FLSA

Don’t Halt Compliance Efforts Just Because of Legal Challenges to the New Overtime Rule

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On Sept. 20, 2016, Nevada and Texas led 21 states, including the Commonwealth of Kentucky, in filing a lawsuit to challenge the Department of Labor’s (DoL’s) new overtime rule changes set to go into effect Dec. 1 of this year. Right behind them, the U.S. Chamber of Commerce, National Automobile Dealers Association, National Association of Wholesaler Distributors and other groups filed their own appeal.

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“The DoL went too far in the new overtime regulation,” said Randy Johnson, senior vice president of Labor, Immigration, and Employee Benefits for the U.S. Chamber. “We’ve heard from our members, small businesses, nonprofits, and other employers that the salary threshold is going to result in significant new labor costs and cause many disruptions in how work gets done,” Johnson said in a press release. “Furthermore, the automatic escalator provision means that employers will have to go through their reclassification analysis every three years. In combination, the new overtime rule will result in salaried professional employees being converted to hourly wages, and it will reduce workplace flexibility, remote electronic access to work, and opportunities for career advancement.”

The  Chamber Suit

  • The Chamber suit charges that the rule departs from the intent established by Congress in the Fair Labor Standards Act (FLSA) 78 years ago in that:
  • It sets an excessively high threshold for determining which positions qualify as executive, administrative, and professional.
  • The DoL “ignored regional and industry differences that have been previously acknowledged,” which results in a one-size-fits-none salary threshold.
  • The automatic triennial update “with no rulemaking or taking input from affected parties is not authorized by the Fair Labor Standards Act or any other relevant statute.”

The  States’ Suit

The states’ suit notes:

  • The new rule disregards the actual requirement of the FLSA by doubling the minimum salary threshold (from $23.660 to $47,476) that applies regardless whether an employee actually performs white-collar duties.
  • The best first indicator of white-collar exempt status is if a person in the exempt position actually performs white-collar work, not whether the salary meets the minimum.
  • The triennial salary increase based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest wage Census region. The increase “not only evades the statutory command to delimit the exception from ‘time to time,’ as well as the notice and comment requirements of the Administrative Procedure Act, it also ignores the DoL’s prior admissions [in President George W. Bush’s administration] that ‘nothing in the legislative or regulatory history…would support indexing or automatic increases.”

The new rule unconstitutionally requires states to pay overtime to state employees that are performing white-collar functions when the employees earn less than an amount to be determined by the executive branch of the federal government.

Lawsuits Can Fail

As heartening as these lawsuits may be to businesses, there is always the possibility that the lawsuits fail. Nearly since the rule was proposed, there have been experts who have predicted that the rule would be challenged in the courts.

But as Lawrence Mishel, Ph.D., economist and president of the Economic Policy Institute, a nonpartisan, Washington, D. C., think tank said in a recent interview by Society for Human Resource Management, “The DoL fulfilled all of their obligations during the rulemaking proceeding. They crossed every t and dotted every i. The final overtime pay rule update should be implemented as planned starting Dec. 1.”

With that in mind, don’t stop preparations for complying with the new overtime rule. The deadline for having everything in place will be here sooner rather than later.

Information provided by writer, Diane Faulkner, is not legal in nature. All reviews and opinions are submitted and based upon extensive research, experience in the human resources and labor relations fields and are not, in any way, legal opinions.

Don’t Halt Compliance Efforts Just Because of Legal Challenges to the New Overtime Rule

Can You Cut an Employee’s Pay and Not Get Sued?

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Anytime you want to cut an employee’s pay, you run the risk of getting sued. It’s just that simple. This is especially true if the employee is in a protected class. Anyone can try to file a lawsuit for any reason. Let’s just get that out there.

That said, the reason and circumstances surrounding a cut in pay are key.

