Tag: FLSA

Employers Must Continually Navigate a Minimum Wage Patchwork Across America

minimum wagePerhaps in response to protests brought by employees and their advocates in recent years, states, counties, and cities across America have been increasing their minimum wage in piecemeal fashion. Few employers are fortunate enough to need worry about only one minimum wage—the federal minimum wage that is the floor below which employers may not go (unless an employer is not covered under the FLSA). Most large employers that operate in multiple states must now navigate a minimum-wage patchwork in which the hourly rate vaminimum wageries from state to state and, sometimes, between counties and cities.

Although the federal minimum wage is $7.25 per hour, 29 states and the District of Columbia have a minimum wage greater than the federal minimum wage. And those states are consistently increasing their minimum wage—New Jersey just passed legislation increasing its minimum wage from $8.38 per hour to $8.44 per hour, effective January 1, 2017, which is also when the Montana minimum wage will go from $8.05 to $8.15 per hour.

California is arguably the most difficult minimum-wage patchwork for employers to navigate. From a present minimum wage of $10 per hour, the California minimum wage will increase one dollar per hour each year until it reaches $15 per hour in 2022. But those increases also result in increasing the minimum salary that must be paid to employees who qualify for most overtime exemptions in California. Because most exempt employees in California must make at least twice the minimum wage on an annual basis, the current minimum salary for exempt employees who work for employers having more than 25 employees will increase from the present minimum of $41,600 per year to a minimum of $62,400 by 2022. (However, if the DOL’s rule goes into effect on December 1, 2016, requiring a new minimum salary of $47,476, then that will be the new floor below which employers may not pay their employees on a salary basis.)

In addition to minimum-wage increases on a statewide level, numerous California cities and counties have passed ordinances increasing their own minimum wages. From San Diego to Berkeley, the minimum wage in many cities has increased quicker than the state minimum wage. California’s minimum wage is presently $10.00 per hour. Employers in Santa Clara and Palo Alto, however, must pay their employees at least $11.00 per hour. Employees across the bay in Oakland must be paid at least $12.25 per hour. San Diego employers must pay their employees $10.50 per hour, as do Santa Monica employers that employ more than 25 employees.

California cities are not the only ones that have increased their minimum wage faster than their resident states. Employers in Albuquerque have had an $8.50 minimum wage since 2013, greater than the $7.50 required under New Mexico law. Similarly, Chicago has a $10.50 minimum wage, although Illinois mandates only $8.25. Seattle businesses that employ less than 500 persons must pay their employees $12.00 per hour, but Washington has a minimum wage of only $9.47.

ARTICLE BY Kevin Sullivan of Epstein Becker & Green, P.C.

©2016 Epstein Becker & Green, P.C. All rights reserved.

Twenty-One States Join Forces to Oppose the FLSA’s New Overtime Rule

FLSA overtime ruleAs most of you know, in May 2016 the Department of Labor (DOL) released its long-awaited Final Rule modernizing the Fair Labor Standard Act’s (FLSA) white-collar exemptions to the overtime requirements of the FLSA.  See our rundown of the changes in our earlier post here. The new rule is scheduled to take effect December 1, 2016.

This week, however, 21 states banded together to express their disapproval of the Final Rule and filed a lawsuit against the DOL. The states challenging the constitutionality of the rule are: Alabama, Arizona, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Utah and Wisconsin.

The primary argument in the states’ lawsuit is that the new FLSA rule will force many businesses—particularly state and local governments—to unfairly and substantially increase their employment costs. For state governments in particular, the states allege that the new rule violates the Tenth Amendment by mandating how state employees are paid, what hours they will work and what compensation will be provided for working overtime. The lawsuit also alleges that implementation of the new rule will disrupt the state budgeting process by requiring states to pay overtime to more employees and would ultimately deplete state resources.

It’s no coincidence that more than 50 business groups—including the US Chamber of Commerce and the National Association of Manufacturers—filed a similar lawsuit on the same day and in the same court. This lawsuit alleges, among other things, that the new rule disregards the mandate of Congress to exempt white-collar employees from the overtime requirements of the FLSA.

How the courts will handle these parallel cases is an unknown. For now, employers—both public and private—are encouraged to proceed as though the new rules will take effect on December 1, 2016 as scheduled.

ARTICLE BY Anne Marie Schloemer of Squire Patton Boggs (US) LLP
© Copyright 2016 Squire Patton Boggs (US) LLP

DOL Announces Final Rule on Salary Threshold for Exempt White-Collar Employees

Today, the U.S. Department of Labor (DOL) announced its final rule on the minimum salary that white-collar employees must be paid to qualify as exempt from the overtime requirements under the Fair Labor Standards Act (FLSA). The new rule raises the current salary level that such employees must receive in order to qualify as “exempt” from $23,660 annually, to $47,476 annually. The new rule takes effect December 1, 2016.

