SWEEPING DOL OVERTIME EXEMPTION CHANGES ARE COMING SOONER THAN ANTICIPATED

Sean Darke James Sherma By: James B. Sherman, Esq. and Sean F. Darke, Esq. Yesterday, the U. S. Department of Labor delivered to the White House's Office of Management and Budget (OMB) its final rule on the minimum salary level for exempt status from the FLSA's overtime pay requirement. The DOL sparked national controversy last summer when it issued its proposed new rule to more than double the minimum salary to qualify for the FLSA's white collar overtime exemptions.  It has been estimated that by raising the minimum salary from $23,660, to an estimated annual salary of $50,440, between 5 and 6 million American workers could be reclassified from exempt, to nonexempt status.  Review by the OMB is the final step before the final rule is made official.  Typically, this takes no more than one or two months and some are saying the White House will act even sooner. As a result, previous predictions by business groups and advisors stating that the DOL's final rule would issue in July, may be off by several months.  With the final rule now coming as early as April, 2016, any employer with employees who may be reclassified from exempt to nonexempt (and thus entitled to overtime pay) must prepare immediately for these sweeping changes, if they have not already done so. To assess what impact the DOL's new overtime regulations could soon have on your organization and/or to develop strategies and solutions to mitigate their impact to your bottom line, contact our Wessels Sherman Wage and Hour litigation team members: Chicago, IL: Sean Darke at (312) 629-9300 orsedarke@wesselssherman.com Minneapolis, MN: James Sherman at (952) 746-1700 orjasherman@wesselssherman.com St. Charles, IL:  Jennifer Murphy at (630) 377-1554 orjemurphy@wesselssherman.com Davenport, IL:  Joseph Laverty at (563) 333-9102 orjolaverty@wesselssherman.com Milwaukee, WI: Alan Seneczko at (262) 560-9696 oralseneczko@wesselssherman.com ***Watch for our webinar on the final rule once it is made official!!!***

Proposed New DOL Regulations on Overtime Exemptions Pose Challenges/Offer Employers an Opportunity to Address Other Potentially Misclassified Employees

November 2015

By: James B. Sherman, Esq.

The DOL’s proposal to more than double the minimum salary level for white collar workers – from $23,660 to $50,440 – may be finalized and put into effect any day now although expectations are that this will occur in a few months, sometime in the coming spring of 2016. When implemented the new regulations could “reclassify” more than six (6) million workers from exempt, to non-exempt status for purposes of overtime pay. Most employers have at least some employees whose status will change as a result of the new regulations.  However, some employers foresee dozens if not hundreds of their employees becoming non-exempt and thus entitled to overtime pay. The most obvious challenge these new regulations present involves paying previously exempt individuals, time and one-half their “regular rate of pay” for all hours worked in excess of 40 hours in any given workweek.  This will involve tracking all hours worked, meal and possibly rest breaks, sick days, etc. for previously exempt individuals who were paid by salary and worked unrecorded hours.  The failure to track hours worked and/or to pay time and one-half for overtime, will leave unprepared employers open to wage and hour lawsuits that have become so commonplace in recent years. Yet the sweeping changes these new DOL regulations soon will bring, present at least one important opportunity for proactive employers – the best possible circumstances in which to switch potentially misclassified employees from exempt, to non-exempt, without causing a noticeable stir.

In today’s legal environment, where class action wage and hour lawsuits abound, it is hard to find a single employer that can say with confidence that its employees all are properly classified exempt/non-exempt from FLSA’s and related state law overtime requirements. Indeed, a great number of employers secretly acknowledge known problems with at least some of their employee classifications.  However, the reason these employers do not act to correct the situation by reclassifying questionable workers currently treated as exempt, is that doing so will expose the fact that they have not been paying overtime to the employee(s) in question.  The rationale is somewhat understandable: why make a change that can result in claims for overtime going back 2-3 years (the potential limitations period under the FLSA)?  But this “ignorance is bliss” approach is likely to work only temporarily, as wage and hour lawsuits continue to grow at an alarming rate and plaintiff lawyers sniff out misclassified workers.  So while the new DOL regulations surely pose concerns for most employers, there may be no better time than now to bite the bullet and make changes to questionably classified workers amid the tumultuous reclassification of some six (6) million workers resulting from the new DOL regulations!

