here are our predictions for what to expect in 2019 when it comes to workplace law.
Expect More Class Actions
We’re going to start out with the bad news. Because of the potential for a big payout, class and collective actions are a favorite for plaintiffs’ attorneys. You should not expect that to change in 2019.
The California Supreme Court’s decision in Troester v. Starbucks Corporation has opened up even more avenues for potential wage and hour claims in the Golden State, and the trend could hit the rest of the country, too. In July 2018, the California Supreme Court narrowed the scope of the de minimus doctrine under state law and held that employees must be paid for off-the-clock work that regularly lasts several minutes per day. While the California Supreme Court refused to shut the door entirely on the de minimus doctrine, it noted that technological advances should help employers track small bits of time, and that employers can restructure work to avoid off-the-clock time.
Employers outside of California may see plaintiffs’ attorneys attempting to use the same rationale employed by the California Supreme Court to argue that the de minimus doctrine should not apply in the circumstances of their case. Moreover, with more employees having remote access to emails and other mobile platforms, the number of ways for employees to argue that they were working off the clock has increased.
The Ascendance Of Arbitration Agreements
One way for employers to avoid class actions is through arbitration agreements. Last May, the Supreme Court ruled in Epic Systems Corporation v. Lewis that mandatory class action waivers in arbitration agreements are enforceable. As a result, you can expect to see an increase in the number of companies rolling out updated agreements to include class action waiver language. (Note: if you have not had your arbitration agreement reviewed since May when Epic Systems came out, make it your New Year’s Resolution to do so.)
However, while popular with employers, arbitration agreements are decidedly not so with the plaintiffs’ bar. Expect to see plaintiffs’ counsel becoming more creative in challenging arbitration agreements on grounds related to unconscionability.
We may even be starting to see a backlash against arbitration agreements. Most recently, some law students have been pressuring big law firms to do away with them when it comes to their own hires. And last year, the California legislature passed a law banning mandatory employment arbitration agreements for claims arising out of alleged violations of the Fair Employment and Housing Act or California Labor Code. Although the bill was ultimately vetoed by outgoing Governor Jerry Brown, expect to see the fight continue in 2019.
Don’t Look To Congress To Lead The Way
With Democrats controlling the House, and Republicans controlling the Senate and Executive Branch, you can expect that most employment legislation will be dead on arrival. When it comes to innovative legislation impacting the workplace, you should look to the states to lead the way. This is not to say that there won’t be any changes to labor and employment law on the federal level in 2019. However, we expect the most significant changes to be made by agencies (such as the National Labor Relations Board, the Department of Justice, the Equal Employment Opportunity Commission, etc.) rather than Congress.
NLRB Will Narrow The Definition Of Joint Employer
One of those agencies—the NLRB—made noise last year when it published a proposed rule that would alter the definition of joint employment to make it more difficult to hold multiple businesses responsible for alleged labor and employment law violations by staffing companies, franchisees, and other related organizations. Expect to see continued movement and updates on this proposed rule in 2019.
But before getting too excited at any potential changes, you should keep in mind that states may have their own rules regarding joint employment that could differ from what the NLRB comes up with. Any new rules may not affect your organization’s liability under state law.
USDOL Has A Full Plate
Another agency you should keep an eye on is the U.S. Department of Labor (USDOL). Not only is the USDOL considering its own joint employment rule, but the agency has proposed regulations regarding the regular rate of pay and white collar exemptions (also known as the “overtime” rule).
The regular rate of pay is of particular importance to employers because it is used to calculate the overtime rate of non-exempt employees. While we know that changes to the proposed regulations are targeting sections 7(e)(2) and 7(g)(3) of the Fair Labor Standards Act, the USDOL has been rather vague about what the proposed regulations will look like. The USDOL states that they aim to “provide employers more flexibility in the compensation and benefits packages they offer employees” and “lessen litigation regarding the regular rate.”
The regulation relating to the white collar exemption is less opaque. As employers may recall, the minimum salary threshold for white collar exemptions was supposed to increase from $455 per week (or $23,660 annually) to $913 per week (or $47,476 annually), with the amount to be updated every three years. However, right before these changes were scheduled to take effect in December 2016, a federal court blocked their implementation. Under a new administration, we expect that we will see a more modest proposed increase in the white collar exemption in 2019—perhaps in the low $600s per week.
Paid Sick Leave Will Continue To Be On Trend
Although there are no federal laws mandating paid sick leave (yet), you can expect that paid sick and family leave will continue to be a big issues, with states and localities picking up the slack. Right now, 11 states and the District of Columbia require paid sick leave. Additionally, various cities and counties have stepped in where states have not provided for such leave or to give more generous benefits than the state.
You generally should anticipate an expansion of paid sick leave benefits in 2019. The New Jersey Paid Sick Leave Act went into effect October, while Michigan, Washington, and Westchester County (NY) have paid sick leave laws going into effect this year.