Under current DOL regulations, most white collar employees – executives (supervisors), administrative employees, and professionals – are exempt from the FLSA overtime rules and need not be paid overtime for hours worked over 40 in a workweek if they satisfy two conditions. First, they must perform “exempt” duties as defined by the DOL regulations. Second, they must be paid a guaranteed salary of at least $455 per week, or about $23,660 annually.

The new rule, first proposed in a slightly different form back in 2015, raises the salary level significantly to $913 per week, or about $47,476 annually. This new salary level is set at the 40th percentile of weekly earnings for full-time salaried workers in the lowest income Census region (currently the South). This number is less than the $970 per week, or about $50,440 annually, that the DOL had originally proposed. In addition, the DOL will now permit up to 10 percent of the salary level to come from non-discretionary bonuses and incentive payments (including commissions).

This new threshold of $913 per week/$47,476 annually will be tied to the 40th percentile for full-time salaried workers in the lowest income Census region going forward, and will be updated every three years. It is currently expected to rise to more than $51,000 annually when the first update takes effect on January 1, 2020.

In addition, under the new rule the salary level for employees who qualify for the “highly compensated employee” exemption will rise from $100,000 per year to $134,004 per year. This level is the annual equivalent of the 90th percentile of full-time salaried workers nationally.

One change contemplated by the DOL when the agency first proposed this new rule back in 2015 will not take effect: changes to the “duties” test. The DOL has announced that the final rule will leave the existing duties tests for the executive, administrative, and professional exemptions in place.

The DOL estimates that 4.2 million additional workers will become eligible for overtime as a result of this rule change, including approximately 101,000 workers in the State of Michigan. This is estimated to raise total wages for American workers by approximately $12 billion over the next 10 years.

Many employers will be impacted by this new rule, as many employers have at least one “exempt” employee who is paid less than $47,476 annually. Thus, employers should scrutinize their workforces carefully to determine if changes in exempt status are necessary. Options include:

  • increase the salary of an employee who meets the duties test to at least $47,476 annually to retain his or her exempt status;

  • convert the employee to non-exempt status and pay an overtime premium of one-and-one-half times the employee’s regular rate of pay for any overtime hours worked;

  • convert the employee to non-exempt status and reduce or eliminate overtime hours;

  • convert the employee to non-exempt status and reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or

  • use some combination of these responses.

Given the significance of these changes, and the expected impact on the American workforce, employers are encouraged to consult with legal counsel to discuss their options and strategies for implementing changes, if necessary.

Does the DOL Consider You a Joint Employer under Its “Broad as Possible” Standard? You May Be Surprised at the Answer

DOLOn January 20, 2016, the U.S. Department of Labor’s Wage and Hour Division (DOL) articulated a new standard that it will use to identify joint employment relationships. Specifically, the DOL published Administrator’s Interpretation No. 2016-1 (AI 2016-1), which is the first Administrator’s Interpretation this year, following the DOL’s similar pronouncement regarding independent contractor classifications in July 2015.

AI 2016-1 broadly interprets the Fair Labor Standards Act (FLSA) and Migrant Seasonal Agricultural Worker Protection Act (MSPA) and narrowly interprets case law regarding joint employment, resulting in its conclusion that “the expansive definition of ‘employ’ . . . reject[s] the common law control standard and ensures that the scope of employment relationships and joint employment under the FLSA and MSPA is as broad as possible.”

AI 2016-1 also sets forth two approaches for analyzing whether a joint employment situation exists: (1) horizontal, which looks at the relationship of the employers to each other, and (2) vertical, which examines “the economic realities” of the employee in relation to a “potential joint employer.” The structure and nature of the relationship(s) will dictate which analysis applies. In some cases both may be applicable, for example, when two businesses share an employee provided by a third-party intermediary, such as a staffing agency, that is the direct employer.

Horizontal Joint Employment

Citing the FLSA regulations, the DOL explained horizontal joint employment as follows:

Where an employee’s work simultaneously benefits two or more employers, or an employee works for two or more employers throughout the week, a joint employment relationship “generally will be considered to exist” in circumstances such as where:

  1. the employers arrange to share or interchange the employee’s services;

  2. one employer acts directly or indirectly in the interest of the other employer(s) in relation to the employee; or

  3. “one employer controls, is controlled by, or is under common control with the other employer.”

In addition, the DOL set forth the following factors as potentially relevant in gauging the relationship between two or more employers and the degree of shared control over employees that might suggest a horizontal joint employment arrangement:

  • who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners);

  • do the potential joint employers have any overlapping officers, directors, executives, or managers;

  • do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs);

  • are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for);

  • does one potential joint employer supervise the work of the other;

  • do the potential joint employers share supervisory authority for the employee;

  • do the potential joint employers treat the employees as a pool of employees available to both of them;

  • do the potential joint employers share clients or customers; and

  • are there any agreements between the potential joint employers.

