Outlook 2018: Wage Hour Division Targets Overtime Rewrite, Opinion Letters

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By Ben Penn

The impending addition of a Wage and Hour Division administrator means the agency could this year advance a few important rulemaking and policy actions that have been teed up for months.

An update to the Obama-era overtime rule and a return to sought-after opinion letters are likely first on deck for Cheryl Stanton if she’s eventually confirmed by the Senate to run the WHD. Beyond these pressing issues, it’s still an open question whether the division will have time to implement changes to the previous administration’s minimum wage and overtime enforcement regime. The new administration has faced pressure from the employer community to conduct a wholesale review of prior WHD chief David Weil’s investigative approach. To the extent the DOL intends to act on this advice, little progress is evident thus far out in the field.

Labor Secretary Alexander Acosta has already signaled a few significant WHD initiatives, such as a more moderate version of the overtime rule and a return to the opinion letters, which are intended to provide fact-specific legal clarity and can provide a shield against lawsuits. In early 2018, when Stanton likely assumes control, the division can begin a fuller implementation of these items.

Issuing opinion letters and making a final decision about how to update automatic overtime eligibility standards on how to proceed with a rule proposal that updates will be Stanton’s highest-profile, but not her only, initial objectives upon confirmation, anticipates Alexander Passantino, who was acting WHD administrator in the George W. Bush presidency.

“Those two things—in addition to getting a hold of what the agency looks like, who all the players are, who all the leaders are out in the field, what specific enforcement policy issues might want to be addressed—will take up a significant amount of her starting time,” Passantino, now a partner at management-side firm Seyfarth Shaw in Washington, told Bloomberg Law.

Stanton in Queue for Senate Vote

Stanton, who once represented businesses in workplace matters as a lawyer at prominent management firm Ogletree Deakins, is now the executive director of the South Carolina Department of Employment and Workforce. She was nominated in September, yet still waits her turn for a Senate floor vote in a crowded field of nominees and competing legislative priorities. The delay was prolonged when the Senate adjourned for the holidays without voting on her, sending Stanton back to the White House for renomination in 2018.

Her state government job doesn’t entail wage-hour enforcement, and Stanton avoided showing her hand on possible policy moves during limited questioning at a fall confirmation hearing.

Still, the fact that Stanton and two other recent WHD political appointees all hail from management backgrounds, lends credence to the notion that the agency will eventually reduce the level of penalties and so-called “gotcha” enforcement tactics. Instead, the division is likely to ramp up existing efforts of partnering with well-intentioned companies in educating them on compliance, while still relying on enforcement to make an example of bad actors.

Weil, who is now a dean of Brandeis University’s Heller School for Social Policy and Management, said wage-hour stakeholders committed to enforcing labor standards should “keep our eyes trained” on the actions of incoming political appointees.

“The men and women who serve in the agency are people who have dedicated their career to the enforcement of laws, and when they come in to do an investigation they’re going to take out the tools they were trained in, and act accordingly,” Weil told Bloomberg Law. “If the political establishment then starts playing games with that, that would be very troubling.”

Overtime, Pt. 2

The agency has begun reviewing more than 200,000 public comments advising the WHD on how to go about regulating a new overtime salary level. The big questions are where to set the salary threshold for overtime eligibility, whether to update the threshold automatically every few years, and whether to vary the threshold by region to account for cost of living differences.

The division recently estimated that a proposal will be out in October, and the secretary has said it will lift the salary threshold below which workers qualify for time-and-a-half pay, but not as high as an Obama rule that’s tied up in court.

“I would say $34,000-$38,000 if I had to put a guess,” Passantino said, making a rough prediction at the new salary level. The current annual figure is $24,000, whereas the 2016 rule tried to nearly double the threshold to $47,500. That would have qualified some 4.2 million workers for overtime when they worked more than 40 hours in a week.

