Department of Labor Update
A lot has happened (and in some cases, not happened) this summer related to the Department of Labor’s Wage and Hour Division, so let’s get caught up!
DOL Overtime Regulations Update: What We Know and What We Don’t
Since November, we’ve been waiting for final resolution regarding the DOL’s revised white collar overtime regulations. For those of you who have blocked this topic from your mind, the new rule, amongst other changes, more than doubled the required minimum salary level for employees exempt from overtime, from $455 per week to $913 (or $23,660 annually to $47,476).
If you recall, days before the new rule’s December 1, 2016 effective date, a judge from the Eastern District of Texas entered a nationwide preliminary injunction blocking the DOL from implementing the rule. The Obama DOL then appealed the matter to the Fifth Circuit Court of Appeals. The question then became whether a more conservative Trump DOL would continue with the appeal.
On June 30, 2017, after requesting a delay to consider its options, the Trump DOL filed its first appeal brief, which gave employers its first indication of how the new DOL would proceed in the matter. In that brief, the DOL indicated that it did not support the $47,476 salary level proposed by the prior administration, but asked the court to reaffirm its authority to set a salary level at all. In other words, the Trump DOL wants to be able to establish its own salary level.
Fast forward a month. On July 25, 2017, the Trump DOL announced that it will publish a Request for Information (“RFI”) related to the white collar exemptions. The RFI solicits feedback on questions related to the salary level test, the duties test, inclusion of non-discretionary bonuses and incentive payments to satisfy a portion of the salary level, the salary test for highly compensated employees, and automatic updating of the salary level tests. Seems like déjà vu, doesn’t it?
The DOL’s eleven (11) questions for public input are as follows (included in their entirety):
- In 2004 the Department set the standard salary level at $455 per week, which excluded from the exemption roughly the bottom 20 percent of salaried employees in the South and in the retail industry. Would updating the 2004 salary level for inflation be an appropriate basis for setting the standard salary level and, if so, what measure of inflation should be used? Alternatively, would applying the 2004 methodology to current salary data (South and retail industry) be an appropriate basis for setting the salary level? Would setting the salary level using either of these methods require changes to the standard duties test and, if so, what change(s) should be made?
- Should the regulations contain multiple standard salary levels? If so, how should these levels be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method? For example, should the regulations set multiple salary levels using a percentage-based adjustment like that used by the federal government in the General Schedule Locality Areas to adjust for the varying cost-of-living across different parts of the United States? What would the impact of multiple standard salary levels be on particular regions or industries, and on employers with locations in more than one state?
- Should the Department set different standard salary levels for the executive, administrative and professional exemptions as it did prior to 2004 and, if so, should there be a lower salary for executive and administrative employees as was done from 1963 until the 2004 rulemaking? What would the impact be on employers and employees?
- In the 2016 Final Rule the Department discussed in detail the pre-2004 long and short test salary levels. To be an effective measure for determining exemption status, should the standard salary level be set within the historical range of the short test salary level, at the long test salary level, between the short and long test salary levels, or should it be based on some other methodology? Would a standard salary level based on each of these methodologies work effectively with the standard duties test or would changes to the duties test be needed?
- Does the standard salary level set in the 2016 Final Rule work effectively with the standard duties test or, instead, does it in effect eclipse the role of the duties test in determining exemption status? At what salary level does the duties test no longer fulfill its historical role in determining exempt status?
- To what extent did employers, in anticipation of the 2016 Final Rule’s effective date on December 1, 2016, increase salaries of exempt employees in order to retain their exempt status, decrease newly non-exempt employees’ hours or change their implicit hourly rates so that the total amount paid would remain the same, convert worker pay from salaries to hourly wages, or make changes to workplace policies either to limit employee flexibility to work after normal work hours or to track work performed during those times? Where these or other changes occurred, what has been the impact (both economic and non-economic) on the workplace for employers and employees? Did small businesses or other small entities encounter any unique challenges in preparing for the 2016 Final Rule’s effective date? Did employers make any additional changes, such as reverting salaries of exempt employees to their prior (pre-rule) levels, after the preliminary injunction was issued?
- Would a test for exemption that relies solely on the duties performed by the employee without regard to the amount of salary paid by the employer be preferable to the current standard test? If so, what elements would be necessary in a duties-only test and would examination of the amount of non-exempt work performed be required?