Frankly it does not matter whether the new regulations will have a specific impact on a particular worker or class of jobs.  The important thing is that sweeping changes are being made by the DOL.  Moving employees from exempt to non-exempt to fix past misclassification of their status, at the same time as changes to the regulations are causing massive numbers of workers to be reclassified, provides an easy answer for the change.  Employers asked by an employee why he or she was paid by salary yesterday but must now punch a time clock or fill out time cards, or why the employee now receives overtime pay but did not in the past, will have a simple, honest answer: the U.S. Department of Labor is changing the regulations and we as a company are reacting to those changes. 

The last time the DOL overtime regulations were changed (the first time in 50 years) was in 2004, during the Bush administration.  We assisted numerous employers in seizing the opportunity created by those changes, to make changes of their own to fix problems with their classification of exempt employees who probably should have been treated as non-exempt employees all along and paid overtime.  While there are no guarantees that this approach will not cause affected employees to ask questions, coupling these changes with DOL changes to its wage and hour regulations resulted in relatively smooth sailing and, more importantly, no lawsuits.  Today, 10 years later, these employers sit comfortably in having put their exposure to wage and hour lawsuits over employee misclassification and overtime claims behind them.

There are a number of additional measures an employer can take to minimize the chance of being challenged when reclassifying employees from exempt to non-exempt.  Normally a basic strategy can be prepared through a consultation meeting of no more than an hour or two.  For assistance with preparing for the new DOL regulations and/or to take advantage of their changes to evaluate a strategy to fix problematic exempt employee classifications, feel free to contact Wessels Sherman attorney James Sherman at (952) 746-1700 or email him atjasherman@wesselssherman.com, or arrange a teleconference or meeting with him by contacting Christine Beggan at chbeggan@wesselssherman.com.  

Question: When is a Lawyer Not a Lawyer?

By: James B. Sherman, Esq. 

Answer:  When the lawyer does not do enough "lawyerly" things to qualify for the professional exemption from overtime requirements under the Fair Labor Standards Act (FLSA).

The U.S. Department of Labor has long said that the determination of whether an employee is exempt or non-exempt from the FLSA's overtime requirements, is not governed by job titles but by job duties.  A recent decision by the U.S. Court of Appeals for the Second Circuit, out of New York, is a somewhat surprising example of this rule in application to the legal field.  The case involved a class of so-called "contract lawyers" who sued for overtime pay for "document review" work they performed through a temp agency for mega law firm Skadden Arps.  The plaintiffs claimed their duties in reviewing documents were so mundane that "a machine could do them." Accordingly, although the plaintiffs were licensed professional attorneys they claimed that their duties did not meet the professional white-collar exemption and they were entitled to overtime pay under the FLSA.

The appellate court refused to dismiss the case, noting that if the attorneys' duties could be performed by a machine they clearly would not be exempt professional employees.  If attorneys can be nonexempt and entitled to overtime pay, the same could apply to accountants, doctors, engineers and other "professionals" if their job duties fail to satisfy the exemption. This same principle applies equally to the executive and administrative exemptions, where the specific duties and not the title of the job determine whether or not it is exempt from overtime requirements. Much litigation - frequently class action litigation - arises out of employers' failure to recognize this principle.

For advice on determining exempt vs. non-exempt status, wage and hour audits, or competent defense against overtime claims, contact any of our Wessels Sherman offices in Minnesota, Wisconsin, Illinois, or Iowa and ask to speak to a shareholder in our wage and hour litigation team.