According to the DOL, not all (or even most) of these factors need to be present for a horizontal joint employment relationship to exist. The agency set forth an example of a server who works at two separate restaurants owned by the same entity. The managers at each restaurant share the employee and coordinate the employee’s schedule between the two locations. Both employers use the same payroll processor and share supervisory authority over the employee. The DOL would find this to be a horizontal joint employment relationship. The agency distinguished this from a scenario where an employee works at two restaurants, one in the mornings and the other in the afternoons, and while each restaurant’s owners and managers know of the employee’s other job, the restaurants are completely unrelated. However, these examples leave quite a bit of grey area where the DOL apparently envisions a fact-intensive analysis under “as broad a standard as possible.”

Vertical Joint Employment

When it comes to vertical joint employment, the DOL maintains that the proper analysis is an economic realities test, and not the traditional inquiry focused on control. AI 2016-1 focuses on an employee’s “economic dependence” on the “potential joint employer” as the critical inquiry. This view appears to conflate the principles underlying the DOL’s recent independent contractor analysis with the question of whether an additional employment relationship exists beyond the one already established between an employee and his/her direct employer. The resulting approach likely will result in the DOL (and many courts) finding more entities to be joint employers under the FLSA where they otherwise would not—and in situations where a joint employer determination has largely been unnecessary because the employees in question already receive FLSA protections in their employment relationships with their direct employers.

To explain what it views to be the proper analytical approach, the DOL heavily relies on an MSPA regulation listing seven factors to consider under that statute’s version of the economic realities test for farm laborers. While the DOL acknowledges that the MSPA regulation does not actually apply to the FLSA, the agency believes the MSPA’s factors are “useful guidance in a FLSA case” and that “an economic realities analysis of the type described in the MSPA joint employment regulation should be applied in [FLSA] cases” to determine whether a situation is one of vertical joint employment. The MSPA’s seven factors are as follows:

  • Directing, Controlling, or Supervising the Work Performed. “To the extent that the work performed by the employee is controlled or supervised by the potential joint employer [i.e., the end user] beyond a reasonable degree of contract performance oversight, such control suggests that the employee is economically dependent on the potential joint employer.” The DOL goes on to clarify, as did the National Labor Relations Board recently, that such control need not be direct, but can be exercised through the intermediary employer. Likewise, the end user need not exercise as much control as the direct employer for it “to indicate economic dependence by the employee.”

  • Controlling Employment Conditions. Along the same lines, if an end user “has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay,” this indicates economic dependence on the end user, even if the control is indirect or not exclusive.

  • Permanency and Duration of Relationship. If a work assignment for the end user is “indefinite, permanent, full-time, or long-term,” this suggests economic dependence. The DOL further instructs that analysis of this factor should consider “the particular industry at issue” such as “if the work . . . is by its nature seasonal, intermittent, or part-time.”

  • Repetitive and Rote Nature of Work. If the employee’s work for the end user “is repetitive and rote, is relatively unskilled, and/or requires little or no training,” this indicates economic dependence on the end user.

  • Integral to Business. “If the employee’s work is an integral part of the potential joint employer’s business, that fact indicates that the employee is economically dependent on the potential joint employer. . . . .”

  • Work Performed on Premises. If the work is performed “on premises owned or controlled by” the end user, this indicates economic dependence on the end user.

  • Performing Administrative Functions Commonly Performed by Employers. Economic reliance also can be imputed if the end user performs “administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work.”

The DOL acknowledges that there are other possible factors that courts consider, but states that “regardless, it is not a control test.” To the extent that some, if not many, courts still do apply a control test, the DOL responds that doing so “is not consistent with the breadth of employment under the FLSA.” The agency buttresses its stance with citations to case law from the Second Circuit (covering New York, Vermont and Connecticut), while noting elsewhere that other circuits have not followed suit.

Despite the lack of consensus among jurisdictions to apply an economic realities test to determine joint employment, the DOL encourages application of the test in a way that would drastically expand the scope of joint-employment liability. In a footnote, for example, the agency notes that in general, an employee need not even economically depend more on the end user than on his/her direct employer for a finding of vertical joint employment. “The focus . . . is not a comparison [of the two relationships].”

In summary, businesses must carefully monitor their relationships with affiliated companies or business partners. If affiliated entities employ the same person and do not take measures to maintain the separateness of their operations and management, the DOL likely would find horizontal joint employment, requiring the aggregation of work hours for purposes of overtime pay. Likewise, under the DOL’s interpretation of vertical joint employment, if a worker tends to economically depend on the end user business, which could be imputed from a wide variety of factors, the DOL likely would deem that end user business a joint employer for purposes of wage and hour liability—regardless of the employee’s primary economic reliance on his/her direct employer. These expansive interpretations could be especially problematic for staffing agencies and other types of tiered business models.

