Brunini Law

BREAKING: Take 2 – U.S. Department of Labor Unveils Updated Attempt to Expand Employee Overtime Eligibility

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On Thursday, March 7, 2019, the United States Department of Labor (the DOL) released its newest Proposed Rule that, if implemented, would broaden federal overtime pay regulations to cover millions of additional workers who are currently exempt from overtime eligibility.  Under the Proposed Rule, the DOL seeks to update the regulations governing which executive, administrative, and professional employees (the so-called “white collar” workers) are entitled to minimum wage and overtime pay protections under the Fair Labor Standards Act (the FLSA).

The FLSA requires employers to pay its “non-exempt employees” overtime (1 ½ the workers’ “regular rate of pay”) for all hours worked in excess of forty (40) per week.  See 29 U.S.C. § 207.  The DOL’s regulations implementing the FLSA sets forth a variety of employment classifications that are “exempt” from the FLSA’s overtime requirement—including employees performing executive, administrative, and/or professional job duties.  Since the 1940’s, in order for an employee to qualify as an exempt “white collar” employee, he/she had to meet three “tests”:  (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties (as defined by the regulations).  The DOL last fully updated these regulations in 2004, setting the current minimum salary threshold at $455 per week (or $23,660 per year).

In May 2016, the Obama-era DOL attempted change to the overtime rule that would have doubled the minimum salary level for the so-called “white collar” exemption from $23,660 to nearly $48,000 per year.  This proposal would have also increased the total annual compensation requirement needed to exempt “highly compensated employees” to $134,004 annually (previously set at $100,000), established a mechanism for automatically updating the minimum salary level every three years and allowed employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the new standard salary level.

Ultimately, the May 2016 proposal was challenged in court. On November 22, 2016, the U.S. District Court for the Eastern District of Texas enjoined the DOL from implementing and enforcing the proposal. On August 31, 2017, the court granted summary judgment against the DOL, invalidating the May 2016 proposal.  Currently, the Department is enforcing the regulations that have been in place since 2004, including the $455 per week standard salary level.

While an appeal of that decision to the United States Court of Appeals for the Fifth Circuit is pending, the current DOL seeks to formally rescind the Obama-era DOL’s 2016 proposal with this Proposed Rule.  In its place, the new Proposed Rule would raise the minimum salary level for exempt employees to only $679 per week, or $35,308 annually.  The Proposed Rule does have many similarities to the 2016 proposal, including:

  • Allowing employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level test (provided such bonuses are paid annually or more frequently);
  • Increasing the total annual compensation requirement needed to exempt “highly compensated employees” to $147,414 annually (currently set at $100,000 annually); and
  • Not proposing any changes to the standard duties test for the white collar exemptions.

If the Proposed Rule is adopted, the DOL estimates that over 1.3 million workers who are currently classified as “salaried exempt”—and thus, not eligible for overtime—will become eligible for overtime pay.  While an increase, this figure is lower than the estimated 5 million workers who would have become eligible for overtime under the 2016 proposal.  As with the prior proposal, observers feel the number could rise well above the projected increase.  If implemented, the Proposed Rules will undoubtedly result in greater expense or operational change for many employers as they struggle to deal with a shrinking pool of workers who are eligible for an exemption from the overtime pay.

The Proposed Rule is still subject to a lengthy comment period before implementation.  The DOL encourages any interested members of the public to submit comments about the proposed rule electronically at www.regulations.gov (Rulemaking docket RIN 1235-AA20).

Though the Proposed Rule has not yet been finalized, employers are encouraged to be proactive and engage their legal counsel to begin planning for the change now.  Preparations should include auditing current practices and projecting the cost of change and FLSA compliance under the anticipated new framework. This includes evaluating the possibility and effects of significantly higher operating costs.

U.S. EEOC Challenges Standard Severance Agreements

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Recently, the U.S. Equal Employment Opportunity filed suit against CVS Caremark—the nation’s second largest drugstore chain, challenging the company’s standard severance agreement.  In the lawsuit, the EEOC specifically challenged six (6) separate provisions contained in CVS’ severance agreements:

(1)    A Cooperation Clause – a clause requiring the former employees to promptly notify the company of any subpoena, deposition notice, interview request or other process relating to any administrative investigation;

(2)    A Non-Disparagement Clause – a clause in which the former employees promise not to make any statements that would “disparage,” or harm the business reputation of the company and the company’s officers/directors (even if the statements are true);

(3)    A Non-Disclosure Clause – a clause in which the former employees agree to not disseminate information about staff, wages and benefit structures, succession plans and affirmative action plans (without the prior written authorization of the company);

(4)    An Attorneys’ Fees Clause – clause in which the former employees promise to promptly reimburse the company for any legal fees it incurs as a result of a breach of the agreement by the former employee;

(5)    A Covenant Not to Sue – a promise from the former employees no to sue (including the filing of any company with any agency); and

(6)    A General Release – a release by the former employees of any claim, including claims of unlawful discrimination.

