BLOGS: Fair Labor Standards Act Law

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Wednesday, August 26, 2015, 2:25 PM

Major Changes to Overtime Regulations for "White Collar" Workers

Authored by John Pueschel

On July 6, 2015, the U.S. Department of Labor (“DOL”) issued proposed new regulations that will significantly change the law governing certain “white collar” workers who are exempt from minimum wage and overtime pay.  All employers need to become familiar with these proposed rules, which may, if they become final, greatly impact wages and overtime pay to workers.  In addition, for those that want to have their voices heard, there is still time (until September 4, 2015) for the public to make formal comments to the DOL.
Under the Fair Labor Standards Act (“FLSA”), which is the federal wage and hour law, some employees may be classified as “exempt” from the Act’s minimum wage and overtime pay requirements.   The most well-known and commonly used exemptions are the so-called “white collar” exemptions applicable to executive, administrative, and professional employees.  The DOL’s proposed rules will change the current regulations to more than double the current minimum salary level for exempt employees, significantly increase the salary level required for employees to be exempt from overtime as highly compensated employees, and automatically adjust that minimum salary level each year to account for the increase in the cost of living. 
As a practical matter, the proposed regulations will mean that fewer employees will meet the requirements to be exempt from overtime (and thus will be entitled to overtime pay), or that employers must pay higher salaries in order for the employees to remain exempt under the FLSA.  Here are the specific changes proposed to the white collar exemptions, which are expected to become effective by 2016:
 
  • Increase (by more than double) the current minimum salary threshold (currently    $455 per week, or $23,660 per year) to $921 per week, or $47,892 per year, which will be adjusted annually by DOL.  Assuming the rules become final, the salary level is estimated to be set at $970 per week, or $50,440 per year for 2016.

  • Increase the minimum compensation for Highly Compensated Employees (HCE) from its current level ($100,000 per year) to $122,148 per year.

  • Create an automatic, annual adjustment mechanism for the minimum salary thresholds for the standard exemption and that for HCE.  (The DOL is asking for public comments to guide its determination to use one or the other of two adjustment mechanisms.)

The DOL states that under the proposed regulations, approximately 4.6 million workers would lose their exemption under the proposed rules (and thus be eligible for overtime pay), unless employers increase their pay.  In terms of economic impact, these changes are significant.  The DOL estimates that the “average annualized direct employer costs will total between $239.6 and $255.3 million per year.”  In addition, the DOL also states that this “proposed rulemaking will also transfer income from employers to employees in the form of higher earnings. Average annualized transfers are estimated to be between $1.18 and $1.27 billion, depending on which of the two updating methodologies is used.”

After a period of public comment, the DOL will publish the final rules, which will be codified as final and binding federal regulations.  It seems all but certain, barring some sort of exceptional set of circumstances, that the proposed rules increasing the salary levels and adding a mechanism for automatic annual increase will become final.

For those who wish to have their voices heard on these proposed regulations, the DOL is accepting public comments until September 4, 2015.  Details for submitting comments are can be found here.

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Friday, February 20, 2015, 3:11 PM

Womble Carlyle Launches Resource Page for Proposed Rules on "White Collar" Exemptions

The last week of February is upon us, and the Department of Labor has not yet issued the highly anticipated new FLSA regulations which will propose changes to the white collar exemptions.  Announced by President Obama nearly a year ago, the proposed rules (which have already been postponed once) are currently scheduled for release sometime this month.  If the FLSA proposed rules become law, they are expected to dramatically change which employees can be classified as exempt, which in turn may significantly impact wages and overtime pay to workers.

Womble Carlyle is pleased to announce a Resource Page to help businesses prepare for these proposed rules, which will be the most significant change to the FLSA in more than a decade.  The Resource Page provides businesses with the latest information and updates on these proposed rules, including background information and references to key materials. 

The Resource Page can found here.

When the proposed rules are finally released, we look forward to offering our analysis and practical recommendations to assist businesses with understanding the proposed rules, and meeting the expected compliance challenges if the proposed rules become law.

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Friday, February 13, 2015, 8:46 AM

As Intern Season Approaches, Remember That Unpaid Internships Can Be Risky

Right now, many organizations are getting ready for a new class of interns to arrive in May when schools and colleges finish for the summer.  With fully laudable intentions, many organizations offer summer internships as a chance to allow students to get their feet wet in a business or industry, fully recognizing that the students’ contributions and added value, if any, are not that great.

Experience teaches that many organizations do not pay interns.  However, this is often a risky proposition.  Under the Fair Labor Standards Act, the legal standard to qualify as an unpaid internship is actually quite high.  The consequence of failing to meet that legal standard—and in our experience many may not—is that the “intern” is deemed to be a misclassified employee, and would be entitled to be paid minimum wage and overtime for all of the hours worked as an unpaid intern. 

This exposure, including liquidated (i.e., double) damages and potential penalties and attorneys’ fees, can be significant. In addition, there could be tax exposure for any unpaid employment taxes and withholdings that were not made because the wages that should have paid were not.

So, if you are considering an unpaid internship program this summer, take the time to ensure it is legally compliant.  For those that want to take a closer look at their internship programs, our Client Alert on this issue provides a detailed summary of the compliance issues and risks, and practical tips for employers.  The Client Alert can be found here.

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Wednesday, February 4, 2015, 2:10 PM

Wisconsin Joins DOL’s Worker Misclassification Initiative

On January 20, 2015, the U.S. Department of Labor announced that Wisconsin has also joined the growing list of states that have entered into formal agreements with the DOL to share information about worker misclassification.  Under the terms of a "partnership agreement," the DOL and the Wisconsin Department of Workforce Development agreed to share information about workers who may be improperly classified as independent contractors instead of employees.  The DOL's news release can be found here.