- Does the salary level set in the 2016 Final Rule exclude from exemption particular occupations that have traditionally been covered by the exemption and, if so, what are those occupations? Do employees in those occupations perform more than 20 percent or 40 percent non-exempt work per week?
- The 2016 Final Rule for the first time permitted non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Is this an appropriate limit or should the regulations feature a different percentage cap? Is the amount of the standard salary level relevant in determining whether and to what extent such bonus payments should be credited?
- Should there be multiple total annual compensation levels for the highly compensated employee exemption? If so, how should they be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method? For example, should the regulations set multiple, total annual compensation levels using a percentage-based adjustment like that used by the federal government in the General Schedule Locality Areas to adjust for the varying cost-of-living across different parts of the United States? What would the impact of multiple, total annual compensation levels be on particular regions or industries?
- Should the standard salary level and the highly-compensated employee total annual compensation level be automatically updated on a periodic basis to ensure that they remain effective, in combination with their respective duties tests, at identifying exempt employees? If so, what mechanism should be used for the automatic update, should automatic updates be delayed during periods of negative economic growth, and what should the time period be between updates to reflect long-term economic conditions?
As reflected in the questions above, the focus of the RFI is not limited to whether the DOL has the authority to set the salary level—which is the main issue in the pending Fifth Circuit appeal—but also inquires about issues like possibly modifying the duties tests, reassessing the automatic update provisions, and altering the use of non-discretionary bonuses against the salary level.
The 60-day comment period ends on September 25, 2017. The public may submit comments according to the instructions listed in the RFI as published in the Federal Register, available here. We encourage employers to submit comments to assure their interests are considered as the Trump DOL reconsiders the overtime exemptions.
In the meantime, the Fifth Circuit appeal is still pending. Should the Court rule in favor of the DOL, meaning that it has the authority to issue a new salary level, the preliminary injunction could be lifted, and then the Obama salary level could technically go into effect (potentially retroactively to December 1, 2016). This would be the case until the Trump DOL can issue new regulations, which the RFI information would aid in preparing.
So clearly, there is still lots of uncertainty on the topic, but uncertainty can be good, right? It makes us feel alive…
More to come as things develop.
DOL Withdraws Administrator Interpretations
On June 7, 2017, the DOL’s Wage and Hour Division withdrew its 2015 and 2016 “Administrator Interpretations” related to joint employment and independent contractors. These Administrator Interpretations were considered to be informal guidance documents. Although they did not create judicial precedent, they gave employers an indication of the DOL’s position on the relevant subject matter.
So what now? Do we rejoice, and make everyone independent contractors? Probably not. Even though the guidance documents have been withdrawn, they still reflect the DOL’s likely position on such topics. According to the DOL’s press release, “Removal of the two administrator interpretations does not change the legal responsibilities of employers… as reflected in the Department’s long-standing regulations and case law.”
DOL Reinstates Opinion Letters
A mere twenty (20) days after the announcement related to the Administrator Interpretations, the DOL gleefully announced that “Opinion Letters are back!” An opinion letter is an official, written opinion by the Wage and Hour Division of how a particular law applies in specific circumstances presented by an employer, employee or other entity requesting the opinion. The letters were a division practice for more than 70 years until being stopped and replaced by general guidance (i.e., Administrator Interpretations) in 2010.
Employers can request an opinion letter via the following https://www.dol.gov/whd/opinion/. We recommend you consult with counsel about whether requesting an opinion letter in a particular situation would be advisable.
DOL Changes Its Position on Tip-Pooling Restrictions
On July 20, 2017, the DOL announced as part of its semi-annual regulatory agenda, its plans to rescind its previously issued tip-pooling restrictions, which limited an employer’s ability to require employees to share tips.
As a bit of background, in 2011, the Obama administration took the position that tips are the property of employees; and therefore they can neither be required to be distributed to other workers, nor kept by the employer. The Fourth, Tenth, and Eleventh Circuits, however, have since held that regulation to be invalid, potentially paving the way for review by the U.S. Supreme Court.
In its recent announcement, the DOL’s new position appears to be if an employer pays its employees minimum wage (as opposed to taking a “tip credit”), it would be able to require the employee to share tips with “back of the house” staff, such as cooks and dishwashers.
While this announcement does not specifically change the law, it does signal that changes may come soon. In the meantime, employers should continue to follow the Obama-era regulations until such rules are officially rescinded.
If you have questions related to this, or any of the issues discussed in this article, contact your preferred labor and employment attorney.