AI 2016-1 signifies the latest effort by the DOL to expand the FLSA’s reach to nontraditional work arrangements. Like its other recent effort, this may result in more DOL investigations and litigation. The AI 2016-1 almost certainly will be challenged in court. Additionally, legislation has been proposed (but not passed) to curtail similar attempts by federal agencies to expand joint employment liability. Nonetheless, based on the DOL’s new guidance, companies should reassess their business and staffing arrangements to manage the risks associated with costly governmental investigations.

Article By Elizabeth Gotham of Honigman Miller Schwartz and Cohn LLP

© 2015 Honigman Miller Schwartz and Cohn LLP

Fifth Circuit Rules Employer-Mandated Transit Time May Make Lunch Break Compensable

The Fifth Circuit Court of Appeals, which has jurisdiction over Texas, Louisiana and Mississippi, ruled recently that security guards’ “off-the-clock” meal periods may be compensable when they were required to travel for 10 to 12 minutes from their work stations to get their meals.  Naylor v. Securiguard, Inc., No. 14-60637 (5th Cir. Sept. 15, 2015) available here.

The private security guards in Naylor were required to leave their work sites and travel to other locations for meals or breaks in order to preserve the appearance of the worksite. The court reasoned that a jury could find this mandated transit time predominately benefited the employer, rather than the employee, making it compensable under the Fair Labor Standards Act (“FLSA”).

The court noted that, when this mandated round trip travel time to break areas was only a few minutes in duration, it is “de minimis” and would not transform the 30-minute break to compensable time. However, at some point, employer-mandated travel time during an employee’s lunch break shortens the length of the break enough to make it a compensable “rest” period. Under the FLSA, “rest” periods of 20 minutes or less are generally compensable because they are considered to benefit the employer by rejuvenating the employee. Ten to twelve minutes of transit time cut too much into the “lunch breaks.”

Significantly, the court did not set a bright line rule for the precise number of transit minutes an employer may require away from the work station during a lunch break before the entire break becomes compensable.

The conversion to compensable time may entitle the employees to both compensation for the 30-minute meal periods and resultant weekly overtime once that time is added to other hours worked.

The ruling also raises questions of whether the mandatory transit time rationale applies to breaks required in other contexts, such as offsets to “30-minute” break requirements under collective bargaining agreements or state laws, or to other break activities, such as clothes changing, going through security or reassigning equipment. Providing employees written notice of which break-related activities are required and clearly stating their options to eat meals and engage in other break activities without mandatory transit or other activities that may reduce their meal periods might preclude any such issues.

Article By Robert E. Sheeder, Nancy M. O’Connor & Clayton M. Davis of Bracewell & Giuliani LLP

© 2015 Bracewell & Giuliani LLP

Workers Should Properly be Classified as Employees Under the FLSA

U.S. Department of Labor (“DOL”) yesterday issued an Administrator Interpretation Memorandum announcing its position that most American workers are employees (as opposed to independent contractors), and thus are covered by the Fair Labor Standards Act (FLSA). The announcement comes exactly two weeks after the DOL issued a Notice of Proposed Rulemaking that would significantly change the legal requirements for an employee to qualify as exempt from the overtime requirements of the FLSA.

Department of LaborAccording to the Memo, employers are intentionally misclassifying workers as independent contractors to cut costs and avoid compliance with various laws, which deprives workers of certain benefits of employment. Taken together, the two recent DOL actions make the DOL’s true intentions abundantly clear: to sweep more American workers under the umbrella of the FLSA, and in turn, have more of those covered employees earning overtime compensation (or significantly higher salaries).

In the Memorandum, the DOL sets forth its interpretation of the FLSA’s definition of “employ” and the multi-factored “economic realities test” utilized by the courts to guide the analysis of whether a worker is properly classified as an independent contractor under the law. According to the DOL, applying the economic realities test in view of the FLSA’s expansive definition of “employ” will result in most workers being employees, and not independent contractors. In other words, a worker is an employee unless a convincing argument can be made that the worker is properly classified as an independent contractor.

While the “economic realities test” might vary somewhat depending on the court applying the test, the traditional questions considered are:

  • Is the work done by the worker an integral part of the employer’s business?;
  • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?;
  • How does the worker’s relative investment compare to the employer’s investment?;
  • Does the work performed require special skill and initiative?;
  • Is the relationship between the worker and the employer permanent or indefinite?; and
  • What is the nature and degree of the employer’s control over the worker?

These questions should be considered under the guiding principle that workers who are economically dependent on the employer are employees, and only workers who are really in business for themselves are independent contractors. All factors must be considered in each case, no one factor is determinative, and the ultimate determination must be the degree of the worker’s economic independence from the employer.

