I have blogged about some USDOL initiatives of late and see they are picking up some momentum with further developments coming down the line. The agency is going to revise the manner in which overtime is calculated (maybe to the employer’s benefit) and speak more on the issue (thorny as it is) of inclusion of bonuses in the regular rate.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There are other forms of “compensation” for employees, such as employee discounts and referral fees. The issue of whether these items are includible in the regular rate may also be opined about.  As I blogged about, the regulatory Agenda specifically stated that it would “clarify, update, and define regular rate requirements.” No other details have been forthcoming.

There is consensus that the new regulations would establish new groups of payment that may be excludible from the regular rate for overtime which businesses would welcome. There are any number of non-economic incentives and “payments” that are not directly amenable to computation and should (or should not) be includible.

Mr. Alexander Passantino, a former Wage-Hour Division Chief has observed that “it would be nice to have more guidance on what you’re talking about there so that we could give clients more advice on that with more certainty. Clients come up with good ideas on how they want to reward employees. It’s just helpful to say, ‘Yeah, that’s going to impact overtime rate,’ or, ‘no, it’s not.’”

The Takeaway

I agree with that sentiment. Employers want to comply with the law and often times have difficulty in properly interpreting what the FLSA does/does not command.  We will see what happens to the definition of the “regular rate” and what items it will/will not include.

I can’t wait…  .

I remember with fondness the Sonny & Cher song, “The Beat Goes On.” That song could be easily applied to the saga of the USDOL overtime rule, which continues. Although the proposed rule has been shot down by the Fifth Circuit, the USDOL will now request that the Fifth Circuit reverse a Texas federal court order blocking the new rule. That new rule would have doubled the salary threshold for employees to be exempt.

The DOL has stated that it would request that the appellate court hold the appeal in abeyance “while the Department of Labor undertakes further rulemaking to determine what the salary level should be.” The agency, however, gave no details at all in the simple appeal notice. The cases are entitled State of Nevada et al. v. U.S. Department of Labor and Plano Chamber of Commerce et al v. R. Alexander Acosta, both filed in federal court in the Eastern District of Texas.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There is another case on this issue pending. The Fifth Circuit is simultaneously considering the government’s appeal of a preliminary injunction Judge Mazzant issued in November 2016, which stopped the rule from taking effect, but a few days before it would have been implemented. The Obama DOL appealed the ruling before the new Administration took over.

The District Court Judge, Amos Mazzant, had concluded that the USDOL exceeded its authority when it doubled the salary requirement for exempt status. The Judge stated that the DOL “exceeded its authority” by “creat[ing] a final rule that makes overtime status depend predominantly on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.” The Obama DOL immediately appealed and although the Trump DOL initially followed up on the appeal, with the goal of having the Fifth Circuit affirm its power to set salary levels, the agency then requested that the Fifth Circuit dismiss the appeal prior to the grant of summary judgment.

One commentator observed “the appeal] is less about appealing Judge Mazzant’s decision to strike down the overtime regulations that had been proposed under President Obama’s administration and more about preserving the concept that the Department of Labor has the authority to modify the overtime rule to begin with.”

There is an expectation that the DOL will propose lifting the salary level to $30-35,000 per year. This would be what the 2004 level would now be, considering inflation. The Labor Secretary has given no indication of what the agency will do. He has, however, in the past, stated he might want to raise the salary level in that area.

The DOL issued a request for information in the summer, asking for public opinions on the manner in which the rule should be changed. Approximately 165,000 comments were submitted on different elements of any salary test, e.g. what level to set salary, whether geography should play a role.

The Takeaway

I believe the DOL has the authority to set salary levels, as it has done many times through the decades. The level that the agency chose, however, was unreasonable and would have been bad for business. I am also intrigued by the concept of making allowances for differences in salary level based on geography.

I think that makes good sense…

Well, it finally happened. A Texas federal judge struck down the Obama Administration’s proposed changes to the FLSA overtime regulations, which would have made millions of more people eligible for overtime. The Court’s theory was that the U.S. Department of Labor used a salary level test that was excessive in determining whether workers should be exempt from overtime. The case is entitled State of Nevada et al. v. U.S. Department of Labor et al. and was filed in federal court in the Eastern District of Texas.

The Judge granted summary judgment to the Plano Chamber of Commerce and more than 55 other business groups. These entities had fought the proposed 2016 rule that highly elevated the minimum salary threshold necessary to be deemed exempt under the FLSA “white collar” exemptions, executive, administrative, and professional. The new level would have been more than $47,000 per year ($913 per week). The highly compensated exemption (HCE) would have gone from $100,000 to approximately $134,000.

The Judge opined that the “significant increase” would negate or totally undermine duties test, which is a critical component of the exemption analysis. The Judge stated that, “the department has exceeded its authority and gone too far with the final rule. The department creates a final rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There is another case on this issue pending. The Fifth Circuit is simultaneously considering the government’s appeal of a preliminary injunction Judge Mazzant issued in November 2016, which stopped the rule from taking effect, but a few days before it would have been implemented. The Obama DOL appealed the ruling before the new Administration took over.