In the U. S., employers can cut pay as long as the employee isn’t covered by a collective bargaining agreement or some other agreement, like an employment contract. The cut also cannot reduce the pay to a level that’s less than the minimum wage. If the position is  exempt from the overtime laws, (Fair Labor Standards Act), then you must keep the salary above the minimum to maintain exempt status. Just know that there is the new minimum salary level of $47,476 that goes into effect December 1, 2016, and that if the person is to stay exempt, that test must still be met.

Note: the employee may be eligible for unemployment compensation for the pay that’s lost.

How Much Notice Must I Give?

In Florida, where I am, there are no laws that address when or how you may cut an employee’s pay or whether an employer must provide notice prior to the reduction. That said, the reduction can only apply to hours worked after the status change. (i.e. Salaried workers would be paid the new rate the following full workweek, as you cannot separate out hours without giving up exempt status). It’s up to you–in Florida– if you want to give notice and how far in advance you want to do so.

To check your state wage payment laws, check with your state Department of Labor or look up your state on The Lunt Group’s Employment Law Handbook.

When is it Illegal to Cut Pay?

  • When you don’t give notice (in some states). Pay cuts can’t be retroactive (in all states).
  • When you cut pay in response to protected activity. e.g. An employee files a sexual harassment complaint, and then you cut the employee’s pay as a result. (Title VII retaliation). An employee complains about working conditions or wages on social media, and you cut pay as a result. (NLRA retaliation–NLRA covers non-union employees, too).
  • When you only cut pay for specific classes. e.g. It’s discriminatory to cut all Asians’ pay, but no one else, or pay for everyone over 40, but no one else, etc.
  • When the cut drops pay below minimum wage, even if the employee agrees to the cut. Where federal and state minimums differ, the higher rate applies.
  • When there is a contracted amount or there is an employment contract. Most common in union situations where each job’s rate is clearly spelled out.
  • When the exempt employee pay cut is temporary. One requirement for exempt employees is that their pay rate remains the same, regardless of hours worked. A temporary cut is illegal, e.g. cut for a few weeks or months, but a permanent cut is legal.
Circumstances Matter

Circumstances are important when choosing to cut pay. If a business is foundering, then it’s critical that the CEO take the same pay cut as everyone else. To do otherwise would further decrease morale and set people off to find work elsewhere. Taking the cut would still be financially shocking, just not as emotionally devastating, because the pain would seem to be equally spread.

There are times, though, when an employee experiences a substantial job change–down, not up.  Demotions in jobs may also equate to demotions in pay. It all depends upon your wage/salary bands and  your position descriptions.

Say you have several different offices of different sizes, each managed by a branch manager. While the core management duties of each manager are the same, e.g. manage people, hire and fire, evaluate, etc., the size of each branch is different. Corresponding responsibilities would also be different. One manager may have 20 employees, while another has only three. The branch manager of the largest branch sits participates in meetings with the president and other department managers to make significant decisions for the enterprise, while the others do not. If each branch manager is working under the same position description and is paid within the same salary band as the others, demoting one and cutting pay could get tricky, especially if the one being demoted is in a protected class. There’s room for legal action.

The fix is to update position descriptions for each branch and denote them as level one, two, three, whatever. Next, you would update you salary bands to correspond with how each branch prices out. Broadcast the update throughout the enterprise and specifically communicate with each branch manager as to the new job titles and salary bands. Once you’ve done this, you’re better set in moving forward with the demotion as long as you have your documentation in order. (The updates should be done for all positions, especially if they haven’t been done in a while).

Once you have your ducks in a row, you should feel more comfortable proceeding with the demotion and pay cut.

As always, whenever you are unsure about the steps to take in tricky employment situations, a labor attorney can always help you make the right decisions to keep you out of court.

Information provided on this site is not legal in nature. All reviews and opinions are submitted and based upon extensive research, experience in the human resources and labor relations fields, and are not, in any way, legal opinions.
Can You Cut an Employee’s Pay and Not Get Sued?

