A. New Rules on the Horizon To Make More Employees “Non-Exempt” On March 13, 2014, President Obama declared that “Americans have spent too long working more and getting less in return,” and ordered the Department of Labor (“DOL”) to revise federal rules on overtime pay to make millions more workers eligible for overtime when they work more than 40 hours a week. The President’s stated intent was to modernize and streamline the existing overtime regulations for exempt executive, administrative, and professional employees, that President Obama believes has not kept pace with America’s modern economy because the DOL last revised the pertinent regulations in 2004. Among other things, the President identified the fact 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 that time, the DOL met with a variety of organizations, including employers, workers, unions, and others. These conversations focused on a number of topics, primarily among them the compensation levels for the exempt classifications as well as the duties required to qualify for exempt status. On June 20, 2015, the DOL issued a Note of Proposed Rule Making, which identified a number of specific changes to existing DOL regulations, such as: 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 or $50,440 per year 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. Importantly, the proposed increased salary level for exemption will have a disproportionate impact in states with lower costs of living, which in addition, had naturally lower salaries. In addition, the DOL invited comment on a host of additional issues, indicating that additional significant revisions to the regulations in a Final Rule are possible. Among the many possible additional revisions is a potential modification of the current duties tests for exempt status, including the “primary duty” standard. The current duties test includes: • • •
The exempt duties are the principal, main, major or most important duties. Based on all facts, with major emphasis on the character of the job as a whole. Time spent on exempt duties is a “useful guide” but not determinative.
This test could be modified in a number of ways including by such means as: • • •
Adopting the California model requiring that exempt employees spend more than half of their working time on exempt tasks; Placing quantitative limits on the amount of time exempt employees may spend on nonexempt duties; or Modifying or eliminating the concept of concurrent duties whereby exempt employees can maintain exempt status when performing exempt and non-exempt activity simultaneously.
B. Misuse of the Independent Contractor Classification On July 15, 2015, the DOL issued guidance aimed at curbing the misclassification of employees as independent contractors, saying that most workers qualify as employees under the Fair Labor Standards Act and stressing the statute's expansive definition of employment. DOL Wage and Hour Division head David Weil's 15-page “administrator's interpretation” pointed out that employees improperly labeled as independent contractors may miss out on things like minimum wage and overtime pay, and added that correct classification has “critical implications” for the legal protections workers receive, particularly low-wage workers. Under the FLSA, the key question is whether a worker is genuinely in business for him- or herself, making that worker an independent contractor, or is economically dependent on the employer, the agency said, going on to discuss six “economic realities factors” that guide the classification assessment. All of the factors must be considered in each case, and no one factor is determinative. Those factors include: whether the worker's work is an integral part of the employer's business, whether the worker has an opportunity for profit or loss, the nature of the worker's investment in the company (investment in tools and equipment is "probably" not
enough), a worker's use of business skills and initiative as opposed to technical skills, the permanence or indefiniteness of the relationship, and, finally, the nature and degree of the employer's control. Beginning with the precept that "most workers are employees under the FLSA's broad definitions," the administrator's interpretation appears to support a presumption of employment for workers. This heralds a significant expansion of the employment relationship. As such, all employers should scrutinize their relationships with independent contractors carefully. Significantly, the new administrator's interpretation came two weeks after the DOL unveiled a proposed rule that would broaden federal overtime pay regulations to cover nearly five million more people and more than double the minimum salary threshold required to qualify for a “white collar" exemption under the FLSA. C. Why Are Wage And Hour Cases So Important? As evidenced by recent actions, this is the most aggressive DOL in history. In addition, wage and hour claims can be viewed as easy money for the plaintiff’s bar, for the damages can be staggering. They may include: • • • • •
A two (for non-willful violations) or three year (for willful violations) look-back; Application on a class basis (e.g., every person in the position); Liquidated damages (i.e., double or triple, when combined with state penalties); Attorney’s fees; and Civil and criminal penalties against employers and individuals.
In addition, and as a reminder, more than 25 states, as well as many local jurisdictions, require more than the FLSA does, including some that have already moved the minimum wage to $15.00 per hour or more. 1272271