While some municipalities in Texas want to get in on this trend, a Texas appeals courtruled the Austin Paid Sick Leave Ordinance violates the state constitution because it preempts the Texas Minimum Wage Act. San Antonio passed its own sick leave ordinance in 2018, but it may only be a matter of time before it, too, is challenged in court.
Privacy Issues Remain Paramount
The EU General Data Protection Regulation (GDPR) went into effect in May 2018, ushering in sweeping reforms for companies that do business in the EU or employ EU residents. The GDPR threatens strict penalties for non-compliance—up to the greater of 20 million Euro or 4 percent of global annual turnover in the prior year. Having been in effect less than a year, it is still not clear how fines will be assessed and what the potential exposure will be for companies that are found to be non-compliant. As 2019 progresses, you can expect to see many investigations that began in 2018 come to a close, and we’ll begin to get a better idea of how regulatory authorities will assess fines for non-compliance—including whether the fearsome 4 percent penalty will be assessed.
Lest you think the major developments in privacy are safely across the ocean in Europe, you can be sure there will be plenty of action closer to home in 2019. The Illinois Supreme Court currently has a case before it over whether a technical violation of the Illinois Biometric Information Act (BIPA) gives standing to sue absent a person suffering a concrete injury. If the court answers in the affirmative, you can expect to see a continued proliferation of BIPA class actions.
Further, California passed the California Consumer Privacy Act (CCPA) in 2018, which goes into effect at the beginning of 2020. While the law is not as comprehensive as the GDPR, California employers will soon need to figure out this year if it applies to them. You should take compliance seriously: the CCPA allows consumers whose rights have been violated under the Act to bring suit for actual damages or statutory penalties (whichever is greater) under a mechanism somewhat akin to a California Labor Code Private Attorneys General Act. You can expect the proliferation of CCPA lawsuits will be on next year’s list of predictions.
President Obama has proposed expanding the availability of overtime pay, which would cause the Department of Labor to do its first overhaul of Fair Labor Standards Act (FLSA) regulations in 10 years.
The President signed a memorandum on March 13, 2014, instructing the Department of Labor to update regulations about who qualifies for overtime pay. In particular, he wants to raise the threshold level for the salary-basis test from the current $455 per week in order to account for inflation. The threshold has been raised just twice in the past 40 years. The President did not specify the exact amount the threshold should be raised though.
“Unfortunately, today, millions of Americans aren’t getting the extra pay they deserve. That’s because an exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year,” Obama said in his remarks on overtime pay.
The memorandum also suggests that both the primary duties and pay of some exempted employees do not truly fit in the executive, administrative and professional employees exemptions, referred to as the white-collar exemptions under FLSA.
In a fact sheet on the President’s memorandum, the White House said: “Millions of salaried workers have been left without the protections of overtime or sometimes even the minimum wage. For example, a convenience store manager or a fast food shift supervisor or an office worker may be expected to work 50 or 60 hours a week or more, making barely enough to keep a family out of poverty, and not receive a dime of overtime pay.” The FLSA’s minimum wage would not protect a salaried worker because salaried workers’ pay must satisfy the weekly salary-basis test rather than the Federal hourly minimum wage, which is $7.25 per hour. The hourly minimum wage in Florida is currently $7.93 per hour.
The memo also pointed out that “only 12% of salaried workers fall below the threshold that would guarantee them overtime and minimum wage protections.“ The fact sheet also called the current FLSA regulations outdated, noting that states such as New York and California have set higher salary thresholds.
Small businesses will be hit particularly hard by a change in the FLSA regulations.
If the regulations shrink the current white-collar exemptions, employers would have two main options to hold down costs. They would have to either increase workers’ salary above the new salary-basis threshold (to avoid paying overtime) or leave employees in the nonexempt category and pay them overtime. Companies could also hire more employees, but the other two options are more likely.
Implications for HR
Once tightened white-collar exemptions are implemented, which is not likely to happen for months now, it could result in far-reaching implications for HR, including wage and hour audits and layoffs. The money to pay for increased overtime wages has got to come from somewhere which might mean layoffs, reducing overtime and taking a fresh look at the fluctuating workweek.
When asked at a press briefing about the burden on businesses if the Obama administration succeeds in efforts to both increase the federal minimum wage and revise FLSA regulations, Betsey Stevenson, a member of the White House’s Council of Economic Advisers, said, “We think these two items are very different, but, obviously, they do feed into the same thing, which is people should be rewarded for fair work.” She suggested that some workers in the white-collar exemptions aren’t even earning minimum wage for all the work they do at low salaries.
Even though the president did not assign a number for the minimum salary-basis threshold, Stevenson said the overtime “protections have been eroded over time. This threshold in 1975 was nearly $1,000 in today’s dollars; today it’s $455.” Stevenson believes that the rule should be modernized as a matter of the “basic principle of fairness.”
We will continue to keep you abreast of any changes to FLSA as well as other regulations that can impact your business. If you have any questions about the current or proposed FLSA regulations, please contact our office.