Raj Nayak, who held a range of positions for the Obama DOL and is now a research director at the National Employment Law Project, sees the new rule as a test of the agency’s commitment to protecting more employees’ overtime rights.

“Any overtime rulemaking should end up in the range of the Obama administration’s rule if the department is staying true to the history of the overtime rules and the authority that the agency has,” Nayak told Bloomberg Law.

Auto-Adjusting OT Threshold, Tip-Sharing?

Acosta in November surprised some employer lobbyists and management lawyers at the U.S. Chamber of Commerce by saying he’s considering auto-adjusting the threshold to inflation. That provision, a different version of which was included in the Obama rule, has been fiercely opposed by business groups, particularly the Chamber.

The secretary also discussed the potential to create multiple salary levels that vary by regional cost-of-living. This would be seen as a provision to help small businesses operating on thin profit margins, but could cause compliance headaches for multi-state employers.

In response to an interview request and a series of questions about the WHD, a DOL spokesman provided excerpts from Acosta’s testimony at a November House panel hearing. That excerpted testimony itself also repeated some of the secretary’s months-old talking points on wage-and-hour policy.

“As the Department determines how to proceed” on overtime, “changes will be grounded in law and informed by public comments,” Acosta said at the Nov. 15 hearing.

Another major regulatory objective this year will involve the WHD’s publication of a final rule to reverse a 2011 regulation that forbids certain tip-sharing arrangements. The agency will begin reviewing comments on the December proposal to roll back the rule but hasn’t projected a date of completion of the final version.

Opinion Letters, Enforcement

The WHD in June reopened the process by which employers and employees can submit requests for opinion letters, but it appears to be waiting for Stanton’s approval before releasing responses. These letters, which are coveted by management lawyers to provide clients with a good-faith defense in court, were deemed an inefficient use of resources in the Obama administration.

“I would want to see some clarification on the right rate to use on overtime calculation,” Passantino said, when asked what type of opinion letter topics the WHD could cover. “And then it would be really nice to have some additional guidance on what it means to work in the modern workforce, particularly with respect to mobile devices and remote access.”

The new year may also see the division ramping up efforts to more broadly effect change by reaching compliance accords with massive companies. The WHD struck deals with Subway and Sonic in recent years to provide Fair Labor Standards Act training for franchisees.

Subway Approach

“That’s a great model of how to use limited resources,” Robin Runge, who was the WHD director of enforcement from 2015 to 2017, told Bloomberg Law of the Subway pact. “My hope is that with an administrator coming in, that might be something that appeals to her, that she might look at other industries besides fast food that could benefit from a similar agreement.”

That still leaves the issue of how the agency determines which companies to target for investigations, and whether it resumes an approach from the George W. Bush administration that emphasized responding to complaints rather than relying on proactive, data-based cases in workplaces likely to yield violations.

Stanton may also be asked to reconsider the Weil WHD’s emphasis on alleging that businesses have misclassified employees as independent contractors, and owe them back wages.

Acosta did withdraw a Weil memo that laid out his interpretation of the law on misclassification. But new enforcement guidelines on purported independent contractors and joint employers could represent longer-term initiatives.

Close Eye on Double Damages Question

Former DOL officials told Bloomberg Law that investigation protocols typically take some time in a new administration to review and revise. One area that could see more imminent change, they said, is the WHD’s policy on assessing double damages on top of back wages owed.

Weil and then-Solicitor Patricia Smith updated the field operations handbook to expand the circumstances in which employers were on the hook for double, or liquidated, damages. Business representatives are eager for a less punitive approach.

“No one is going to suggest that liquidated damages are a tool that should be taken off the board. It’s statutory and it’s important in the cases where someone is really a bad actor,” Gregory Jacob, the DOL solicitor under George W. Bush, told Bloomberg Law. “On the other hand, I think it does call for a reexamination when it comes up in so many cases. I would expect that to be a priority item for the new head to take a look at.”

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com

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