Martha Zackin

DOL Expands Industries Eligible for Overtime Exemption for Commissioned Employees

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By Alexandra D. Thaler

On May 18, 2020, the federal Department of Labor, Wage and Hour Division issued a final rule that expands the types of industries that may be able to take advantage of the overtime pay exemption for certain employees paid primarily on a commission basis.  Specifically, the Fair Labor Standards Act (FLSA) includes an exemption from the obligation to pay overtime to employees who work more than 40 hours in a workweek if they work for a “retail or service establishment,” are paid at least 1.5 times the applicable minimum wage, and receive more than half of their total earnings for a representative period in the form of commissions.  The term “retail or service establishment” is defined to mean establishments 75% of whose annual dollar volume of sales of goods or services (or of both) is not for resale and which are recognized as retail sales or services in the particular industry.[1]  Under long-standing Division regulations, some industries were identified as having “no retail concept” (29 CFR § 779.317), and this list was considered in determining which industries could not claim the exemption, while the WHD deemed that others “may be recognized as retail” (29 CFR § 779.320), and therefore could avail themselves of the exemption if the other requirements were established.  Now that the DOL has withdrawn both lists, employers in a wide variety of industries—from accounting firms to laboratory equipment dealers to sign-painting shops to those selling window displays—should consider whether they may fit the definition of “retail or service establishment” and therefore can take advantage of a newfound flexibility in compensation for certain employees.

Over the last eight months, the DOL has issued several new final rules interpreting the FLSA, including:

  • Updating guidance for determining joint employer status (January 16, 2020, available here);
  • Changes to the calculation of the “regular rate” so that certain kinds of compensation no longer have to be factored into an employee’s rate for purposes of determining their overtime rate of pay (December 16, 2019, available here); and
  • And, as we previously explained, updating the earnings thresholds for employees exempt under the administrative, executive, learned professional and “highly compensated employee” exemptions (issued September 24, 2019, effective January 1, 2020, available here).

Of note, the withdrawal made public on May 18th has immediate effect, without any notice and comment period or other delay.

[1] Certain retail or service establishments may be exempt from the FLSA altogether if they do not meet minimum thresholds for sale of goods or services in interstate commerce. 209 U.S.C. § 203(s), 29 CFR § 779.337.

Martha Zackin

DOL Issues New Overtime Rule for Exempt Employees

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By Alexandra D. Thaler

With the U.S. Department of Labor’s new overtime rule becoming effective in less than two months, on January 1, 2020, employers are well advised to be working now to implement any needed changes by the new year.

This fall, the DOL issued its final rule affecting pay requirements for exempt executive, administrative and professional employees (the so-called “white collar” exemptions) under the Fair Labor Standards Act (FLSA).  The rule:

  • Raises “standard salary level” required for the white collar exemptions to $684 per week (annualized to $35,568), up from the $455 per week level that has been in place since 2004;
  • Raises the annual compensation requirement for “highly compensated employees” (those who have at least one exempt duty) to $107,432 per year, up from $100,000;
  • Allows nondiscretionary bonuses and incentive payments (including commissions) to be used to satisfy up to 10% of the standard salary level, including in a one-time catch-up payment, if certain conditions are met; and
  • Revises certain special salary levels applicable to workers in U.S. territories and the motion picture industry.

Employers that elect to transition currently exempt employees into overtime-eligible status, and decide to change from salary to hourly pay, will need to determine a method for setting the pay rate.  While the “reverse engineering” method, which uses the current salary to arrive at an hourly rate, may address business needs in some cases, employers should note that use of this method may be constrained in states with stringent Equal Pay laws.  Employers interested in using the 10% allowance to meet the new pay obligations are advised to consult with counsel before proceeding, as failure to meet the conditions in the new rule results in loss of the exemption and therefore liability for overtime pay.

