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Bar News - April 20, 2016

Labor & Employment Law: Do Proposed Changes to Wage Laws Make ‘Cents’ to Employers?


The US Department of Labor last June published its long-awaited update to the Fair Labor Standards Act’s overtime exemptions, and while employers and their lawyers wait to see the final rules, which are expected by this fall, even more changes may still be on the way.

The USDOL did not make any substantive changes to the exceptions duties test. Rather, it solicited comments on what the proposed changes should be. In 2004, the last time these exceptions were updated, USDOL used the public comments to make the duties test even more difficult to satisfy. That was especially true for the administrative exemptions test.

Even if USDOL proposes changes to the duties test, do not expect those changes to be immediately effective. That is because the federal Administrative Procedures Act (APA) requires all rules to pass through notice and comment period. The USDOL’s request for comments would satisfy only the comments portion of that requirement. If the USDOL does propose a change to the duties test, expect advocacy groups to challenge and seek to nullify the changes. In the meantime, the salary threshold could still increase as proposed.

Finally, USDOL hasn’t indicated yet whether it would adopt a test similar to California’s, which evaluates an employee’s primary duty based on quantitative (e.g. 50 percent or 80 percent) as opposed to qualitative metrics. This too could create classification problems for employers trying to comply with the new standards.

What Should Employers Do Now?

Because of these uncertainties, employers may experience difficulty planning for the final regulations. Right now, the duties test remains an unknown. The new salary threshold (see related article) could be effective by fall 2016, perhaps sooner. If the USDOL adopts quantitative rather than qualitative metrics, employers may need to re-evaluate an even larger universe of positions.

There is also the possibility that any change to the duties test will be overturned for violating the Administrative Procedures Act. Thus, even if an employer can make necessary changes regarding the minimum salary test, these changes may be frustrated by whatever changes befall the duties test.

It is always a good idea for employers to revisit overtime exemptions. Now, that is especially true. Employers should look at their current exemptions and confirm those employees are properly classified. Then employers should determine if those same employees would be exempt given the proposed changes and then plan their staffing and finances accordingly.

Given that employers will likely have as little as 60 days to implement changes in the final regulations, planning for the financial and organizational impact of these changes makes good sense.

Challenges Looming

In addition to the potential legal challenges to the proposed changes under the APA and otherwise, recently US Sen. Tim Scott (R-SC) introduced a bill in the US Senate (and a similar bill has been introduced in the US House of Representatives), that would nullify the proposed changes to the FLSA.

That bill, the Protecting Workplace Advancement and Opportunity Act (S. 2707, HR 4773), would, among other things, delay the implementation of the proposed changes and require USDOL to conduct a comprehensive economic analysis on the impact of this mandatory overtime expansion on small businesses, nonprofit organizations and public sector employers. It would also prohibit the proposed annual increases to the salary threshold.

There is no doubt, especially in this Presidential election year, that these proposed changes will remain controversial and have a significant impact on employers and employees.

Other State Wage Law Developments

If these changes weren’t enough, the New Hampshire Legislature is currently considering several bills that could change state wage and hour laws. Those include changes to the New Hampshire minimum wage (re-establishing a New Hampshire minimum wage and at a rate of not less than $12 per hour); increasing the default on minimum reporting pay from two to four hours; prohibiting retaliation against employees who request flexible hours, and changes to the subminimum wage and treatment of tip credits for tipped employees. Those, too, if passed and signed into law, could have an impact on employers in this state.

New Life for Wage Class Actions?

If all of this wasn’t enough, on March 22, 2016, the US Supreme Court gave the green light for the use of representative and statistical evidence in class actions, rejecting the argument that its seminal ruling in Wal-Mart Stores v. Dukes prohibited the use of representative evidence across the board.

The company in that case, Tyson Foods, allegedly did not pay its employees all the overtime they were owed for donning and doffing protective gear before and after their work. A jury awarded the class of 3,344 employees at Tyson’s meat processing facility in Storm Lake, Iowa $2.9 million. The Supreme Court affirmed the award for the plaintiffs and the use of statistical evidence (Tyson Foods v. Bouaphakeo).

Although the plaintiffs won on the question of whether statistical evidence may be used, the Supreme Court sent the case back to the district court for it to decide whether there is any way to ensure that the jury’s damages award goes only to injured class members. US Supreme Court Chief Justice John Roberts wasn’t optimistic that the lower court can make that determination. He suggested that it will be impossible to tell who worked more than 40 hours and who didn’t, based on the jury’s reaction to the statistical evidence.

In short, employers, especially larger ones, may again have to be concerned about class actions for unpaid wages. Can’t you just hear the threatened or actual price increases in response? “Price check in aisle 5!”

Jim Reidy

Jim Reidy is a partner at Sheehan Phinney. He is the chair of the firm’s Labor and Employment Group. He exclusively represents management.

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