As the fight in Congress and the court of public opinion continues with respect to the proposed legislation to raise the federal minimum wage supported by President Obama, the White House is set to commence a new front in the battle this week by announcing broad proposed reforms to the Department of Labor regulations defining the exemptions from overtime under the FLSA.
The regulations, last revisited and revised in 2004 under President Bush, set the rules for exempt status, including both the “duties” tests and, where applicable, the necessary salary basis. The President’s proposal — to be communicated by Executive Order – apparently will seek to curtail the availability of exempt status for a number of positions which have been the source of litigation in recent years, such as loan officers and retail store assistant managers and managers. The new rules likely will reintroduce tests requiring that exempt workers spend a specific percentage of their time engaged in exempt work, eliminating the flexibility and functional analysis of the current “primary duty” test. See Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees; Final Rule, 69 Fed. Reg. 22122 (April 23, 2004) (amending 29 C.F.R. Part 541). They likely also will seek to raise the minimum salary for an exempt white collar worker, which is currently $455/week under federal law (higher under some state laws). One study proposes $984/week as an appropriate salary basis.
“Having encountered strong opposition to their minimum wage proposal, this is another way the administration is attempting to use the powers of the executive to push changes it cannot get through Congress,” Jackson Lewis Wage-and-Hour Practice Group leader and former DOL Wage and Hour Administrator Paul DeCamp observes. “The reality is that curtailing exemptions will result in less pay for these same workers. Employees converted from salaried exempt to non-exempt will find that their new hourly rate reflects the overall work schedule such that they will earn the same amount as they earn now, including overtime, if their working hours remain the same. However, the natural consequence of making these workers overtime-eligible is that employers will see the overtime expense as a controllable cost and will reduce working hours in order to avoid having to pay an overtime premium. Just as with the Affordable Care Act, the major unintended consequence here will be to cut back on working hours, and thus pay, for the very workers the Administration claims it is trying to help. That’s just bad policy.”
Like the recent rulemaking regarding the companionship exemption from overtime, any new rules will be subject to notice and comment consistent with the Administrative Procedure Act. Watch this space for further developments.
[UPDATE] This morning, the White House issued this fact sheet, clarifying that the President will sign a Presidential Memorandum today instructing the Secretary of Labor to “ update regulations regarding who qualifies for overtime protection . . . in keeping with the intention of the Fair Labor Standards Act.” The fact sheet also indicates that the Memorandum will instruct the Secretary to “Simplify the overtime rules to make them easier for both workers and businesses to understand and apply.