Employers that decide to move forward with the shift from exempt to non-exempt status should plan ahead to address likely logistical and employee relations challenges, for example:

  • Ensuring accurate recording and timely reporting of hours of work for a new cohort
  • Ensuring compliance with meal and rest break requirements in certain states
  • Changing wage payment timing, in states where non-exempt pay must be more frequent
  • Devising appropriate messaging to deal with such issues as potential concerns of employees who view the change as a demotion or reduction in status, or who have questions about past practices

As a reminder, businesses must also comply with state and local overtime pay requirements and exemption standards.   Where those standards already exceed the new FLSA levels, such as in New York, California, and Alaska, the new DOL rule will have little practical impact on exempt employees’ pay.  More generally, however, companies should track overtime pay obligations on the state and local level to ensure these obligations are met as to non-exempt employees.  For example, California, Colorado, and several other western states have daily (not just weekly) overtime pay requirements.  In addition, some states do not recognize the same exemptions from overtime as are available under the FLSA, while others apply different duties tests when determining whether an exemption applies.

While the DOL rule appears fairly simple at first glance, it can raise complicated compliance issues, which should be considered carefully before changes are implemented.  At the same time, employers that have been considering changes to employee classifications may find this is a logical time to implement them.  Your Bello Welsh, LLP counsel is available to advise you on these matters and to work with you to determine available options, assess legal and business risk, and implement an agreed plan.

Martha Zackin

DOL Signals Loosening in Regulatory Stance on Independent Contractor Misclassification and Joint Employer Liability

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Alexandra D. Thaler and Justin Engel

The federal Department of Labor signaled this week that it is reversing course on Obama-era policies that had resulted in the risk of expansive employer liability with respect to worker classification and joint employment.  The DOL’s withdrawal of two controversial guidance documents from 2015 and 2016 is one in a series of steps indicating that the Trump administration seeks to make good on campaign promises to loosen regulations on employers.

In 2015 the DOL had articulated its view of the definition of an employee under the Fair Labor Standards Act in the context of independent contractor misclassification.  In an informal guidance known as an Administrator’s Interpretation (AI), the DOL reviewed the application of the so-called “economic realities” test used to determine whether a worker is an employee or an independent contractor.  This multi-factor test is much broader than the common law “control” test, and as a result it sweeps more relationships under the label of “employment.”  The DOL thus concluded that application of the test results in the finding that “most workers are employees under the FLSA.”  Although the DOL purported to rely on established precedent in reaching this conclusion, its clear message to employees and businesses was that the Department would take the broadest possible view of employment relationships in investigation and enforcement proceedings going forward.  Accordingly, the withdrawal of the guidance sends the message that the DOL will be softening its stance on this issue.

As we wrote at the time, in a subsequent Administrator’s Interpretation issued in early 2016, the DOL advocated an expansive definition of joint employment.  The DOL asserted that joint employment could be either “horizontal” or “vertical,” and may exist when “an employee is employed by two (or more) employers and the employers are responsible, both individually and jointly, for that employee under the law.”   While the AI’s description of “horizontal” joint employment largely conformed to the established approach, which looks to the common law “control” test to determine whether an employee is sufficiently controlled by two or more employers for joint employment to arise, the DOL’s definition of “vertical” joint employment represented a significant departure from this precedent.  According to the guidance, “vertical” joint employment “exists where the employee has an employment relationship with one employer (typically a staffing agency, subcontractor, labor provider, or other intermediary employer) and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.”  By announcing that vertical joint employment status should be evaluated using the multi-factor “economic realities” test, the DOL clearly intended to broaden the circumstances in which employers could be found jointly and severally liable for FLSA violations.  Thus, the DOL’s withdrawal of the 2016 AI signals a return to the narrow common law focus on control as the touchstone for determining whether joint employment exists.

While it remains to be seen what specific impact the withdrawals of these interpretations will have, employers that had been wary of the Obama administration’s broad pronouncements in the area of wage and hour enforcement, and business groups that had urged the withdrawal of these interpretations, will welcome this change.   These and other recent announcements—including the proposed 2018 federal budget, which contains a dramatic 21% funding cut for the DOL and proposes the merger of the OFCCP into the EEOC while also significantly cutting the OFCCP’s budget—may mean that the regulatory landscape for employers will experience significant loosening in the months and years to come.  However, it is important to keep in mind that other regulatory or even Congressional action in other areas relating to the employer-employee relationship (most notably a possible increase to the minimum salary requirement for exempt employees on which the DOL will soon solicit public comment once again, according to a recent statement by Labor Secretary Alexander Acosta), may yet result in significant impact on businesses and individuals.