ARTICLE BY Jeremy M. Brenner, John P. Hasman, Robert A. Kaiser, Daniel K. O’Toole, Jovita M. Foster & Dione C. Greene of Armstrong Teasdale

© Copyright 2015 Armstrong Teasdale LLP. All rights reserved

New Overtime Rules: $970 Per Week Salary Proposed For White Collar Exemptions in 2016

The minimum weekly salary for exempt employees will be raised from the current $455 to a likely $970 in 2016, if the Department of Labor’s (DOL’s) overtime pay revisions go into effect as proposed. In its long-awaited proposed revisions to overtime rules, the DOL estimates that 4.6 million U.S. workers who are currently exempt will be entitled to minimum wage and overtime compensation under the new salary level requirements.

Salary Level Would Automatically Adjust on an Annual Basis

Under its proposed rules, the DOL sets the salary threshold for the white collar exemptions at the 40th percentile of weekly earnings for full-time salaried workers nationwide. For 2013, using data from the Bureau of Labor Statistics, that figure was $921 per week, or $47,892 per year. The DOL anticipates that when its Final Rule goes into effect in 2016, the salary level will be $970 per week, or $50,440 per year.

In order to maintain the salary levels at a fixed percentile of earnings, the DOL proposes that the salary threshold automatically update annually. The automatic adjustment is intended to prevent the salary level from diminishing through inflation and to potentially make additional rulemaking adjusting the salary basis unnecessary. The DOL believes that this will provide more certainty to employers with a meaningful, bright-line test while improving government efficiency.

Highly Compensated Employee Exemption: $122,148 Salary

The current exemption for highly compensated employees requires an annual salary of $100,000. The DOL proposes to raise that salary threshold also based on an annualized value of a percentile of weekly earnings for full-time salaried workers. This proposal sets the salary level of highly-compensated employees at the 90th percentile, which was $122,148 per year for 2013. That number will likely be higher by the time the Final Rule is implemented. This salary requirement would also adjust automatically to the level equal to the 90th percentile of earnings for full-time salaried workers.

No Proposed Changes to Duties Requirements

Since 2004, the duties tests for the white collar exemptions have not included a limit on the amount of time that an employee can spend on nonexempt duties before the exemption is lost. Believing that a rise in the salary level will provide an initial bright-line test for the exemptions, the DOL refrained from proposing changes to the duties tests but will consider requests for changes during the comment period.

In its proposal, the DOL noted that employer stakeholders opposed any changes to the duties requirements as percentage limits on the amount of time spent on nonexempt duties are sometimes difficult to apply and hinder flexibility for work duties. Employee groups, on the other hand, expressed concern that certain businesses treat workers as exempt even though the employees perform mostly nonexempt duties, especially (they claim) in the retail industry. Without proposing its own duties requirements, the DOL seeks input from interested parties on whether changes to the duties tests are necessary in light of the salary level increases proposed.

Nondiscretionary Bonuses May Be Included in Salary Level Requirement

In the past, the DOL has not included nondiscretionary bonus payments when determining whether an employee’s salary meets the white collar exemption threshold; it looked only at actual salary or fee payments made to employees. In its proposed rules, the DOL seeks input on whether it should permit some amount of nondiscretionary bonuses and incentive payments to count toward a portion of the salary level requirement for the executive, administrative and professional exemptions. The DOL states that for these bonuses or incentive payments to count toward the weekly salary requirement, the bonuses and incentive payments would need to be paid monthly or more frequently, not as a yearly “catch-up” payment.

Next Steps

If you want to submit any comments on the DOL’s proposed changes to the overtime rules, you have 60 days in which to submit your input either electronically or by mail. Instructions are at the beginning of the Notice of Proposed Rulemaking.

After considering comments from interested parties, the DOL will decide whether to make any revisions to its proposed overtime rules and will issue its Final Rule sometime thereafter. Although the final version of the rules may change slightly, you should begin preparing for the changes now.

Examine your payroll records to determine which employees are currently treated as exempt under the various white collar exemptions. Determine which, if any, would or would not meet the new salary thresholds: $50,440 per year for executive, administrative and professional exemptions and $122,148 for highly compensated employees. Review the duties tests to make sure your exempt employees are performing exempt tasks.

After this review, consider how your organization is going to handle those employees who may not qualify as exempt under the new rules. Do you want to increase their salary to meet the new threshold? Change their status to nonexempt and pay them minimum wage and overtime? Do you need to change their duties to make sure they meet the duties tests? Have these internal conversations now so that you are not caught off guard when the Final Rule goes into effect in the coming months.

ARTICLE BY R. Calder Huntington of Holland & Hart LLP
Copyright Holland & Hart LLP 1995-2015.

