U.S. Department of Labor Headquarters

A federal district court in Texas yesterday struck down (once and for all?) the changes to the overtime rules proposed by the Obama Administration.  Previously, those rules (affecting the white collar exemptions) had been stayed, but the Court’s ruling suggests that there is a fatal flaw to the proposed rules and barred its implementation.

In doing so, the Court said that the salary-level test that was proposed was too high to determine which workers were exempt from overtime compensation.

Of course, there was little chance that these rules were going to get the go-ahead anyways because the Trump administration has shown no desire to support them either politically or in court.  Indeed, in July, the Department of Labor sought public feedback on ways to revise the proposed rule.

The ruling applies to employers nationwide.

While you’ll see a round of headlines today about how this is a big decision, it really should come as no surprise for those of us who have been following this for many months.

So all that guidance last year about how to comply with the new rules? Forget about it for now.

Keep calm and carry on.

 

USDOL Headquarters in DC
USDOL Headquarters in DC

Over the last few weeks, there’s been a lot of bluster about lawsuits filed that are challenging the new overtime rules that are set to take place in just a few weeks. And there was also news that Congress was considering a law restricting the law as well.

Both seem unlikely to come to pass and employers that have been postponing action in the hopes of a “white knight” on the issue should think twice.

I covered the new rules in several prior posts (here and here, for example). But as a reminder, the rule becomes effective December 1, 2016. Note that December 1 is a Thursday, so employers will have to make sure that the entire pay period is compliant with the new rule.

So, that leaves you with precious few weeks to get into compliance.  There are a number of different approaches to take and its definitely not a one-size-fits-all type of law.

One suggestion though is to have your trusted attorney or HR consultant take a look at any questions you have.  We have done this for several and there are some challenges that may seem unique to your business that other companies have struggled with as well.

If the court suspends implementation of the new rules, you can still decide then, but it may be a game-time decision given how late we are in the process.

USDOL Headquarters in DC
USDOL Headquarters in DC

Late Monday, several reports on Twitter indicated that the Department of Labor would be announcing and releasing the final version of the revisions to the white-collar overtime regulations.  You can see my prior posts on the subject here and here.

This has been a long time coming. It was way back in 2014 (!) that the President indicated that he wanted the USDOL to revisit them.

And the anticipation on Twitter has been breathless with so-called experts predicting for months that the new regulations would be released any day. Or last week.  Or in July.  And speculation on what would be in the final overtime rule has run rampant.

So, rather than predict what will be in the final regulations, I want to highlight three areas that I’ll be looking at in my initial review of the regulation.

  1. Salary Test: The proposed rule last year raised the salary test to $50,440 from its current level of $23,660 (which the vast majority of employees meet in Connecticut due to minimum wage being high.)  The latest thinking is that the final rule will set that threshold at $47,000.  (UPDATED: News reports on Tuesday afternoon indicated that the threshold will be set at $47,476 and be updated every three years.)  What does that mean? It means that any employee who is paid less than that amount regardless of his or her duties would need to be paid overtime for any work over 40 hours.  That would indeed be a big change.  So, when we look at the new rule, first item to look at is the salary threshold set by the USDOL.  There is no question it will be high; it’s just a question of how high.  Bonus item to look at: Will the salary test be tied to inflation? In other words – will the threshold keep up with inflation automatically in future years? The proposed version tied it to the 40 percentile of income; will that remain in the final rule?
  2. Duties Test: The proposed rule did not explicitly change the duties test for overtime — meaning that the administrative, professional and executive exemptions would still apply as current framed — albeit at a higher salary threshold.  However, the proposed rule solicited input from the public about how best to alter the duties part of the test.  Would the USDOL be so bold as to introduce changes to the duties test without first floating it in a proposed rule? The prevailing wisdom is no, but keep an eye on that and any hints about future revisions to this rule. (UPDATED: News reports on Tuesday suggest that no changes to the duties tests will be forthcoming.)
  3. Timing: Another thing to look for in the final rule: How much time will employers have to comply? And how long until the rules go into effect? Back in November 2015, a government official suggested that employers would have 60 days to comply. Will that hold up? (UPDATED: News reports on Tuesday also indicated that employers will have until December 1, 2016.) 

For employers in Connecticut, the new rules will make things particularly challenging. For years, Connecticut’s stricter overtime rules have been the go-to source for employers. However, with the new federal rules being even stricter (or, more favorable to the employee) than the state rule, we may see a return to federal dominance.  So a bonus thing to look for in Connecticut: How will these rules interact with Connecticut’s rule? Don’t just read the federal rule in isolation.

And to be clear, there are other aspects of this rule that we will undoubtedly have to look for.  But I’m not going to make predictions about a rule we haven’t seen.

I will make one overall prediction, however: Publications, blogs and people on Twitter are going to be hysterical over the pronouncements of the new rule. My suggestion? Ignore them.  The hype is designed, in part, on scaring employers into a frenzy.

What to do instead? Employers should view this new overtime rules with a bit of detachment.  Get the facts.  Then, figure out what applies to your business and start work on a plan to meet those requirements.

USDOL Solicitor Smith speaks at ABALEL conference
USDOL Solicitor Smith speaks at ABALEL conference

Over the next few days, I hope to provide a few updates from attending last week’s ABA Labor & Employment Law Annual Conference in Philadelphia.  There were many good, substantive programs there and lots to be gleaned for employers.

