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By Ben Penn
May 18 — The Labor Department's release of a long-anticipated final regulation on overtime pay under the Fair Labor Standards Act prompted an immediate debate over the rule's impact on employers and employees.
The rule, issued in full May 18 after details were announced the prior night (95 DLR AA-1, 5/17/16), doubles the salary threshold for the overtime exemption to $47,476 per year, effective Dec. 1.
The salary level will be updated every three years thereafter in accordance with wage growth in the lowest-income Census region, currently the South.
Republicans are already prepping attacks on the rule, with lawmakers working on a disapproval resolution and considering a government funding rider to stall or stop the regulation (see related story).
Although business groups and House Speaker Paul Ryan (R-Wis.) called May 18 for blocking the rule's implementation, the DOL did placate some employers with a few concessions.
“Without question, there's been a collective sigh of relief that I've noted from our clients,” Brett Bartlett, a partner in the wage and hour litigation department at Seyfarth Shaw LLP in Atlanta, told Bloomberg BNA.
The changes from the proposed rule—notably the lengthier period to comply—were not so drastic that the regulation's supporters changed their tone.
Democratic lawmakers, unions and worker advocacy groups praised the administration's rulemaking. They credited the DOL for providing long-overdue overtime protections for an estimated 4.2 million employees who earn between the current exemption threshold of $23,660 and $47,476.
But a trade association coalition continues to advocate for Congress to pass a bill to prevent the regulation from taking effect (91 DLR A-9, 5/11/16). The business advocates also argued that the department's intent to expand access to overtime pay won't materialize.
“An overtime rule does not mean more overtime pay, but it almost certainly will mean more overhead costs for more employers,” David French, the National Retail Federation's senior vice president, said during a press call May 18. “In many cases, the costs are significantly higher than the potential benefits available to employees.”
Most of the employees the department estimates will benefit from the rule “will probably never see overtime pay,” French said. NRF, whose members account for one of the primary sectors the regulation is aimed at, is playing a prominent role in formulating the opposition's strategy.
A group of worker advocates in a separate May 18 press call countered by repeating one of the administration's leading contentions: even if employers find ways to avoid paying time and a half to newly eligible workers, employees still win.
“We think that a couple of million workers might just outright get a salary increase to put them over the threshold,” Ross Eisenbrey, vice president of the Economic Policy Institute, said on the call. “A lot of people will have their hours reduced so that their employer doesn’t have to pay them overtime. And when they do that, it is going to create jobs.”
A group of leading management attorneys recently told Bloomberg BNA that a raise above the threshold to avoid paying time and a half for overtime hours is exactly what many clients are considering (71 DLR C-1, 4/13/16).
The Dec. 1 effective date, some 200 days after the May 23 scheduled publication in the Federal Register, satisfied one of employers' leading requests made in meetings with White House officials while the draft final rule was under review (94 DLR C-1, 5/16/16).
Even an attorney who argued the necessity for this change to the administration—former Wage and Hour Division Administrator Tammy McCutchen—doubted the final rule would provide more than 120 days to comply.
Paul DeCamp, who also served as WHD administrator under President George W. Bush, said the lengthy period was the first item that caught him by surprise. A Dec. 1 effective date “makes things pretty interesting because employers are going to know the outcome of the November election before they have to flip the switch in terms of complying with the new standards,” said DeCamp, now a principal with Jackson Lewis P.C. in Washington.
“It also means that employers will have a period of less than two months from when the regulation has become effective to when we have a new president. So it creates, if nothing else, a window of hope for employers who want to wait it out,” he added. That said, DeCamp acknowledged that even if there is a change in political party at the White House, the new president couldn't unwind the regulation on day one.
Plaintiffs' attorney Michael Hancock, of counsel at Cohen Milstein Sellers & Toll PLLC in Washington, disagreed with DeCamp's assertion. Hancock, who helped draft the proposed regulation as WHD assistant administrator for policy, said he doesn't think many employers will “roll the dice,” by waiting for the election to comply.
“If they're not ready on Dec. 1, they're subject to Wage and Hour enforcement, they're subject to private litigation, and quite frankly, if they made that gamble and they lost, they deserve whatever happens after that point,” Hancock told Bloomberg BNA March 18.
Labor Secretary Thomas Perez during a May 17 press call said the department will now begin its compliance assistance phase. Asked by Bloomberg BNA how and when employers can expect the compliance assistance effort to transition to enforcement by WHD investigators, Perez emphasized that he is focused on achieving compliance. Assistance will come from guidance documents, webinars and other forms of outreach, he said.
The labor secretary said the salary threshold provides a clear test. “I’m optimistic that over the course of time you’ll see less litigation from the private bar because when you have more clarity and you have a rule that is more fair and consistent with the letter and spirit of the Fair Labor Standards Act, you have more compliance and less litigation,” Perez said.
The GOP-backed legislation to thwart the rule would certainly be vetoed by President Barack Obama.
But expect the regulation's opponents to employ the usual response to any new workplace regulation: a legal challenge.
“There will be litigation” around the overtime rule, DeCamp said, adding that the case could be made that the DOL lacks the authority under the Administrative Procedure Act to issue this regulation.
“I wouldn’t expect that argument to necessarily gain a lot of traction in front of a pro-employee judge in a Manhattan federal court where the wage levels are pretty high to begin with, but in front of the right conservative judge in rural Alabama, that argument might have traction—where the local impact of this regulation would be most severe,” he added.
Hancock dismissed this contention. “When Congress created this” overtime “exemption, they very explicitly granted authority to the Department of Labor to decide the details,” he said. “The duties test, the salary level, all that stuff was very explicitly delegated to the Department of Labor and they have through the years exercised that authority.”
One way the DOL said its final rule attempted to address business community concerns is to allow employers to satisfy up to 10 percent of the salary level with bonuses, incentive payments or commissions, provided they’re offered on at least a quarterly basis.
While this provision provides flexibility for employers, Seyfarth Shaw's Bartlett said it still leaves some unanswered questions.
“What happens, for instance, if before a quarter ends” an employee who has earned the bonus either quits or is fired, and is no longer eligible for the extra payment?,” Bartlett asked. He predicts the WHD eventually will address that question through guidance.
For employers that have traditionally paid bonuses on an annual basis, the sudden switch to quarterly will be arduous, Bartlett said.
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