The U.S. Department of Labor’s ongoing push to narrow the white collar exemptions to the Fair Labor Standards Act could bring millions more workers under the aegis of federal overtime requirements. Law360 drilled down into precisely how the new rule might change the litigation landscape and what employers can do to get their houses in order.
The DOL says its proposed rule is expected in June, but exactly what it will contain remains unclear. Still, lawyers say they expect the salary threshold — the minimum amount a worker must make to qualify for one of the white collar exemptions to the FLSA — to rise, and that a “quantitative test” requiring that workers spend a specific percentage of their time on nonexempt duties to qualify for an exemption is also a possibility.
Even with questions still open, there are steps that concerned employers can — and should —take in light of the overhaul of the FLSA exemption regulations, lawyers said. Putting off assessing how the regulations may affect your business and waiting too long to formulate a game plan is a recipe for disaster, said Fisher & Phillips LLP partner John Thompson.
“You don’t want to be doing this in the two-week run up to the effective date of the new regulations,” Thompson said.
Lawyers on both sides of the bar said they expected the new overtime exemption regulations to translate to a rise in the already sky-high volume of FLSA lawsuits. For one thing, the regulations will continue to generate media coverage and conversations about overtime eligibility, giving workers a reason to think about their own overtime status and enlist the aid of legal counsel if they feel they might have a case.
“We’re going to see a lot of litigation following the issuance of the regulations, just because there will be a lot of attention,” said Paul DeCamp, leader of Jackson Lewis PC’s wage and hour practice group and a former chief of the DOL’s wage and hour division. “There will be a lot of attorneys poring over the regulations looking for practices that were vulnerable or have become vulnerable because of the new regulatory language.”
History supports the proposition that a regulatory shift might bring about an uptick in FLSA filings. After new overtime regulations took effect under the Bush administration in 2004, new FLSA cases rose for several years, according to data from the Administrative Office of the U.S. Courts.
The AOUSC’s statistics show 3,617 FLSA cases filed in the 2004 fiscal year; then 4,039 in 2005; 4,207 in 2006 and a steep jump to 7,310 in 2007. In the 12 months leading up to March 31, 2014, there were 8,126 FLSA suits filed, according to a chart on the AOUSC’s website.
“One of our goals in 2004 was to decrease the amount of litigation by bringing more certainty,” said Tammy McCutchen, a Littler Mendelson PC principal who headed the DOL’s wage and hour division from 2001 through 2004. “I hate to say it, but if you look at the numbers, it looks like we failed.”
McCutchen and other observers say a hike in the salary threshold — currently $455 a week or $23,660 a year — is a forgone conclusion, and the only question is how big the increase will be. Before the 2004 change, the threshold had been unchanged since 1975, McCutchen said.
While raising the salary threshold might not be popular among employers and could lead to the reclassification of large groups of workers, lawyers had differing takes on whether that move in particular would boost FLSA litigation.
Nichols Kaster PLLP attorney Adam Hansen said the new regulations could actually decrease the FLSA cases by eliminating debate about whether low-wage workers qualified as exempt.
“Raising the salary threshold could drive down litigation by wiping out entire classes of cases,” Hansen said. “By definition, raising the salary threshold will mean fewer employees in the total group for lawyers to fight about. For businesses and employees, that’s a good thing.”
Van Kampen Law PC founder Josh Van Kampen, on the other hand, said he expected that some employers’ ignorance of or willingness to flout the new requirements would set them up as “low- hanging fruit” for future wage-hour plaintiffs.
“Notwithstanding our management colleagues’ attempts to train on this, there are going to be scores of employers who are just caught flat-footed and don’t do anything at all,” Van Kampen said.
Overall, lawyers seemed more worried about the second potential change — moving from the federal primary duty requirement to something like the quantitative standard used in California — being a potential litigation driver.