One of the sessions focused on the proposed revisions to the white collar overtime exemptions that were released for comment earlier this year.  The Department of Labor Solicitor Patricia Smith provided some insights in a panel discussion about where things were headed.

(For more background on these proposed revisions, see my prior post here.)

The solicitor indicated that the DOL received over 270,000 (!) comments to the proposed revisions and that more than 3,000 of those were “substantive” in nature. That unprecedented number of comments means that a good deal of time must be spent by the DOL to review those comments. She indicated the DOL was still reviewing the comments.

As a result, she indicated that the final version of these white collar revisions would not come out until sometime in 2016.

You might be asking: When exactly?

Well, she didn’t indicate that other than to say that she hint opaquely that it might be “late” in the year.

My own speculation (and let me be clear that it is just that) is that the final revisions may not come out until after the 2016 Presidential election.  If they are released beforehand, it is possible, and perhaps probable, that they will become a campaign issue.

In any event, when the final revisions come out, the DOL solicitor indicated that employers will have 60 days to comply.  Thus, at this point, the very earliest employers can expect to implement these revisions is March or April 2016 – and again, that’s not likely.

So what are employers to do now? The usual things: Keep up to date on what is going on; review your existing positions for compliance and with an eye towards the revisions; consider your salary range for people that are close to the $50k proposed threshold.

DOLOn Monday night, details of the revised white-collar overtime regulations were released. But we’ll know more once the actual details get posted on the Department of Labor website on Tuesday. (Bloomberg was the first to report it Monday evening.)

(Update 6/30/15: The proposed regulations are now available online from the U.S. Department of Labor here.)

As you may know, in order to be exempt from overtime, typically two tests must be met: a “salary” test and a “duties” test. Employees who are paid below that threshold must be paid overtime even if the “duties” test is met.

But in recent years, the salary test has been very easy to meet. Enter the proposed changes to the regulations.

Among the details released tonight:

  • The regulations will raise the salary threshold from $23,660 per year to $50,440 – nearly $1000 a week ($970 a week if you’re really particular).
  • This threshold will not be linked to inflation but, according to Politico, will be tied to the 40 percentile of income (meaning, in essence, that 40 percent of the working population should be eligible for overtime pay)
  • Importantly, the regulations will NOT include changes to the duties test. Instead, it “solicits questions from the public about how best to alter it. As in the past, the new threshold will not affect teachers, lawyers, doctors and judges, who are all automatically exempt from overtime.”

What this means practically is that employers who have employees making less than $50k, need to review their practices now to see who may be impacted by these new regulations.

But don’t go revising all your policies yet. According to The New York Times, the new rules wouldn’t be implemented until at least 2016 — giving employers many more months to understand the changes.’

Taking advantage of new media, the President released his own op-ed on the subject on the Huffington Post Monday night.

This week, I’ll head to Wisconsin to discuss my plan to extend overtime protections to nearly 5 million workers in 2016, covering all salaried workers making up to about $50,400 next year. That’s good for workers who want fair pay, and it’s good for business owners who are already paying their employees what they deserve — since those who are doing right by their employees are undercut by competitors who aren’t.

That’s how America should do business. In this country, a hard day’s work deserves a fair day’s pay. That’s at the heart of what it means to be middle class in America.

Interestingly, some anticipate that employer will respond to these rules by actually lowering salaries:

Assuming the rule is put in place, economists believe that many employers will most likely reduce workers’ hours so as to save on overtime pay. Even so, the White House believes the rule could affect nearly five million workers in the short term. Meanwhile, any attempt to scale back hours could increase hiring.

Over the longer term, the effect of the rule could diminish substantially as employers offer new hires a lower base wage. This could make their overall pay, including the higher overtime wage, equivalent to what comparable employees make today in the absence of the overtime rule.

Again, we’re anticipating more details when the proposed regulations are now released as early as Tuesday morning.

 

The New York Times reported this morning that President Obama will ask the United States Department of Labor to revamp its regulations on the so-called “white collar” exemptions to the federal overtime laws.

Specifically, he will direct the DOL “to require overtime pay for several million additional fast-food managers, loan officers, computer technicians and others whom many businesses currently classify as ‘executive or professional’ employees.

The article also suggests that “he will try to change rules that allow employers to define which workers are exempt from receiving overtime based on the kind of work they perform. Under current rules, if an employer declares that an employee’s primary responsibility is executive, such as overseeing a cleanup crew, then that worker can be exempted from overtime.”

As of mid-morning, the order was still not available on the White House’s website but you can check here. 

However, based on the article, it seems that the executive and professional employee exemption would be most directly impacted, but it is unclear what the impact would be on the administrative exemption.

But before you start throwing out your position descriptions just yet, realize that the President’s direction is just the first step in a process, not the last.

The regulations still need to be drafted, proposed and then adopted by the United States Department of Labor. It is certainly possible that further revisions will occur during that process.  The timing of this is still unclear.

For employers in Connecticut, understand that if these new proposals do come into effect, it would provide a new “floor” for wage & hour laws in Connecticut and many employers would have to adopt them, even though Connecticut’s own rules would be different.  As I’ve noted before, when federal law provides more protection to employees than state law, federal law will control. (The vice versa also applies too.)

However, this suggests the most significant change we’ve seen in the wage and hour area in a decade and could potentially open up a new front on the wage & hour class action battles.

So stay tuned.