5 Steps to Prepare for New Overtime Exemptions Rule

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It’s almost mid-year. Are you prepared for the impending changes to the overtime exemptions rule? This rule isn’t like the Affordable Care Act where the changes will be doled out over the course of a decade. No. Once the Department of Labor (DoL) makes its final ruling, you’ll likely have fewer than 90 days, if not fewer than 60 days, to comply. And, those days will be before the year’s end.

That means you need to start preparing now, if you haven’t already, because both your 2016 staffing and budget plans will be affected.

Even though the final rule hasn’t been handed down, there are things you can do to prepare, regardless the form the rules take:

1. Audit exempt employees’ work hours

The DoL has proposed to raise the minimum exempt employee salary threshold from $23,660 to $47,476, so the first step you need to take is to calculate the number of hours current exempt employees work who make less than the new minimum. You can’t assume exempt employees all work 40 hours a week. Many work 45, 50, or more. Many take meetings or conduct job interviews after hours. Others are checking and responding to emails and voicemails after hours and on the weekends. Don’t allow yourself to be blindsided.

The next thing to consider is whether to give raises to those who are below, but very close to, the threshold and who are most likely to work overtime to avoid the overtime obligations.

Note: Non-discretionary bonuses may be allowed to be counted, and possibly commissions, toward 10 percent of workers’ salary levels. That may help to move a few of those near the line over the threshold without having to give them a raise. But, no one knows until the final rules are issued.

2. Assess effects on benefits

Do you have certain benefits for exempt employees that non-exempt ones don’t have? That’s a question you’ll want to address. Once re-classifications are instituted, many people may be losing benefits they may have been enjoying for years.

If that’s the case, should you change your benefits plans to allow those reclassified workers to keep their benefits, or do you want to eliminate those benefits to make up for any costs as a result of now paying those workers overtime?

3. Expand time-tracking systems

Any way you look at it, the non-exempt population is going to swell. That means you need to expand your time-tracking systems to ensure proper overtime pay. A visit with the tech department now will go a long way toward implementing a workable system to handle the new load later in the year.

4. Look at remote work arrangements

What do the impending rule changes mean for remote work: checking and responding to work email and voicemail, taking off-site meetings and calls after work, etc.

You can make all the rules you want to prohibit employees from engaging in these activities, but some of them are just going to do it. And, whether you agree to the overtime or not, whether or not you approve it, you still have to pay for the time spent doing it. And, when that happens, you need to ensure you have a way to track that time so you can correctly compensate them. That’s another reason to get with your IT people now rather than later. They  need time to come up with tracking mechanisms for after-hours and at-home work.

It’s interesting to note that in the Spring 2015 DoL Regulatory Agenda,  the DoL said it is seeking information on “… [T]he use of technology, including portable electronic devices, by employees away from the workplace and outside of scheduled work hours …”

This means there could be  some rule-making on this subject as well — like perhaps a definition of what qualifies as “de minimis” work.

Currently, the FLSA says “de minimis” work (typically five minutes or less) done beyond the 40-hour workweek by non-exempt employees is not compensable.

The common practice of workers reading and responding to emails off the clock on their smartphones, though, has complicated the issue of “de minimis” work.

5. Create a communication plan

Believe it or not, (the DoL doesn’t), being reclassified from exempt to non-exempt feels like a demotion.

If you don’t plan to raise some (or all) of your currently exempt workers’ salaries to the new minimum, you need to have some sort of communication plan in place. If you’re not going to raise some workers’ salaries and they’re about to be reclassified as non-exempt, you need a plan in place for how you’ll break the news to them.

Biggest issues to cover:

  • Punching a clock. More workers will be doing it, and it will look and feel like a demotion. How will you explain why it’s now necessary?
  • Loss of flexibility. Taking time off to go to the doctor or attend a child’s event could result in less pay for newly minted hourly workers. How will you break this news to them?  Will you let them make up the time? If so, will the other hourlies be allowed to make up time?

Bonus: Potential duties test changes

The DoL may eliminate the “concurrent duties” rule and require employees to spend more than 50% of their time exclusively on exempt duties for them to maintain an exempt classification.