In addition to meeting salary requirements, California requires workers to spend more than 50 percent of their time on tasks deemed exempt from minimum wage and overtime requirements. Federal regulations, however, look at a worker’s “primary duty” to assess if they qualify for one of the FLSA white collar exemptions, a term the DOL says “means the principal, main, major or most important duty that the employee performs.”
“The California model has proven over time to be a recipe for litigation,” DeCamp said, adding that it’s difficult for employers to win summary judgment on wage claims from workers who dispute whether they meet the 50 percent exempt-task requirement.
One of the reasons a move to a California-style duties test would be so vexing is because it’s very hard to measure how much time a given employee spends on specific tasks, Thompson said. Such a move would “generate a great deal of litigation,” according to Thompson.
Whether the DOL’s imminent proposed rule will change the primary duties test for the FLSA white collar exemptions is still unknown, but a change in that area is “very likely,” McCutchen said, citing “listening sessions” with Secretary of Labor Thomas Perez.
“It’s something that Secretary Perez wants to do, based on the meetings that I attended with him,” she said.
“If they change the duties test, what you’re losing is 50 years of litigation that attorneys can look at and try to apply to their situation,” McCutchen added. “The more significant the changes to the duty test, the more likely we are to see a significant increase in litigation.”
Off-the-clock claims from workers who change from exempt to nonexempt but can’t shake the habit of working overtime are possible, and figuring out how the 1938 FLSA applies to the modern workplace and new technology is an enduring challenge for today’s employers.
But the potential move to a quantitative duties test, and disputes over how allegedly misclassified workers spend their time, represent the most fertile ground for litigation if the regulations are proposed and finalized as expected, Thompson said.
“It’s hard to say until we see them,” Thompson said of the regulations, “but I think this more than 50 percent thing, which everybody seems to think is going to happen, will certainly be at the forefront of the litigation theories under these new rules, assuming it gets adopted.”
Though the proposed rule’s final form is still an open question, lawyers had plenty of suggestions for employers that have concerns about the impact of the eventual changes, and warned that the retail and restaurant industries may be hit particularly hard.
McCutchen recommended calculating the cost of potential salary increases for workers who might lose exempt status. Thompson likewise recommended plugging in possible annual salary thresholds for exempt workers — such as $40,000 and $50,000 — and seeing how paying those wages would affect the business.
“Why do that now? Businesses operate on budgets and this will be a hit for their budget,” McCutchen said. “Don’t leave your business executives a surprise. Start preparing them now for how much the increase in the salary level might end up costing them.”
DeCamp also said that analyzing a company’s “exempt population” and how salary raises would affect the bottom line was important. Thinking through potential moves like like bumping up pay levels, hiring more people to spread out hours or downgrading some jobs to funnel exempt tasks further up the company’s ranks could be critical for companies where significant worker reclassification is a possibility, he said.
Employers should also make sure to have their voices heard by the DOL during the comment period that will follow the new rule’s release, attorneys said.
“If done right, the regulations should bring greater clarity and be a benefit to employers. The notice and comment period will be a good opportunity to help the agency make the regulations as simple and clear as possible,” Hansen said.
Many companies don’t like to put their name on comments to the DOL for fear that they may be targeted by the agency, but that sort of retaliation doesn’t actually happen, former WHD administrator McCutchen said. Companies that have a problem with the regulations should pipe up, she added.
“I strongly encourage companies to address their concerns and file comments,” said McCutchen. Thompson added that employers should think about whether there are alternate exemptions that they haven’t used in the past that could be relevant.
“They should consider whether there is another exemption under the FLSA that they haven’t applied in the past that they might apply,” he said.
Keeping employees’ perception in mind is also an important thing to consider and employers would be well-served to think about how they want to communicate their views to workers. The regulations will likely generate discussion among employees, and being attuned to any rumblings from workers who feel they aren’t being treated right can help nip things like potential litigation and union organizing in the bud, according to DeCamp.
“Managing employee relations during that period of regulatory uncertainty will be important,” DeCamp said. “Anytime employees are unhappy, that’s a bad thing.”