As you undoubtedly know by now, the Department of Labor’s Wage & Hour Division (WHD) finally announced its long-promised proposal to amend the Fair Labor Standards Act (FLSA) Regulations and, in particular, those governing the “white collar” exemption for executive, administrative, and professional employees. For our comprehensive discussion of the changes in the DOL’s Notice of Proposed Rulemaking (NPRM), see our previous coverage on What Changed, What Didn't, What's Next for Employers. Over the past two weeks, I have fielded a number of questions from employers and their attorneys about how this regulation will apply to employers. Let’s answer a few:
The answer is that it is both, in a way. Unlike all prior iterations of the FLSA regulations, the DOL did not set an actual weekly salary amount. Instead, the proposed FLSA rules increase in the minimum weekly salary to a level. The DOL proposes setting the minimum salary level equal to the 40th percentile of weekly earnings for full-time salaried workers, based on Bureau of Labor Statistics (BLS) data. Conveniently for the regulations (I don’t believe in coincidences like this), the BLS began tabulating quarterly research data series on the usual weekly earnings of non-hourly full-time workers in January of this year. In 2013, the BLS’s tabulation says that number equaled $921 per week (or just under $48,000 per year). This is the number that appears in the proposed regulations.
For 2014, the BLS calculated the usual weekly earnings for the 40th percentile as $933 per week ($49,920 per year). By the time the regulations are finalized in 2016, the BLS will have released the 2015 annual totals. In the preamble to the NPRM (see the footnote on pages 7 and 8), the DOL projected that the 2016 level would increase to $970 per week, or $50,440 per year. That’s the headline number you have been seeing in coverage here and elsewhere in the media.
Q. Our school district employs a number of teachers, mostly at entry levels, below $50,000 per year. Do we need to consider raising their salaries?
No. Not every employee is affected by this regulatory change. Obviously, non-exempt workers (whether salaried or paid hourly) are included, but so are other employees. Teachers, for example, are exempt under the “professional” exemption provided in Section 13(a)(1) of the FLSA, but are not subject to the “salary basis” or minimum salary requirements that apply to other professional employees. The same is true of people like me authorized to practice law who are actually practicing law, as well as:
- Salespeople falling within the “outside salesman” exemption;
- Employees authorized to practice medicine or any of its branches who are actually engaged in the relevant practice;
- Employees holding the degree required to practice medicine who are working in a medical internship or residency; and
- Employees whose work meets the computer-employee exemption requirements who are paid on an hourly basis at a rate of at least $27.63.
The latter category’s hourly rate isn’t changing in the proposed regulations. If you do the math, computer professionals under this exemption already would make well over $50,000.
Q. Can the DOL really make changes to the “duties” test without first offering a proposal for comment?
TL;DR: maybe. As I discussed with media outlets in the past two weeks, one of the less transparent parts of the DOL’s proposal is whatever change to the white collar exemptions’ duties tests the DOL might be contemplating. The NPRM does not contain any proposals for changing these rules, even a “preferred” option for what the executive, administrative, and professional exemptions should look like in the final rule. The salary level proposal is the more common way for agencies to amend regulations: propose preferred terms (or at least their substance) and permit the public to comment. This procedure makes logical sense under the APA. Without some indication of what the DOL wants to do, the public would not get the meaningful opportunity to comment on a proposed regulation that the APA contemplates.
If the DOL decides that the salary level change is not enough and makes changes to these exemptions—still a big “if” at this point, since the DOL’s proposal has reaffirmed “that the salary level is the ‘best single test’ of exempt status”—the use of general questions and information gathering does not at first glance seem to comply with the spirit of the Supreme Court’s recent Perez v. Mortgage Bankers Association decision. That case dealt primarily with agency interpretations, rather than rulemaking, but contained some important reaffirmations about what an agency’s proposed rulemaking must normally include.
The preamble to the DOL’s proposed FLSA rules affirmatively state that the agency “is seeking additional information on the duties tests for consideration in the Final Rule.” Under the Administrative Procedure Act (APA), agencies must provide “either the terms or substance of the proposed rule or a description of the subjects and issues involved.” Clearly, the DOL has not done the former. The NPRM’s requests for information instead fall into the gray area of the APA’s requirement that an agency provide “a description of the subjects and issues involved.” I conclude “maybe” above because while an agency must provide some notice sufficient to apprise the public of the issues involved, the APA does not require agencies to specifically state every regulatory proposal in detail. Which side of the acceptability/ unacceptability line this request for information falls will likely be resolved by litigation if the DOL moves forward with duties test changes without a second intervening proposed rule.
As I mentioned in my post about Perez, at least four justices, if not more, suggested that a broader review of whether to defer to agencies is appropriate. Amending the duties tests might be expedient in the waning days of the Obama administration, but it might open the DOL and other federal agencies to broader limitations on how they promulgate rules and interpret them. Caveat regulator?
Either way, employers cannot assume that APA litigation will save the day on any potential duties test changes in the final rule. The public comment period on the FLSA regulations runs through September 4, 2015. Employers who would be impacted by the DOL’s adoption of California’s duties test rules (or something similar) should file comments now while they have the chance. You still might be blindsided by a final rule, but at least you will have taken the limited opportunity you have to influence the DOL’s thinking on the subject.