Labor Department Retracts Broad Guidance, Seeks More Input on Pending Overtime Rule

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By Christine Pulfrey

Two federal interpretations that broadly defined employee status and what may be a joint-employment relationship were withdrawn June 7 by the Labor Department.

The move perceptibly altered the course of the Labor Department, which also previewed its intent to re-open for comment a contested rule that would make more workers eligible for overtime.

The Wage and Hour Division's 2015 and 2016 “informal guidance on joint employment and independent contractors were withdrawn effective June 7, 2017,” the Labor Department said in a news release ( 17-0807-NAT ).

The federal administrator interpretations, which were issued by David Weil, who was Wage and Hour Division administrator during the Obama administration, were conceived so that more workers could be considered employees and more entities could be considered joint employers.

Regarding worker status, FLSA 2015-1 emphasized use of an economic-realities test and an expansive reading of the Fair Labor Standards Act’s definition of suffer or permit to work to determine if a worker was an employee. The other administrator's interpretation, FLSA 2016-1 , identified two types of joint-employment relationships, horizontal and vertical joint employment, and how to analyze them.

Finding Practical Guidance in Administrator Interpretations

Administrator interpretations are not formal regulations or laws, but they have tremendous practical implications for Labor Department field personnel, Michael J. Lotito, a shareholder and co-chairman of Littler Mendelson PC’s Workplace Policy Institute in San Francisco, told Bloomberg BNA on May 23.

“The opinions served as the division’s justification for certain enforcement actions, and the withdrawal of the opinions represents a significant shift in the wage and hour law advocated by the prior administration,” Ilyse W. Schuman, a shareholder and co-chairwoman of Littler Mendelson PC's Workplace Policy Institute in Washington, D.C., said June 7 in an email to Bloomberg BNA.

“Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law,” the news release said.

However, the withdrawal of the interpretations may indicate that the Labor Department is rolling back its investigative and enforcement initiative, Jeffrey Ruzal, an employment, labor, and workforce management lawyer in Epstein Becker & Green's New York office, said June 7 in an email to Bloomberg BNA.

Nonetheless, “employers have to ensure compliance, not just with the U.S. Labor Department in mind, but the private plaintiff’s bar that has been incredibly aggressive,” Ruzal told Bloomberg BNA on May 24.

Employers in 17 states, including nine states in 2017, that have enacted laws narrowly defining the joint-employment relationship may find that the department's withdrawal of its broad views of the employment relationship results in similarities between the states' and agencies' definitions.

Regardless, “it is important that employers continually self audit, review accounts, look at vendor relationships, and look at vendors who are on site to make sure that they are not there for that long,” Ruzal said May 24.

Rewinding the Overtime Rule

The Labor Department plans to seek more input on an overtime final rule that was to take effect Dec. 1, 2016, Acosta said June 7 at a hearing on the Labor Department’s proposed $9.7 billion appropriation for fiscal 2018, which is less than its fiscal 2017 appropriation of $12 billion.

“We do have plans to look at the overtime rule as a general matter,” Acosta said in response to a question by Rep. Mike Simpson (R-Idaho), a member of the House Subcommittee on Labor, Health and Human Services, Education, and Related Agencies.

“As I mentioned at my confirmation hearing, I think that any rule that has a dollar amount that hasn’t been updated for as long as this has been is a problem because life gets a lot more expensive,” Acosta said, adding that “I also think the way it was done created a shock to the system.”

“The department is in the process of drafting a request for information that I think probably will be filed in the next two to three weeks asking for public information and public comment on the overtime rule,” Acosta said.

At his March 22 confirmation hearing, Acosta wondered whether the salary level was a good way to determine overtime eligibility, noting that applying a straight inflation adjustment would result in an updated figure of about $33,000.

The overtime rule that was to take effect would have doubled to $47,476 the salary threshold below which workers would automatically be eligible to earn overtime. On Nov. 22 a federal court said the department lacked the authority under the FLSA to issue the rule, and put it on hold. The ruling was appealed.

On April 14, the Justice Department requested and received from the federal appeals court a third delay, until June 30, to submit a filing in the case “to give incoming leadership at the department time to review the DOL’s position” ( Nevada v. DOL, 5th Cir., No. 16-41606, 4/19/17 ).

High-Impact Enforcement

At the June 7 hearing, Acosta said that his approach to enforcement is to try to find the high-impact cases, “larger cases that have broad-based impact and it's not just on the individual worker in this context, but it is also the deterrent effect that it has.” The value of targeting such cases must be balanced with the need “to bring a reasonable amount of small cases so that small actors that are acting wrongly don’t feel that they have a free pass,” he said.

“I don’t know that the Wage and Hour Division is going to proactively investigate putative joint employers,” Ruzal told Bloomberg BNA on May 24, noting that the division has limited resources, and there will be certain budget cuts.

“Their resources will be more on whistle-blowers or complainants to the extent that it implicates joint-employment liability, and then they will actively pursue that,” Ruzal said. “I don’t think they will turn a blind eye to joint-employer liability.”

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