In anticipation of the imminent release of the Department of Labor's proposed rule revising the white collar overtime exemption under the Fair Labor Standards Act (FLSA), the House Subcommittee on Workforce Protections held a hearing on Wednesday to discuss federal wage and hour standards. Panelists and lawmakers were particularly concerned about the pending regulatory changes to the FLSA, and were critical of the Wage and Hour Division's recent enforcement tactics.
The proposed rule that is expected to be issued any day now stems from President Obama's March 2014 directive to Labor Secretary Thomas Perez to "modernize and streamline" the DOL's white collar overtime exemption regulations, which define the scope of the executive, administrative, professional, outside sales, and computer exemptions under the FLSA. Although details of the proposal are not yet available, it is widely expected the regulations will increase the minimum salary level that triggers the overtime exemption for white collar employees, and remove or revise the "concurrent duties" portion of the executive exemption test, which exempts managers from overtime even if they perform some non-managerial duties.
Subcommittee Chairman Tim Walberg (R-MI) began the hearing by noting that although the FLSA has been the foundation of our nation's wage and hour protections for more than 75 years, the workplace looks much different today than it did when the statute was first implemented. For example, he said that regulations that made sense before the advent of modern technology such as smartphones "do not make sense in the modern economy."
Walberg noted that there has been a 514% increase in FLSA-related litigation over the last 25 years—a "troubling increase and strong indication that something isn't working." The Chairman emphasized that there needs to be a system in place that holds bad actors accountable, but helps law-abiding employers fulfill their wage and hour obligations under the law.
Walberg warned that if the proposed regulations do not encourage but rather stifle economic growth and productivity, "they will be opposed by this Committee."
Testifying on behalf of the Society for Human Resource Management (SHRM), human resources director Nicole Berberich agreed with Walberg that the FLSA is "out of step" with our modern, technology-based economy. Her main criticism with the FLSA is its lack of flexibility. Under the current regime, private-sector employers cannot offer their employees time off in lieu of overtime. Such compensable time off, or "comp time", is permissible in the public sector. Current FLSA rules, she explained, are "too rigid" and do not allow her to offer more flexible work arrangements for her employees, who are increasingly demanding them.
If the DOL proposal increases the salary threshold, Berberich said she would have to reclassify many exempt employees as non-exempt, which she claimed her employees would view as a demotion.
When questioned by Reps. Glenn Thompson (R-PA) and Elise Stefanik (R-NY) about how technology escalates the risk for noncompliance, Berberich explained that she does not have the resources for tracking possible compensable time for work employees perform on devices while not on the work premises.
Hearing witness Jamie Richardson, Vice President of White Castle Systems, Inc., echoed the need to provide more workplace flexibility. Testifying on behalf of the National Council of Chain Restaurants, he said his employees place a premium on workplace flexibility and work/family balance, but that current laws are "ill-equipped" to handle such benefits.
With respect to potential FLSA regulatory changes, Richardson cited a study showing that if the salary threshold increases to $808 per week, or $42,016 per year, 1.7 million retail and restaurant workers would be affected. In addition, this change would cost employers $5.2 billion per year if they did not make any changes to their work structure.
Attorney Leonard Court, testifying on behalf of the U.S. Chamber of Commerce, noted that changes to the FLSA duties test would be problematic as well. While witness Seth Harris, former Acting U.S. Secretary of Labor and Deputy U.S. Secretary of Labor, suggested the implementation of a "bright line" test in place of a "primary duties" test would provide employers with a degree of certainty, Court vehemently disagreed. Court explained that California—which currently uses a quantitative test requiring managers to spend more than 50% of their time supervising employees to be considered exempt—"leads the country in wage and hour class action lawsuits." Court said the only people who would benefit from such a bright-line test would be lawyers.
Court spent the majority of his time testifying about how the DOL's Wage and Hour division investigates and enforces the FLSA. He expressed concern that the Division's enforcement procedures "are beyond the pale and simply abusive." He discussed three main problems with the current administration's tactics. First, he claimed there is a "deliberate effort" by investigators to convince employers they do not need to use legal counsel during the process. He described instances in which an investigator alleged the process would be "easier" if it did not include an attorney. Second, Court contended officials are compelling settlements without affording employers the time to consider or challenge the investigator's findings. Often, he explained, the DOL official will demand an immediate signature on a settlement document, and threaten to immediately proceed to litigation if the employer does not provide the signature. Third, Court said there has been a dramatic increase in demands for civil monetary penalties and liquidated damages. This has led to "bait and switch" tactics, Court claimed, whereby investigators move to settle claims with a specific amount, then demand additional amounts as liquidated damages under penalty of adverse publicity.
These enforcement efforts coincide with a "dramatic decrease in compliance assistance," Court testified. Small employers are particularly in need of compliance assistance, he said, but the administration has discontinued the issuance of Wage and Hour Opinion letters. Such letters provided responses to employer questions, and gave employers a safe harbor in that they could rely on the recommendations made. The DOL now provides "administrative interpretations" instead, which are not only not being frequently issued, but do not include safe harbor protection afforded by the opinion letters.
In response to a question by Chairman Walberg, Court said he is concerned the DOL's focus has shifted from "doing an investigation right to seeing how much money they can collect."
Not everyone on the witness panel or the Subcommittee was critical of the DOL and efforts to change the FLSA. Seth Harris called for not only raising the minimum wage, but also increasing the salary threshold, clarifying the meaning of the "primary duty" test, and ensuring all workers have access to paid leave for family and medical purposes.
Rep. John Kline (R-MN) said Harris presented "fine testimony," but added "I disagree with almost everything you said."
Rep. Mark Takano (D-CA) noted that in the 1970s, 67% of workers were entitled to overtime, while only 11% of workers enjoy such entitlements today.
Several Democratic members of the Subcommittee also called for passage of the Paycheck Fairness Act.
While the details of the DOL's proposed rule are uncertain at this point, the rule's potential impact on employers throughout the country is not. A notice-and-comment period will follow the publication of the proposed rule, so it is important for employers affected by the rule to review the proposal and provide input before a final version is issued.