On April 2, 2018, the Supreme Court ruled in Encino Motorcars v. Navarro that car dealership service advisors (individuals that consult and sell customers on servicing solutions at car dealerships), are exempt from the Fair Labor Standards Act’s (FLSA) overtime requirements. While this is certainly a win for car dealerships, the biggest win for all employers is the Supreme Court’s holding in this ruling that the FLSA is not to be read narrowly, but “fairly”:

Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.'”

Since 1966, service advisors have been deemed exempt under an exemption added to the FLSA covering “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles [. . .].” However, confusion sprung when, in 2011, the Department of Labor (DOL) issued a rule rejecting the interpretation of “salesman” to include service advisors.

Thus, in 2012, relying on the DOL’s rule, current and former Encino service advisors sued the Mercedes Benz dealer, claiming Encino violated the FLSA for failing to pay them overtime. The case has been bouncing around ever since. In 2016, the Supreme Court reversed the 9th Circuit Court of Appeals, finding it improper for courts to defer to the 2011 DOL rule, because “the regulation undermined significant reliance interests in the automobile industry by changing the treatment of service advisors without a sufficiently reasoned explanation.” Accordingly, this ruling finally puts the issue to rest – service advisors are exempt from the FLSA’s overtime requirement.

While this blog is clearly for the hearty Up North employers (who I know, like me, are all completely ready for summer), I also know that many now have employees nationwide – including California. Thus, I don’t wan’t to dwell on this too much, but wanted to at least mention a new decision issued yesterday by the California Supreme Court that has a big impact on California employees who are given “flat sum” bonuses during a single pay period (i.e. attendance bonuses, if you work on Sunday, you will get an extra $20) and who work overtime.

In a March 5, 2018 opinion, the Court in Alvarado v. Dart Container Corp. of CA held that “the flat sum bonus at issue here should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of nonovertime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee’s overtime pay rate.” Finally, the Court decided that, even though the DLSE’s language was not clear, any such overtime is owed retroactively.

I suspect you have all heard by now, but on September 5, 2017, Judge Mazzant of the Eastern District of Texas declared the proposed overtime overhaul regulations to be invalid. As a result, the minimum salary levels remain as before the revisions -$23,600 annually, or $455 per week. For highly compensated employees, the amount will remain at $100,000 annually.

I know what you’re thinking – I did all that work and preparation for nothing!?  Fear not!  With a few exceptions, this was actually a good exercise for many employers who, upon doing an internal audit, discovered that based on the duties test, some employees were likely misclassified. Remember, you can never err by paying overtime, only by not paying overtime if the employee is entitled to it. Accordingly, I’d caution advisers to hesitate before reverting an employee back to exempt (no matter how bad they want it to) without really performing an exempt analysis of the position.

So, now what happens?  The U.S. Department of Labor has moved to withdraw its Fifth Circuit Court of Appeals case, and will not appeal the Order. Instead, it has noted its intention to revisit this entire issue, and is seeking public comments on changes to consider making in the future. For employers, continue to evaluate positions as you have been before the revisions, although it wouldn’t hurt to look especially carefully at positions whose annual salary is less than $47,476.

On July 26, 2017, the Department of Labor asked the public for comments concerning revisions to the overtime rules.  Only a week later, the DOL has received over 12,000 comments. However, it appears a move is underway whereby individuals are cutting and pasting the same statement literally thousands of times. It appears an individual posted the 70th comment on July  31, 2017 (WHD-2017-0002-2990), stating that President Ford set the salary threshold in 1975 at what would be $58,000 today, and thus, the DOL should keep the $47,476 in tact (or greater). From what I can tell, the remainder 11,930 submissions so far have simply cut and pasted this comment. This makes it incredibly difficult to find and review different positions and share them here. Perhaps the DOL could institute an “Agree” or “Disagree” feature in the future?

 

The United States Department of Labor officially published its Request for Information (RFI 1235-AA20); Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, today. In doing so, the DOL expressly acknowledged many employer’s concerns that the previously-set salary threshold of $913 per week was too high, it inappropriately excluded too many workers from the exemption who otherwise would pass the standard duties test, and it adversely impacted low-wage regions and industries. Accordingly, the RFI is intended to gather additional data regarding how the December 1, 2016 regulations affected employers and employees, and how the regulations could better be updated moving forward.

The RFI can be found at regulations.gov, where comments may be electronically submitted with a single click. Given the pending litigation in the District of Texas and the 5th Circuit Court of Appeals, the DOL is merely asking for public comment at this time, versus publishing a formal Notice of Proposed Rulemaking. The DOL acknowledges that the RFI is issued consistent with President Trump’s February 24, 2017 Executive Order 13777, “Enforcing the Regulatory Reform Agenda” which tasks federal agencies to identify regulations for repeal, replacement, or modification which meet certain requirements, such as hindering job growth.

The DOL is asking employers to weigh in on eleven (11) questions (summarized below):

  1. Should the DOL simply update the 2004 salary level ($455/wk) for inflation?
  2. Should multiple salary levels be created, and if so, how (size of employer, region, etc.)?
  3. Should there be different salary levels for executive, administrative and processional (as it was prior to 2004)?
  4. Should the DOL return to using the long and short test salary levels (and would the duties test need to change if so)?
  5. Does the 2016 salary threshold ($913/wk) in effect negate the duties test?  And if so, at what threshold does it not negate the duties test?
  6. What actions did employers take to prepare for the December 1, 2016 regulation (i.e., increase salaries, change hours, reduce pay, etc.)?
  7. Would it be preferable to base exemptions on duties only (no salary threshold)?
  8. Does the $913/wk threshold exclude occupations traditionally covered as exempt?
  9. Is the 10% non-discretionary bonus and incentive payment credit towards satisfying the salary threshold appropriate?
  10. Should the highly compensated thresholds have multiple levels, and if yes, how (i.e. size of employer, region, etc.)?
  11. Should the salary levels be automatically updated periodically, and if so, how/when?