Assume those changes will be adopted and you could avoid costly surprises down the road.

Information provided by writer, Diane Faulkner, is not legal in nature. All reviews and opinions are submitted and based upon extensive research, experience in the human resources and labor relations fields and are not, in any way, legal opinions.

5 Steps to Prepare for New Overtime Exemptions Rule

Proposed Changes to FLSA (a.k.a. Fair Labor Standards Act or Wage & Hour)

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The U. S. Department of Labor’s Wage and Hour Division finally released its 295-page long Notice of Proposed Rulemaking (NPR) that proposes changes to the executive, professional, highly-compensated, and administrative employee exemptions from the Fair Labor Standards Act (FLSA) overtime requirements. The release, which was posted June 30, 2015, was accompanied by a Fact Sheet and Frequently Asked Questions (FAQ) list.

Employers should be aware of the following key sections:

SALARY TEST CHANGES

There are basically two changes that stand out. One is the weekly salary that must be paid for an employee to qualify for the executive, professional, or administrative exemptions from the FLSA overtime rule. The other is the annual compensation that must be paid for an employee to qualify for the highly-compensated exemption.

Since the last update in 2004, the current salary threshold for the executive, professional, and administrative exemptions is $455 a week, which translates into $23,660 a year. The proposed minimum weekly salary is set at the 40th percentile of weekly earnings for all full-time salaried employees. Since the Final Rule is expected to be issued in 2016, the projected new figure is $970 a week ($50,440 a year). Yes, that’s more than double the current threshold.

The effect? A dramatically increased number of salaried employees will qualify for overtime pay. In fact, in his editorial about the proposed rule, President Obama noted that approximately five million employees in the United States will qualify for overtime pay if the proposed rule is adopted.

The surprise in the NPR is the proposal to automatically increase the minimum weekly salary requirement each year based on data from the Bureau of Labor Statistics. This marks the first time since FLSA was passed in 1938 that such a requirement has been suggested. How to index the figures has not yet been chosen. Two different indexing methods have been studied and the Department is soliciting comments on the process.

Similarly, the Department has proposed to increase the minimum annual compensation for the highly-compensated employee exemption. Currently, the figure is $100,00. The proposed figure is, in 2016 dollars, $122,148.  This figure, too, is proposed to be increased annually based on the same index that would apply to the weekly salary requirement.

NO DUTIES TEST CHANGES

Though Duties Test changes were predicted for the executive, professional, and administrative exemptions, even adoption of a California-style requirement that 50 percent of an exempt employee’s time each week be devoted to performing exempt tasks, no changes are forthcoming. Rather, the Department is soliciting comments about the respective Duties Tests. No specific regulatory changes have been proposed at this time.

What will the Department do regarding the Duties Tests? There are two trains of thought: by not proposing changes, commentators believe the Department may have foreclosed its ability to make regulatory changes without further notice and comment; and, the solicitation for comments may indicate that the Department is considering issuing a second round of proposed amendments and opening up a second comment period at a more opportune time.


GOING FORWARD

In the next few days, the NPR is expected to be formally published in the Federal Register, and President Obama is scheduled to publicly comment on July 1st. The Federal Register will provide the timeframe during which written comments will be accepted, which should be at least 60 days. Comments may be submitted at regulations.gov.

Disclaimer: I am not a licensed attorney. My blogs are based on my own experiences, interviews (where credited), and loads of research, and do not represent legal advice.

Proposed Changes to FLSA (a.k.a. Fair Labor Standards Act or Wage & Hour)

Supreme Court Frees up Federal Agencies’ Rights to Reinterpret Regulations at Will

Diane Faulkner, , , , , , , , , , Leave a comment

In case you haven’t heard, the U. S. Supreme Court unanimously upheld federal agencies’ rights to not have to go through formal rule-making to make changes to rules that interpret regulations. On March 9, 2015, the high court concluded that the U. S. Department of Labor (DOL) acted properly in issuing an “administrator interpretation” that reclassifies mortgage loan officers as overtime-eligible under the Fair Labor Standards Act (FLSA). (Perez vs. Mortgage Bankers Association, No. 13-1041).

