Best Buy Lawsuit May Color Labor Dept. Rule on Overtime Pay

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By Ben Penn

The Labor Department has been tight-lipped about an upcoming regulation to revise overtime calculations, but bonuses, discounts, gym memberships, and other perks are likely to be at the center of the new rule.

The Trump official charged with overseeing the rulemaking had a close encounter with the topic fairly recently, when he defended Best Buy in a case that could prove relevant. That experience—a federal court said employee discounts didn’t count as part of retail workers’ regular rate of pay for determining their overtime pay rates—could color the DOL’s approach.

The administration’s semiannual unified regulatory agenda published in May included a vaguely worded surprise announcement that the DOL’s Wage and Hour Division would propose to “clarify, update, and define regular rate requirements"—or the typical hourly rate of pay that is multiplied by 1.5 to calculate the overtime premium for hours beyond 40 in a week. But the agency has yet to provide further details on what this rule, slated for release in September, would entail.

Attorneys for both workers and management suspect that the regulation may carve out or clarify new categories of payment that businesses can exclude from the regular rate and not credit toward time-and-a-half pay. The current rules exempt from the regular rate various forms of payment that aren’t for hours worked, such as holiday gifts and benefits contributions. But the exclusions don’t come close to specifying all the examples of non-salary earnings that are relevant to the modern workplace.

“It would be nice to have more guidance on what you’re talking about there so that we could give clients more advice on that with more certainty,” Alexander Passantino , a former acting WHD chief who now represents businesses for Seyfarth Shaw in Washington, told Bloomberg Law. “Clients come up with good ideas on how they want to reward employees. It’s just helpful to say, ‘Yeah, that’s going to impact overtime rate,’ or, ‘no, it’s not.’”

The man now sitting in Passantino’s old slot, Acting WHD Administrator Bryan Jarrett, arrived at the government last fall, fresh off a two-year stint as an attorney with global management law firm Morgan Lewis. For much of his time at the firm, Jarrett represented Best Buy in a worker lawsuit alleging the electronics chain unlawfully failed to include bonuses and employee discounts in the overtime equation.

Although a federal judge mostly sided with Best Buy on that claim, the former client’s legal ordeal is still fresh in Jarrett’s mind as the division proceeds with a proposal to update the “regular rate” to fit current compensation arrangements.

Landscape Changed Dramatically

Unlike the typical WHD regulations affecting overtime, business lobbyists haven’t been publicly clamoring for this rule change. But that doesn’t mean they’re not interested.

“We look forward to the department issuing a rule that will reduce confusion around the regular rate and allow employers to continue offering employees various benefits that will not be included as compensation,” Marc Freedman, vice president for employment policy at the U.S. Chamber of Commerce, told Bloomberg Law in an email.

Best Buy faced a claim that could have been more easily squashed had the law clearly stipulated the specific payment scenarios that aren’t credited toward overtime. Current law excludes eight types of compensation from the regular rate formula. But management attorneys say these rules are outdated, leading to a gray area that exposes their clients to litigation.

“I think that there is a strong case to be made that because the regulations haven’t been updated in so many years, and the world in which they were created has changed dramatically, one of the things that has happened is they create a very significant barrier for employers to provide a whole host of benefits to nonexempt employees that they might otherwise provide,” Barbara Miller , a partner at Morgan Lewis in Costa Mesa, Calif.

Miller was Jarrett’s co-counsel in the Best Buy litigation but said she doesn’t know what will be included in the new rule. She also said she doesn’t think the Best Buy case is necessarily driving the process.

Members of the plaintiff bar also couldn’t predict the details of the proposed rule with any confidence. But one past co-chair of the National Employment Lawyers Association wage-and-hour practice group had a general suspicion.

“I find it hard to believe that the current administration will do anything other than dilute the current protections afforded to workers by the FLSA but I don’t want to speculate about what the specific proposals will be,” David Borgen, who is of counsel at Goldstein, Borgen, Dardarian, & Ho in Oakland, Calif., told Bloomberg Law via email.

Borgen, who is still a member of NELA, said the association would likely submit comments on the proposed rule “in an effort to protect the well-established rights of workers to overtime pay at an undiluted regular rate of pay.”

Rulings on Base Rate Often Unpredictable

Even though Best Buy prevailed on the regular rate challenge, other federal judges have been siding with workers of late in related litigation, positioning the WHD to give the business community some regulatory clarity to fend off future lawsuits.

“In the last few years there have been some surprising decisions that required amounts to be included in the regular rate even though it seemed clear that those payments were not for work performed,” Christopher Parlo , co-leader of Morgan Lewis’ national wage-and-hour practice, told Bloomberg Law. “If this is an effort to better define that section, then that could be helpful, certainly for employers.”

Parlo, a partner in the firm’s New York office, said he wasn’t involved in the Best Buy case, and couldn’t speak to his former colleague Jarrett’s impetus for this rule.

When approached by Bloomberg Law after he spoke at a New York law conference, Jarrett declined to comment on the record about the regular rate proposal.

Regular rate regulations have not been updated in decades—even though compensation practices have evolved and clarity is needed,” a DOL spokesman said in a May statement.

The department didn’t respond to inquiries on what role, if any, Jarrett’s experience in the Best Buy case has been playing in the rulemaking.

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