DOL’s Upcoming Proposed Revisions to the FLSA’s White Collar Exemption Regulations

This month the Department of Labor is expected to propose, for the first time since 2004, revised regulations concerning the executive, administrative, professional, outside sales, and computer exemptions under the Fair Labor Standards Act. These revisions were prompted by President Obama’s March 13, 2014 memorandum to the Secretary of Labor, which stated that the exemptions “have not kept up with our modern economy” and which “direct[ed] [the DOL] to propose revisions to modernize and streamline the existing overtime regulations.” After the memorandum was issued, the agency began writing proposed regulations and announced on May 5, 2015, that it had completed drafting them and had submitted them (as required by Executive Order 12866) to the Office of Management and Budget for review.

Procedurally, the “proposed rules” will be published in the Federal Register (an action known as a “Notice of Public Rulemaking” or “NPRM”) for public comment following the OMB’s review, and the DOL has stated that it expects to take this step this month. After the public comment period closes, the DOL will consider the public comments in drafting “final rules;” submit them for a final review by the OMB; and then publish them in the Federal Register with an effective date on which they become law. Although implementation of the final rules may not occur until well into 2016, traditionally the final rules do not differ substantially from the proposed rules. Accordingly, employers should get a sense this month of what the future regulatory landscape will look like.

So what can we expect from these revisions? As an initial matter, it’s almost certain that the DOL will raise the $455 minimum salary requirement, which hasn’t changed since 2004. With regard to the other revisions, however, the DOL’s drafting process has been opaque, and official pronouncements have been largely limited to the Presidential Memorandum and the DOL’s description of the regulatory action on its Spring 2015 agenda, neither of which provide any specific detail. Nonetheless, unofficial pronouncements (including the Secretary of Labor’s remarks before the International Association of Firefighters on March 18, 2014) have repeatedly stressed the DOL’s position that the current regulations result in too many employees falling under the exemptions, particularly retail managers who spend a large portion of their time performing non-exempt duties. Accordingly, there is speculation that the DOL may eliminate the “concurrent duties” provision of 29 CFR 541.106, which provides that simultaneously performing both exempt and nonexempt duties will not automatically disqualify an otherwise exempt employee from the executive exemption. There is also speculation that the regulations may impose a set percentage cap on the amount of time an exempt employee may spend on non-exempt duties, similar to exemption provisions under some state laws (such as California and Connecticut) and to some provisions of the pre-2004 FLSA regulations.

In any event, one thing is certain – some employees who are properly classified as exempt under the current regulations will no longer be exempt under the new rules. Employers will shortly have a preview of just how drastic these changes will be, and should begin evaluating their compliance with the regulations well in advance of the implementation of the final rules.

ARTICLE BY Dennis M. Mulgrew, Jr. of Drinker Biddle & Reath LLP
©2015 Drinker Biddle & Reath LLP. All Rights Reserved

Proposed Labor Violation Reporting Rules Target Government Contractors

Proposal makes agency allegations of employment law violations reportable events that could result in denial of federal contracts or termination of existing contracts.

Executive Order 13673 (the Order), signed by US President Barack Obama in July 2014, imposed three new requirements addressing the labor and employment practices of federal contractors and subcontractors: (1) an obligation to report employment law violations, which would be used by contracting officers to determine whether to award a new federal contract or terminate an existing contract; (2) a requirement to provide notices to workers about their Fair Labor Standards Act (FLSA) exemption or independent contractor status; and (3) a requirement that federal contractors agree that claims arising under Title VII or any tort related to or arising out of sexual assault or harassment by their employees and independent contractors will not be arbitrated without the voluntary postdispute consent of an employee or independent contractor, with certain limited exceptions.

E.O. 13673 directed the Federal Acquisition Regulatory Council (FAR Council)—which consists of the Administrator for Federal Procurement Policy, the Secretary of Defense, the Administrator of National Aeronautics and Space, and the Administrator of General Services—to publish implementing regulations through the Federal Acquisition Regulation (FAR) system. The Order also directed the Department of Labor (DOL) to publish guidelines that address transactions deemed to be reportable employment law violations, as well as how contracting officials should use such reported information to determine whether to award a federal contract (or terminate an existing contract). The Order, while effective upon issuance, expressly applies to all solicitations for contracts only as set forth in any final rule issued by the FAR Council.

On May 28, 2015, the FAR Council published a Notice of Proposed Rulemaking implementing E.O 13673.[1] On the same day, the DOL published proposed guidance.[2] The proposed rule and guidelines contain many potentially alarming provisions for employers seeking federal contracts, some of which appear to violate contractors’ due process and Fourth Amendment rights. If adopted, the proposals would impose administrative burdens on contractors, increase the complexity of obtaining and keeping federal contracts, and likely lead to an increase in bid protests and litigation.