Martha Zackin

DOL Overtime Rule Stopped: Nationwide Injunction Issued by Texas Judge

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In a last-minute, and therefore surprising, decision issued today, a Texas Federal District Court judge has blocked enforcement of the revised federal overtime rule set to become effective December 1, 2016.  The rule, issued by the federal Department of Labor, would require employers to pay a salary of at least $913 dollars per week (equivalent to $47,476 per year), to most employees treated as exempt from overtime pay under the Fair Labor Standards Act, a significant increase over the current $455 per week ($23,660 annually).  The ruling came in response to cases filed in the last several weeks by certain groups of states, and the decision to issue the injunction has surprised some commentators.

Despite being issued by a single Texas trial court judge, the injunction ostensibly has nationwide effect, and completely prevents the DOL from enforcing the revised rule, just days before it was scheduled to take effect.  It remains to be seen whether an immediate appeal will follow, and ultimately whether the injunction will be upheld.  Employers that have not already implemented changes to employee pay or classifications will need to make decisions regarding whether to go ahead with changes in the face of this uncertainty.  We will continue to provide updated analysis and will be available in the coming days to discuss these developments with any clients seeking guidance in making these decisions.

 

Martha Zackin

Update on DOL changes to FLSA White Collar Exemptions

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By Alexandra D. Thaler

As we previously reported here, the Department of Labor will soon be revising the so-called “white collar exemptions” to the Fair Labor Standards Act (FLSA).  Recently, the DOL has indicated that it now plans to issue the Final Rule in July 2016.

To recap, on June 30, 2015, the DOL issued a detailed report and proposed rule, inviting the public to submit comments through September 4, 2015.  The agency has received nearly 300,000 comments to date, underscoring the intense interest the proposed changes have garnered across diverse stakeholder groups. Read more →

Martha Zackin

State Wage Penalties Available for Non-Payment of Federal Overtime

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By Kenneth M. Bello and Louise Reohr

A recent case highlights the need for Massachusetts’ employers to tread carefully around the so-called Wage Act, M.G.L. c. 149, § 148.  Under this law, an employee who successfully makes out a claim for non-payment of wages “shall be” awarded automatic treble damages together with litigation costs and attorneys’ fees.  Unlike the FLSA which permits the award of double damages as a liquidated remedy, the treble damages provision of the MA Wage Act is automatic, regardless of any good faith by the employer.  While there remain arguments automatic treble damages is an unconstitutional punitive remedy, to date there is no definitive state court ruling on such a challenge.  Read more →

Martha Zackin

DOL Issues Misclassification Guidance Broadly Defining “Employee”

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By Martha J. Zackin

On July 15, 2015, the Wage and Hour Division of the Department of Labor issued guidance aimed at clarifying the distinction between “employees” and “independent contractors.”   Published as an Administrator’s Interpretation, the DOL states that in its view, “most workers are employees under the Fair Labor Standards Act” (FLSA).  The Administrator’s Interpretation also states that its analysis and the broad definition of employee it espouses also applies to certain other federal laws, specifically referencing the Family and Medical Leave Act.   Importantly, the DOL announced a “misclassification initiative,” pursuant to which it has entered into numerous memorandum of understanding with states and the IRS to combat what it perceives as a significant, nation-wide problem of misclassification that deprives workers of important protections such as minimum wage, overtime compensation, unemployment insurance, and workers’ compensation. Read more →

Martha Zackin

DOL Issues Proposed Updates to FLSA White Collar Exemptions

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By Alexandra D. Thaler

On June 30, 2015, the Department of Labor issued its anticipated update to the so-called “white collar exemptions” to the Fair Labor Standards Act (FLSA).   The proposed rule more than doubles the minimum weekly salary threshold for the application of the Executive, Administrative, Professional, and Computer Employee overtime exemptions, and ties the rate to annual data on national wages for full-time salaried employees.  The rule would increase the minimum salary for exempt employees from the current $455 per week, or $23,660 annually, to an estimated $970 per week, or $50,440 annually when the final rule issues, likely in 2016.  The proposed rule would also increase the minimum compensation required to qualify for the Highly Compensated Employee exemption, from $100,000 to $122,148 annually based on current data, also tethered to annual wage rates.  The regulations do not change the optional hourly payment method for qualifying computer employees, which would remain at $27.63 per hour and would not be tied to changes in national wage data.

