Acosta Unsure About Using Pay Level for Overtime Eligibility

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By Chris Opfer

The man tapped to run the Labor Department isn’t sure the agency should be using workers’ pay levels to determine if they’re automatically eligible for overtime compensation.

An Obama administration rule to make some 4 million workers newly eligible for overtime pay—by doubling the salary threshold for automatic eligibility to $47,500—is on hold, pending federal litigation in Texas. Although the rule has sparked a debate over where to set the salary threshold, labor secretary nominee Alexander Acosta noted that the judge in that case has raised questions about whether the DOL should instead focus on the actual duties workers perform.

“One of the questions that’s in litigation is does a dollar threshold supersede the duties test and, as a result, is it not in accordance with the law,” Acosta told a Senate panel during his March 22 confirmation hearing. “I mention that because I think the authority of the secretary to address this is a separate question from what the correct amount is.”

The comments came as the DOL is still deciding whether to continue to litigate the case in Texas. The agency is expected to eventually issue a new overtime rule, possibly with a smaller salary threshold increase. But a court ruling limiting the DOL’s ability to consider pay levels might throw a wrench in that plan.

Business groups and mostly Republican lawmakers have criticized the Obama administration rule, saying it would cause employers to switch workers from salaried to hourly positions, eliminate low-level management opportunities and slash jobs to meet rising payroll costs. Democrats and worker advocates argue the new requirements are needed to keep up with inflation and would help bolster paychecks in an era of wage stagnation.

Neither side has challenged the DOL’s general authority to tinker with a salary test. Acosta himself suggested that he would be open to increasing the salary threshold to account for cost-of-living increases over the past decade.

“I was encouraged that” Acosta “recognized that such a large adjustment in the threshold—doubling it—was a dramatic increase and that he recognized the costs to nonprofits,” Sen. Lamar Alexander (R-Tenn.), chairman of the Health, Education, Labor and Pensions Committee, told Bloomberg BNA after the hearing. “My hope is that he would propose a sensible regulation that would substitute for the poor one that was written last year.”

Decision Sparks Uncertainty

The Fair Labor Standards Act generally requires employers to pay workers time-and-a-half wages for all hours worked beyond 40 per week. The law also delegates to the labor secretary the power to determine which workers should be removed from overtime requirements under the law’s white collar exemption for workers in “bona fide executive, administrative, or professional” (EAP) positions.

The overtime standards created in 2004 by President George W. Bush’s administration allow employers to exempt workers who make more than $23,500 annually and perform certain managerial duties. When the DOL rolled out the new rule in 2015, then-Labor Secretary Thomas Perez said doubling the threshold was the easiest way to put more money in workers’ pockets and avoid some of the uncertainty that comes with the “duties test.”

Federal district court Judge Amos Mazzant raised some eyebrows on both sides of the overtime debate last year when he issued an injunction halting the rule just months before it was slated to take effect ( Nevada v. DOL, E.D. Tex., No. 4:16-cv-00731, motion granted 11/22/16). Congress made clear that it expected the DOL to focus on job duties in crafting the white-collar exemption, Mazzant said.

“Nothing in the EAP exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level,” Mazzant wrote. However, he later clarified that position in a footnote, which some observers have read to mean that Mazzant’s real gripe was with the size of the threshold increase.

“The Court is not making a general statement on the lawfulness of the salary-level test for the EAP exemption,” Mazzant said. “The Court is evaluating only the salary-level test as amended under the Department’s Final Rule.”

Next Steps

It’s not clear whether Mazzant will address the specific question when he rules on a motion for summary judgment brought by a group of states and business groups challenging the rule.

In the meantime, the DOL might make the issue moot by dropping its defense of the rule. That’s unless Mazzant approves the Texas AFL-CIO’s request to intervene.

Heidi Shierholz was the DOL’s chief economist during the time the Obama administration crafted the rule. Acosta’s comments about the department’s authority “demonstrate real radicalism or a lack of understanding about how the Fair Labor Standards Act works,” she said.

“What we heard over and over again as we were crafting this rule is that businesses don’t like the duties test,” Shierholz, now a policy director for the Economic Policy Institute, told Bloomberg BNA March 22. “This would put all of the eggs in the duties test basket, which would lead to more litigation and more workers being misclassified as exempt.”

Paul DeCamp, who started running the DOL’s Wage and Hour Division a year after the Bush administration overtime rule took effect, told Bloomberg BNA March 22 that Mazzant’s position is “pretty clear.” Now a management-side attorney at Jackson Lewis, DeCamp said he would advise employers facing overtime lawsuits to challenge any rule that includes a salary threshold if Mazzant’s ruling stands.

“The precedent is going to at least create some concern about any rules going forward that are premised on a salary requirement,” DeCamp said.

To contact the reporter on this story: Chris Opfer in New York at copfer@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com

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