The proposals offer employers a 60-day period to submit comments in opposition to these provisions. We strongly encourage employers that have or may seek federal contracts to take advantage of this comment opportunity. If you are interested in sponsoring comments, please contact us in the near future; the period for filing comments only runs through July 27, 2015.

Proposed Implementation of the Employment Violation Reporting Obligations

E.O. 13673 requires employers who are prospective awardees of federal contracts to report certain labor law violations that occurred within the prior three years. Awardees of federal contracts must submit reports of labor law violations every six months during the performance of the contract. The reportable violations include “administrative merits determinations,” “arbitral awards or decisions,” and “civil judgments” involving claims or enforcement actions under many federal employment laws.[3]

The proposed guidelines define “administrative merits determinations” by reference to the specific types of determinations made by a federal enforcement agency, such as the Wage and Hour Division (WHD), Office of Federal Contract Compliance Programs (OFCCP), Occupational Safety and Health Administration (OSHA), Equal Employment Opportunity Commission (EEOC), and National Labor Relations Board (NLRB). Reportable determinations also include, broadly, complaints that a federal enforcement agency files and administrative orders issued through agency adjudication. However, complaints that private parties file with enforcement agencies or in court alleging employment law violations would not trigger a reporting obligation.

Under the proposed guidance, “administrative merits determinations are not limited to notices and findings issued following adversarial or adjudicative proceedings such as a hearing, nor are they limited to notices and findings that are final and unappealable.” Thus, contractors will be required to report mere agency allegations, such as OSHA citations, WHD investigation finding letters, OFCCP show cause notices, EEOC reasonable cause determinations, and NLRB complaints. These disclosures are required even if a contractor is challenging an allegation through formal proceedings. If, at the time of the required reporting, the enforcement agency allegation is withdrawn or reversed in its entirety through additional proceedings in the matter, then there is no reporting obligation.

The DOL will publish additional proposed guidelines that address administrative determinations that state enforcement agencies make under laws that DOL deems to be equivalent to the above-referenced federal laws.

The proposed DOL guidelines define “civil judgments” as any judgment or order entered by any federal or state court in which the court determined that an employer violated any provision of the above-referenced employment laws or enjoined the employer from committing a violation. Civil judgments include orders or judgments that are not final and are appealable, and the employer must report such judgments even if an appeal is pending. Consent judgments are subject to the reporting obligation if they contain a determination that an employment violation occurred or enjoin the employer from violating any provision of the employment laws. However, a private lawsuit that a court dismissed without a judgment would not be a reportable event.

The proposed DOL guidelines define “arbitral awards and decisions” as any award or order by an arbitrator or arbitral panel in which the arbitrator or panel determined that an employer violated any provision of the above-referenced employment laws or enjoined the employer from committing a violation. Arbitral awards include awards and orders that are not final and are appealable, and the employer must report such judgments even if an appeal is pending. Arbitral awards and orders must be reported even if they are subject to a confidentiality agreement.

Under the proposed DOL guidelines, the same alleged violation may trigger several successive reporting obligations. Each transaction must be reported even if the same alleged violation was the basis for a prior report. For example, where an initial agency allegation was reported, the same allegation must later be reported if it is sustained through an administrative order, and must be reported yet again if a federal court affirms it in a review action. However, if the initial reported transaction is reversed or vacated in its entirety through later proceedings, there is no obligation to continue to report the initial transaction in any future contract bid.

The proposed FAR regulations simply incorporate the DOL guidelines by reference and do not modify or expand on the definitions regarding reportable events.

Mechanics of the Contracting Process Under the Proposed FAR Rule

Prior to awarding a government contract, a contracting officer is required to make an affirmative responsibility determination that includes a determination that the apparent successful offeror or bidder has a satisfactory record of integrity and business ethics. The proposed rule requires that the contracting officer consider a prospective contractor’s labor violations in determining whether that contractor has a satisfactory record of integrity and business ethics. Under the proposed FAR rule, all employers bidding on a federal contract would initially provide a representation that there have been or have not been reportable employment law violations. Thereafter, once the contracting officer has initiated a responsibility determination for the prospective contractor, if the employer has indicated covered employment law violations, that employer would be required to enter detailed information describing the violations in the System for Award Management (SAM), including (1) the employment law that was allegedly violated; (2) the relevant matter or case number; (3) the date that the determination, judgment, award, or decision was rendered; and (4) the name of the court, arbitrator(s), or agency that rendered the decision. Further, the contracting officer would be required to solicit from the employer additional information that the prospective contractor views as necessary to establish affirmatively its responsibility, such as mitigating circumstances; remedial measures, including labor compliance agreements; and other steps taken to comply with labor laws.