As noted here previously, workers who are misclassified as contractors may be denied benefits, minimum wage, and overtime pay that they might receive if properly classified as employees.  Likewise, the federal government and state taxing authorities miss out on payroll and other taxes that they would receive if the workers were properly classified. 

By sharing information, the DOL and the states participating in the initiative hope to reduce misclassification and increase compliance with employment, wage and hour, and tax laws.  The DOL reports that similar agreements have been entered into with the states of Alabama, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Utah and Washington.

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Wednesday, January 28, 2015, 8:21 AM

U.S. Supreme Court Rules That Time Spent In Mandatory Security Screening at the End of a Workday Is Not Compensable


The United States Supreme Court issued an interesting decision last month on whether employees who are required to undergo security screening after their work was done should be paid for that time. The Supreme Court found in favor of the employer, and concluded that workers did not have to be paid for that that time because the screening was a non-compensable “postliminary” activity under the Portal-to-Portal Act.

In Integrity Staffing Solutions, Inc. v. Busk, the employer was a company that provided staff to work in warehouses for the online giant, Amazon. A group of workers filed a class action in 2010 against the staffing company seeking unpaid wages under the FLSA. According to their complaint, workers were required to pass a security screening at the end of the day in order to deter theft of product from the warehouse. The workers alleged that it could take workers up to 25 minutes to compete the screening process, for which they were not paid. Because the screening was allegedly necessary and for the employer’s benefit, the workers claimed they should have been compensated for the time.

Initially, the federal district court dismissed the workers' case for failing to state a viable legal claim. The district court ruled that the security screening was a non-compensable "postliminary" activity under the Portal-to-Portal Act because it was not an "integral and indispensable part" of the warehouse duties the workers were hired to perform. The U.S. Court of Appeals for the Ninth Circuit disagreed and reversed, holding that the screening was a postliminary activity, but was compensable because it was necessary to the warehouse work and for the benefit of the employer. The employer successfully petitioned the U.S. Supreme Court to hear the case.
In a unanimous opinion written by Justice Thomas, the Supreme Court reversed. The Court started with the proposition that the Portal-to Portal Act makes noncompensable "activities which are preliminary to or postliminary to said principal activity or activities" of a worker’s job. Citing its long-standing interpretation of the Act, the Court stated that “the term ‘prin­cipal activity or activities’ [embraces] all activities which are an ‘integral and indispensable part of the prin­cipal activities.’”

The Court held that under the Portal-to-Portal Act, employers were not required to pay workers for postliminary activities that were not integral to the workers' warehouse duties. In a succinct analysis, the Court concluded:
The security screenings at issue here are noncompensa­ble, postliminary activities. To begin with, the screenings were not the “principal activity or activities which [the] employee is employed to perform.” 29 U. S. C. §254(a)(1). Integrity Staffing did not employ its workers to undergo security screenings, but to retrieve products from ware­house shelves and package those products for shipment to Amazon customers.

The security screenings also were not “integral and indispensable” to the employees’ duties as warehouse workers. As explained above, an activity is not integral and indispensable to an employee’s principal activities unless it is an intrinsic element of those activities and one with which the employee cannot dispense if he is to per­form those activities. The screenings were not an intrinsic element of retrieving products from warehouse shelves or packaging them for shipment. And Integrity Staffing could have eliminated the screenings altogether without impairing the employees’ ability to complete their work.
As savvy HR professionals and in-house counsel know, this case does not create a blanket rule that renders noncompensable every activity after a worker leaves his or her work station. Each situation is different and will generally require a detailed analysis of the particular facts. Indeed, in this case, it took about half a decade in the federal courts to come to a final answer.

The case is a relatively straightforward read, and contains a good history and discussion of the Portal-to-Portal Act. For those who are interested, the Supreme Court's decision can be found here.

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Thursday, January 22, 2015, 8:57 AM

Because you are asking . . . DOL Says New Proposed Rule On White Collar Exemptions Under The FLSA Will Be Issued In February 2015


As many of you know, last year President Obama directed the DOL to issue new regulations to “modernize and streamline” the white collar exemptions to the minimum wage and overtime requirements under the FLSA.  (Keep in mind that under federal rulemaking procedures, the DOL will first issue a “Notice of Proposed Rulemaking” and allow a period of public comment before issuing a final rule.)  We have been waiting for the proposed rule so that we can see what changes the DOL has in mind for these key provisions of the FLSA, which are expected to revise the current regulations for the executive, administrative, and professional exemptions.

Initially, the DOL said the proposed rules would be issued last Fall, but the DOL later announced the notice would be delayed.  Currently, the DOL’s expected release date is sometime in February 2015, according to a notice from the Office of Management and Budget.  Like you, we will be watching closely for these highly anticipated rules which (if finalized) are likely to significantly impact workers and businesses.

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Monday, January 19, 2015, 2:51 PM

Florida Joins U.S. DOL’s Worker Misclassification Initiative


On January 13, 2015, the U.S. Department of Labor announced that Florida joined the ranks of states that have entered into formal agreements with the DOL to share information about worker misclassification.  Under the terms of a memorandum of understanding, the DOL and the Florida Department of Revenue agreed to share information about workers who may be improperly classified as independent contractors instead of employees.  The announcement can be found here.

Workers who are misclassified as contractors may be denied benefits, minimum wage, and overtime pay that they might receive if properly classified as employees.  Likewise, the federal government and state taxing authorities miss out on payroll and other taxes that they would receive if the workers were properly classified. 

By sharing information, the DOL and the states participating in the initiative hope to reduce misclassification and increase compliance with employment, wage and hour, and tax laws.  The DOL reports that similar memoranda of understanding have been entered into with the states of Alabama, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington.

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