The judge noted that if the DOL proposal went through, then more than four million workers currently not eligible for overtime would automatically be eligible under the final rule, although their job duties had not changed. The Judge noted, “because the final rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress’ unambiguous intent.” The Judge cautioned that he was not making any determination on the issue of the DOL’s authority to set a salary threshold.

The new Secretary of Labor, Alex Acosta, has advised lawmakers that the DOL wanted to revise the overtime rule, establishing the salary level somewhere between the “old” level and the very high level set in the Obama-DOL rule. Mr. Acosta stated that level was too harsh on businesses.

The Takeaway

In principle, I agree with the concept that the duties portion of the test is as important as the salary component and raising this salary in this extreme manner was too much for business to bear. I had clients make changes back in November 2016, in anticipation of the rule, and now they are living with (and paying for) those changes because they do not want to penalize their employees. With that said, I do believe the salary level will (ultimately) be raised.

I have blogged often on these new OT regulations and now it seems the game is continuing, with opposition (not unexpected) from the current administration. The USDOL has released its request for information (RFI) on the revision of the white-collar overtime exemption rules. This has engendered, and will continue to engender, a great deal of controversy. The Obama administration-authored changes to the rules would double the salary level for workers to qualify as overtime-exempt.

The request for information requests stakeholder input on the salary test for exemption under the Fair Labor Standards Act. The questions that the DOL has posed shows that the agency is weighing many options for the rule.  These include setting the salary threshold differently depending on geographical area or possibly eliminating any salary test at all and focusing only on employee job duties to determine if a white-collar exemption (executive, administrative, professional) applied.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
Alfred Robinson, a former WHD Administrator, and someone likely to know, has stated that. “I’ve seen offices that maybe pushed liquidated damages or things of that nature beforehand are not so adamant about it this year.”  He added that, “I read the tea leaves as suggesting that hopefully some reason is coming into some of the enforcement practices.”

In November 2016, an employer group sought and secured a nationwide injunction from a federal court in Texas against the proposed overtime rule.  The new Secretary of Labor has indicated that the new salary level should be set somewhere between the old level and the proposed one (approximately $47,000 per year), but, significantly, the RFI does not suggest the level where it should be set.  The DOL states that “concerns expressed by various stakeholders after publication of the 2016 final rule that the salary level would adversely impact low-wage regions and industries have further shown that additional rulemaking is appropriate.”

The exemption test is now tri-partite—employees must be salaried, must earn a certain minimum salary and must perform certain duties.  The exemption regulations are updated periodically; the last time was in 2004 when the salary level was raised from $250 per week to $455 per week and some changes were made to the duties components of the so-called white-collar exemptions.  The current proposal would not touch the duties tests but would raise the salary level to $913 per week.

The RFI does not trigger the formal rulemaking process that will rescind or modify the proposed (and currently enjoined rule) but the purpose is to secure data and feedback on an issue of concern. Significantly, the agency is on record as stating that it will not seek to revise the rule unless the Fifth Circuit affirms the DOL’s ability and right to establish a salary test.

The Takeaway

I find most interesting the concept that only duties should determine whether an employee is exempt or not.  That might make it easier for employers to maintain lower level supervisors as exempt, as for example, in the retail industry.  Maybe employers would like even better the reverse—if the employee makes a certain amount of salary, he/she is, by definition, exempt.

That seems simpler…

The attorneys for the USDOL advised the federal Fifth Circuit Court of Appeals that the agency does intend to revise the currently pending changes to the overtime regulations.  The lawyers also requested that the Court approve of the agency’s right to use salary levels to determine exemption status.  The case is entitled Nevada et al v. USDOL and is being heard in the Fifth Circuit.

The lawyers requested “that this Court not address the validity of the specific salary level set by the 2016 final rule ($913 per week), which the Department intends to revisit through new rulemaking.” In lieu of such a holding, the DOL wants the Court to acknowledge that the USDOL possesses the authority to establish a salary minimum; if a salary is less than that amount, the employees would be automatically entitled to overtime for actual hours worked exceeding forty (40).

U.S. Secretary of Labor Alex Acosta
Secretary of Labor Alexander Acosta

A federal district court Judge stayed the rule last year.  The lower court found that the agency emphasized salary levels too much, rather than the job duties performed, in determining exempt status under the proposed revision.  The new Secretary of Labor, Alexander Acosta, stated during his confirmation hearing that this decision seemed to question whether the agency had the power to set a salary threshold.

The DOL has submitted a request for information on the overtime rule to the Office of Management and Budget.  This action suggests that the DOL is prepared to reconsider the pending regulation.  Mr. Acosta hinted that he could envision the current $24,000 salary threshold rising to the low $30,000 range.  The rule, as currently constituted, is estimated to make another four million people eligible for overtime.

The Takeaway

This is an interesting development.  Perhaps the Court will be guided by the government’s arguments and toss this hot potato back to the agency to establish a new (and more business friendly) salary threshold.

*Photo credit: By US Department of Labor (L-17-05-01-C-AlexanderAcosta-023-E) [Public domain], via Wikimedia Commons