If these provisions sound familiar, there’s a good reason—virtually all employers rely on these provisions to end the threat of potential lawsuits.  In exchange, the departing employees receive money or other consideration.  According to CVS, more than 650 former employees entered into separation agreements with the company based on the challenged severance agreement.

The EEOC claims that CVS’ severance agreement contracts interfere with a worker’s rights to bring charges with the agency.  But CVS said the EEOC’s suit is “unwarranted” because its severance agreement includes language “to state that it does not prohibit employees from doing so.”  It is too soon to predict the outcome of this litigation—so the suit is definitely worth monitoring.

President Obama Signs Executive Order Establishing Minimum Wage for Federal Contact Employees

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bigstock-Minimum-Wage-Word-Cloud-6561851-01772689-227x300Following through on a promise made in his State of the Union Address, President Barack Obama formally signed an Executive Order on February 12, 2014, establishing a separate minimum wage for employees of federal contract workers.  Effective January 1, 2015, the minimum wage for most Federal contractor employees shall be set at $10.10 per hour.  “Tipped workers,” employed pursuant to a Federal contract, are to be paid a minimum of $4.90 per hour, with incremental increases to begin in 2016.  Additionally, beginning January 1, 2016, the Executive Order allows for the Secretary of Labor to modify this separate minimum wage (after providing at least 90 days’ notice of such modification).  The Executive Order expressly incorporates existing definitions and regulations under the Fair Labor Standards Act (29 U.S.C. 201 et seq.), the Davis Bacon Act (40 U.S.C. 3141 et seq.) and the Service Contract Act (40 U.S.C. 6701 et. seq.).

While this increase does not impact employers of non-governmental contractors, President Obama stated that his ultimate goal is for passage of legislation increasing the federal minimum wage for allworkers to levels commensurate with this Executive Order.

Click here to read entire order.

Treasury Issues Employer Mandate Regulations

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On Monday, February 10, the Treasury Department and Internal Revenue Service issued long-awaited final regulations implementing the Affordable Care Act’s employer shared responsibility rules.  Commonly known as the “employer mandate,” the Act provides that applicable large employers may be penalized for failing to offer their full‐time employees an opportunity to enroll in health coverage, or if the coverage offered is unaffordable or does not provide minimum value.  (Applicable large employers are those who employed an average of at least 50 full-time employees on business days during the preceding calendar year, and employers with fewer employees are not subject to the employer mandate rules.)

Originally slated to become effective January 1, 2014, the Treasury Department and IRS issued proposed regulations in December 2012.  A few months later, though, the White House announced a one-year delay in enforcement of the employer mandate.  For the most part, the 227-page final regulation should adopt the earlier proposed rules, though not without a few notable changes:

  • One-year delay for midsize employers.  The employer mandate will only apply to employers with 100 or more full-time employees in 2015.  Employers with between 50 and 99 full-time employees won’t have to comply with the employer mandate until 2016, although they will have to certify that they are not cutting employees or reducing hours for purposes of falling below the 100 employee mark.
  • Relaxed requirement for very large employers.  The proposed regulations required applicable large employers to offer coverage to at least 95 percent of full-time employees to be considered compliant with the employer mandate.  The final regulations relax the requirement, phasing in the percentage of full-time employees that must be offered coverage from 70 percent in 2015 to 95 percent in 2016 and beyond.
  • Volunteers not counted as full-time employees. There had been some debate in Washington over whether volunteers (particularlyvolunteer firefighters and emergency responders) would count as full-time employees.  Commenters explained that volunteer service would be discouraged if employers were required to count volunteer hours when determining whether individuals are full-time employees.  Therefore, the final regulations clarify that service hours do not include hours worked as a “bona fide volunteer.”
  • Other.  There are several smaller adjustments.  Many of the fine-tunings relate to how employers are required to calculate employee work hours.  Seasonal employees, student work-study programs, adjunct faculty, and other employment situations present unique challenges, which the final regulations address.

Click here for the Treasury Department’s press release.