The contracting officer would review the data provided, and, in consultation with agency Labor Contract Advisors, would determine whether the employer is a responsible source eligible to receive the federal contract. The proposals contemplate that most entities would not be deemed nonresponsible, but instead would be required to agree to a “labor compliance agreement” as a condition of award of the federal contract. The proposals provide little discussion or framework for labor compliance agreements, apparently vesting broad authority in enforcement agencies, the DOL, agency Labor Contract Advisors, and contracting officers to develop, negotiate, and monitor such agreements. Employers should pay particular attention to these proposals because they would place powers in the hands of federal regulators to extract extra-legal “remedial actions” by leveraging an award or continuation of federal contracts. The outlook for those prospective offerors found nonresponsible is equally grim; the likelihood of successfully challenging contracting officer responsibility determinations in the procurement process is very low given the high level of deference accorded such determinations by both the Government Accountability Office (GAO) and the Court of Federal Claims (COFC). Moreover, because the proposed regulation’s definition of “administrative merits determinations” effectively includes notices or findings that amount to little more than alleged violations, it is unclear whether GAO or the COFC could readily find a determination of nonresponsibility to be without a rational basis, even if that decision was predicated on alleged violations that, after contract award, may not be proven.

Post-Award Implications of Labor Violations

Employers awarded contracts would be required to enter current information regarding labor violations in SAM on a semi-annual basis. If, based on this information, the Labor Contract Advisor determines that further consideration or action is warranted… click to continue reading Proposed Labor Violation Reporting Rules Target Government Contractors

ARTICLE BY

William E. Doyle, Jr. & E. Ruscus of Morgan, Lewis & Bockius LLP
Copyright © 2015 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

Fifth Circuit Refuses Application of Bright-Line Test in FLSA Seaman Exemption Dispute

Proskauer Law firm

On November 13, 2014, the Fifth Circuit addressed the uncertainty stemming from its decision in Owens v. SeaRiver Maritime, Inc., 272 F.3d 698 (5th Cir. 2001), wherein the Court found that a plaintiff’s unloading and loading of vessels was considered “nonseaman” work subject to the Fair Labor Standards Act’s (“FLSA”) overtime requirements. Subsequent to that decision, plaintiffs have advocated for a broad application of Owens’s rule, and district courts struggled with Owens’s  application to what are often fact-driven cases.

The Fifth Circuit provided necessary clarity in Coffin v. Blessey Marine Services, Inc., No. 13-20144, 2014 WL 5904734 (5th Cir. Nov. 13, 2014), when it reversed the district court on an interlocutory appeal and held that vessel-based crewmembers tasked with loading and unloading vessels are seamen under the FLSA rendering them exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(b)(6). In so ruling, the Fifth Circuit limited its prior holding in Owens, by finding that the unloading and loading of vessels is not strictly “nonseaman” work, and that each individual and case must be analyzed under a facts-and-circumstances test. Significantly, in dicta, the Court intimated that the Department of Labor’s “twenty percent rule,” which states that an employee loses his seaman status when “nonseaman” work occupies over twenty percent of his time, is also not a bright-line test.

Plaintiffs are tankermen who lived and worked aboard Defendant’s vessels. Though the parties and the court agreed that most of Plaintiffs’ job duties were “seaman” work exempt from the FLSA’s overtime requirements, Plaintiffs filed suit alleging that their job duties related to the loading and unloading of vessels constituted “nonseaman” work for which overtime pay was owed. Plaintiffs and the district court relied on the Fifth Circuit’s prior holding in Owens, and the district court denied Defendant’s motion for summary judgment. The district court and the Fifth Circuit granted Defendant’s interlocutory appeal under 29 U.S.C. § 1292(b).

Following oral argument, the Fifth Circuit issued its decision, which disagreed with Plaintiffs’ and the district court’s interpretation and application of Owens. Importantly, the Fifth Circuit distinguished Owens and emphasized that the analysis under the FLSA’s seaman exemption is a fact-based and flexible inquiry not subject to bright-line, categorical rules. The Court reasoned that the analysis required the consideration of the character of the work performed and the context in which it is performed and not the consideration of where the work is performed or how it is labelled. Unlike in Owens where the plaintiff was a non-crewmember who was not tied to a vessel and who only sought overtime for land-based loading and unloading, the Plaintiffs in this case lived on Defendant’s towboats, and their loading and unloading duties undisputedly affected the seaworthiness of the vessels and were integrated fully with their other seaman duties. Therefore, considering the character and context of the work performed, the Court concluded that the Plaintiffs’ unloading and loading duties were seaman work, thus exempting Plaintiffs from the FLSA’s overtime requirements.  For these reasons, the Court vacated the lower court’s ruling and remanded the matter to enter judgment in favor of Defendant.

ARTICLE BY

Nicole A. Eichberger
Lindsey H. Chopin
OF
Proskauer Rose LLP