While the proposed rule does not currently include changes to the duties tests that also must be met for each exemption, in its 285-page statement accompanying the draft rule, the DOL advises that it is considering possible changes to the duties tests, and invites comments on these and other aspects of the exemptions.  For example, the DOL seeks comment on whether the duties tests “are working as intended to screen out employees who are not bona fide” exempt employees, specifically, whether employees should be required to spend a minimum amount of time performing “primary duty” work, whether the single standard duties test for each category is appropriate, and whether the “concurrent duties” regulation should be modified to prevent exempt-classification of otherwise nonexempt employees.  The Department also seeks comments on various other issues relating to the exemptions, including whether the national wage data methodology is appropriate, whether employers should be permitted to credit certain payments, such as non-discretionary bonuses and commissions, toward the salary requirement, and whether any additional occupational titles or categories should be included in the regulations regarding computer and information technology sectors.

In the short term, the rule is expected to affect nearly 5 million workers who currently make less than the proposed $50,440 annual salary threshold.  Still more will be impacted by the increase in the Highly Compensated Employee salary level.  The ultimate impact of the new rule remains unclear, with some economists predicting that workers’ hours, and ultimately wages, will go down to compensate for the changes.   The DOL will accept the public’s comments on the proposed rules, which can be submitted in writing or online until September 4, 2015.  All comments are made available online at http://www.regulations.gov.

Martha Zackin

HR Manager’s Remarks Regarding Nature of Hiring Process May Help Employee Establish Discrimination Case

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Written by Alexandra D. Thayer (posted by Martha Zackin)

On November 12, the Payroll Fraud Prevention Act of 2013 (S. 1687) was introduced in the United States Senate.   The bill, which would amend the Fair Labor Standards Act, seeks to impose new rules and penalties relating to misclassification of employees as independent contractors.  The changes would apply to all entities covered by the FLSA, including those that do not use independent contractors or other “non-employees.”

Although the Payroll Fraud Prevention Act would not prohibit the use of properly classified independent contractors, the bill would make it unlawful to “wrongly classify an employee . . . as a non-employee,” even if the misclassification is unintentional and made in a good faith attempt to comply with the law.  If passed as currently written, the bill would:

  • Impose treble damages for misclassification when the misclassification is combined with a violation of the minimum wage or overtime pay requirements of the FLSA;
  • Require every entity covered by the FLSA issue a classification notice to all workers, informing them of their status as an “employee” or “non-employee,” and directing them to the Department of Labor for guidance.   Failure to provide the required notice would result in penalties of up to $1,100 for each individual who did not receive notice.  This penalty would increase to up to $5,000 per individual for a second offense or a willful violation;
  • Authorize the Secretary of Labor to report misclassification information to the IRS, impose additional penalties upon employers that misclassify employees for unemployment compensation purposes, and conduct targeted audits within certain industries.

The issue of misclassification continues to be front and center for many lawmakers and regulators at both the state and federal levels.  Bills similar to the Payroll Fraud Prevention Act of 2013 have been repeatedly introduced in Congress since 2010, and numerous states have recently passed or introduced legislation specifically addressing misclassification.  The IRS and DOL are also actively pursuing employers in industries in which misclassification is viewed as prevalent.

Although in the current atmosphere of partisan gridlock on Capitol Hill the proposed bill is likely to face significant push-back, the issue of “misclassification” has been in the forefront for lawmakers and regulators in recent years and is unlikely to go away soon.  The broad scope of S. 1687 means employers will be well served to stay on top of this legislation should it move forward through Congress.