The public has until September 25, 2017, to submit comments. Following the close of the comment period, employers can expect more waiting, as usual.  It appears from the RFI that the DOL will not be issuing a Notice of Proposed Rulemaking while the cases are ongoing, so as is the norm, we will continue to wait.

The United States Department of Labor announced today that, as indicated in the 5th Circuit Appeal recently, it will be publishing a new Request for Information (RFI) concerning the overtime regulations (technically, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees”) tomorrow. The July 26, 2017 RFI will seek public comments regarding the salary level test (recall the DOL told the 5th Circuit that it was dropping the $913/wk overtime threshold), the duties test, varying cost-of-living (i.e. the fact that one salary threshold may be inappropriate nationwide), inclusion of non-discretionary bonuses and incentive payments, highly compensated employee salary test, and automatic updating of such salary levels.

The RFI will be open for 60 days during which the public may submit comments.

On June 30, 2017, the Department of Labor filed its reply brief with the 5th Circuit Court of Appeals.  A copy of the brief can be found here. Thus, the Texas lawsuit that has put the overtime regulations overhaul on hold nationwide, is now in the hands of the 5th Circuit.  Any question as to whether the Department of Labor would chose to withdraw the appeal has been answered in the negative. Significantly, however, the Department of Labor has withdrawn its appeal with respect to the legality of the specific $913 per week ($47,476/year) salary threshold:

“The Department has decided not to advocate for the specific salary level ($913 per week) set in the final rule at this time and intends to undertake further rulemaking to determine what the salary level should be.  Accordingly, the Department requests that this Court address only the threshold legal question of the Department’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule. In light of this litigation contesting the Department’s authority to establish any salary level test, the Department has decided not to proceed immediately with issuance of a notice of proposed rulemaking to address the appropriate salary level….Instead, the Department soon will publish a request for information seeking public input on several questions that will aid in the development of a proposal.”

Accordingly, the question now is simply whether the Department of Labor has the authority to set a specific threshold or whether Congress must do so. And again, we wait.

hurryAs I wrote about earlier, the Overtime Bank of America does not exist!  Private employers may not allow compensatory (or “comp”) time, in lieu of overtime. If a non-exempt (hourly) employee works 48 hours in a workweek, and wants to carry the 8 hours of overtime into the next workweek to get paid while taking Friday off, he or she cannot do it – unlike government employees. Even if the employee begs, an employer simply cannot do it. Again, an employee cannot waive his or her own FLSA rights (here, the right to overtime pay – not comp time).

The Working Families Flexibility Act of 2017, H.R. 1180, seeks to amend the Fair Labor Standards Act, 29 U.S.C. 207 to change the disparity between government and private employees.  The Act would allow private employers to provide employees the choice of being paid overtime or getting comp time. Such comp time could be used for any reason, such as caring for a sick child or school appointments, or an employee could chose to be paid overtime instead. Employees would be permitted to use comp time “within a reasonable period after making the request if the use of the compensatory time does not unduly disrupt the operations of the employer”.

Under this Act, employers would not be able to force employees to take comp time in lieu of overtime. Further, an employee must have worked 1,000 in a period of continuous employment with the employer during the preceding 12 months, and there must be a written or otherwise verifiable statement that the employee and employer agree to such comp time before it accrues.  An employee would be able to accrue up to 160 hours of comp time each year, with any unused paid out at the end of the year (or employment). However, an employer, with 30 days’ notice, could chose to pay the employee overtime for unused comp time in excess of 80 hours. Similarly, an employee could withdraw his or her agreement to comp time at any time, and must then be paid for such time within 30 days. Notably, comp time, when paid out, is paid at the “regular rate earned by such employee when the compensatory time was accrued; or (ii) the regular rate earned by such employee at the time such employee received payment of such compensation, whichever is higher”.  In other words – not time and a half…as currently drafted.

On May 2, 2017, the Act was approved by the U.S. House of Representatives, and the Trump Administration issued a Statement of Administration Policy stating that, if presented President Trump in its current form, his advisors would recommend he sign the bill into law.  The current text can be found here.  What’s next? The bill was received in the Senate on May 3, 2017.  It will be introduced in the Senate, go through Committee, get on the schedule to be considered and put to a vote.

Man runningOn December 8, 2016, the 5th Circuit Court of Appeals granted the Department of Labor’s request for an expedited appeal in the Texas overtime litigation. Recall, this is the litigation that put a halt to the December 1, 2016 revisions to the FLSA salary thresholds for white collar workers. What does this mean for employers? The wait continues. Briefing will take place through late January 2017, and then oral argument will be scheduled thereafter. Notably, this means that the DOL will be under the oversight of President-Elect Trump before it goes to oral argument, and therefore it may chose to drop the appeal at that time. I’ll keep you posted.

news-426892One of my new “fall favorite” shows is ABC’s Notorious. In it, a criminal defense attorney teams up with a major TV producer to attempt to control the media, justice, and public opinion by putting various individuals on the edgy national news show. So, when I got the United States Department of Labor (DOL) email today from the news subscription service, I read it and chuckled, instantly thinking of Notorious.

Following up to my post earlier today, the DOL issued a news release late this morning regarding its decision to file a Notice of Appeal in the Texas overtime litigation. In the release found here, the DOL argues its case via the media to the public:

The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees.  The Department has updated the salary level requirements seven times since 1938.”

Naturally, the DOL points out that it “strongly disagrees with the decision by the court” and that the Final Rule “is the result of a comprehensive, inclusive rule-making process” and notes that, “we remain confident in the legality of all aspects of the rule.”