Justice Sonya Sotomayor wrote the majority opinion that was backed by Justices Samuel Alito, Antonin Scalia, and Clarence Thomas who each wrote supporting opinions. In short, Justice Sotomayor concluded that the U. S. Court of Appeals for the District of Columbia’s Circuit’s decision in Paralyzed Veterans of America vs. D. C. Arena, 117 F.3d 579 (D. C. Cir. 1997), which states that an agency cannot significantly modify a previously issue definitive interpretation of a rule without public notice and comment is “contrary to the clear text of the” rule-making provisions of the Administrative Procedure Act (APA).

What Does This Mean?

With this ruling, agencies such as the National Labor Relations Board, Equal Opportunity Commission, and the Department of Labor will be given a wide berth to formally proclaim and put into action rules outside the normal agency rule-making procedures of notice, rebuttal time, and comment considerations from constituent groups. John Meyers, an attorney with Barnes & Thornburg in Atlanta, told Society for Human Resource Management’s SHRM Online that, “We can expect the current administration to use this ruling to back up its authority to pass new or change existing precedents.”

Attorney Tammy McCutchen with Littler in Washington, D. C., and was the DOL Wage & Hour Division Administrator from 2001-2004 said she was not surprised by the decision, that it was a pretty straightforward statutory interpretation. The ruling “should give the DOL the confidence to issue more interpretations of its own regulations through administrator interpretations.”

The Changes in Overtime Eligibility

In 1999 and 2001, the DOL issued interpretive opinions that mortgage loan officers did not fall under the FLSA overtime pay requirement. In 2006, however, a new interpretive rule said those officers were exempt, and employers did not have to pay them overtime.

In 2010, the rule changed again, when the DOL issued an interpretive rule stating that the 2006 rule adopted an incorrect interpretation of a 2004 regulation that what jobs qualified for exemptions from the overtime rule. Once again, mortgage loan officers qualified for overtime pay.

The Mortgage Bankers Association sued with the argument that the department violated the APA by failing to provide public notice and an opportunity to comment on the 2010 interpretive rule before issuance. The District Court agreed with the government’s argument that the plain text of the APA exempts agency interpretive rules from notice and comment rule-making.

The U. S. Court of Appeals for the D. C. Circuit reversed the ruling, relying on Paralyzed Veterans decision.

The High Court agreed to hear the case on June 16, 2014, with oral arguments on December 1st.

Opinions Most Interesting

McCutchen said the “most interesting” part of the decisions was the concurring decisions by Alito, Scalia, and Thomas. They agree that the D. C. Circuit Court cannot create procedural hurdles to an executive agency changing interpretations of their regulations by requiring notice and comment rule-making when these requirements to not exist in the APA.

“They also recognize the problem of unchecked executive agencies issuing interpretations of their own regulations–without notice to the public, but which really do bind the public–and to which courts must defer under prior Supreme Court precedent.”

“The concurring justices seem sympathetic to the evil the D. C. Circuit was trying to address, although they agree the D. C. Circuit’s approach was not consistent with the APA.”

“Instead,” McCutchen said, “The three justices suggest that the court should reconsider prior cases requiring deference to an agency’s interpretation of its own regulations.”

In the words of Justice Scalia, “I would, therefore, restore the balance originally struck by the APA with respect with an agency’s interpretation of its own regulations…The agency is free to interpret its own regulations with or without notice and comment; but courts will decide–with no deference to the agency–whether that interpretation is correct.

Disclaimer I am not a licensed attorney. My blogs are based on my own experiences, interviews (where credited), and loads of research, and do not represent legal advice. 

Supreme Court Frees up Federal Agencies’ Rights to Reinterpret Regulations at Will