April 1, 2003
Avoiding Lawsuits is a service of the employment law training and consulting firm of Counsel Consulting Group LLC and the law firm of Powell, Trachtman, Logan, Carrle & Lombardo, P.C.
New Overtime Regulations Could Be In Place By July 2003
(And New Lawsuits Will Follow Immediately Thereafter)
In the February 1, 2003 issue of Avoiding Lawsuits ("Even Einstein Can't Figure Out When to Pay Overtime"), we pointed out that the federal government's overtime laws and regulations were so impenetrable and confusing that, according to the Department of Labor, 20% to 40% of all employers were out of compliance. We also noted that civil lawsuits, resulting in hundreds of millions of dollars in damages, were burgeoning; in 2001, for the first time, the number of class action lawsuits seeking overtime pay exceeded the number of class action suits claiming job discrimination.
Apparently, we were on to something. On March 31, 2003, the DOL published sweeping new overtime regulations, intended to affect nearly 22 million American workers. The DOL calls the new regulations a "Proposal to Strengthen Overtime Protection." You know what that means: if the regulations go into effect, more workers will be entitled to overtime pay, and even the DOL concedes that these new regulations will cost businesses between $870 million to $1.6 billion.
The proposed regulations are subject to a 90-day public comment period, and require no congressional approval. Absent an uprising of public or congressional opposition, the new regulations could take effect as early as July 2003.
The DOL says its intent in proposing these new regulations is the elimination of the complicated and outdated formulas and tests that currently define when an employer is required to pay overtime, while at the same time recognizing the economic realities of the modern workplace. These are laudable goals. Our initial review of the regulations reveals that, in fact, while some aspects of the overtime conundrum are simplified, other aspects are not, and new complications are added.
One thing, however, is for certain: if these new regulations do go into effect, every business will need to re-analyze and re-vamp its procedures for determining who gets what overtime pay, or risk substantial regulatory fines and civil lawsuit damages.
Here are some of the key features of the new regulations.
- Under the current regulations, an employee earning only $155 a week can qualify as a "white collar" employee (assuming other tests are met), and be classified as an exempt employee who is not entitled to overtime pay. The DOL's proposal would raise this minimum salary to $425 a week--an increase of $270 a week and the largest increase since the Fair Labor Standards Act was passed by Congress in 1938. The DOL estimates that this change will automatically guaranty overtime to 1.3 million low wage workers.
- Under existing regulations, employees holding "executive," "administrative" and "professional" positions are exempt from overtime requirements, but the longstanding problem has been applying the convoluted definitional standards to specific job positions in order to figure out who fit into these exempt criteria. The DOL believes its proposal will simplify that process, with the focus being on an analysis of the employee's "primary duty."
- Under the proposed regulations, an employee will be deemed an exempt executive if the employee's primary duties involve all of the following: (i) management of the enterprise; (ii) directing the work of two or more other employees; and (iii) having the authority to hire or fire other employees (or at least being in a position where the employee's recommendations are given particular weight). Obviously, the issues will be determining what constitutes "management," how much control constitutes "directing" other employees, and at what level does a hire or fire recommendation carry sufficient weight to meet the test? Certain jobs will obviously qualify, but there will be substantial gray areas, requiring lots of interpretation and argument. The more things change...
- The new test for exempt administrative employees requires the individual to hold a "position of responsibility" in which he or she performs work of "substantial importance" or work requiring a high level of skill or training ... whatever that means.
- The new test for exempt professional employees require either knowledge of an advanced type in a field of science or learning acquired through a course of specialized instruction, or the equivalent gained through a combination of job experience, military training, or attendance at a tech school or community college (relaxing the prior requirement of a bachelor's degree). How much knowledge will be enough?
- The new test also establishes two groups within the professional classification: creative professionals (whose primary duty consists of work that is original and creative in character in a recognized field of artistic endeavor and the result of which depends primarily on the invention, imagination or talent of the employee); and learned professionals (whose primary duty involves performing office or non-manual work requiring advanced knowledge in a field of science or learning customarily acquired by either a course of specialized intellectual instruction or by an equivalent combination of intellectual instruction and work experience).
- The proposed regulations would also consolidate and condense all of the regulatory guidance for exempt status as a computer employee, which had been modified several times during the 1990's in recognition of the growth in this field. The new definition decreases the emphasis on job titles such as programmer, analyst, engineer, etc. Instead, to be exempt, the employee must have a level of expertise and skills generally attained through combinations of education, specialized training and experience in the field, but no particular academic degree, licensure or certification is required for this exemption. There are copious explanations in the regulations regarding the kinds of job duties that fit within the "computer employee" definition.
- As there has been for some time, there remains an exempt classification for outside sales employee. The criteria to qualify under this exemption has been simplified, and now focuses on whether the employee's primary duty is making sales away from the employer's place of business.
Of course, there is lots more. For instance, under the existing regulations, an employer could inadvertently convert an employee from exempt to non-exempt status by docking the employee's pay for missed time or disciplinary reasons. This was a serious issue. The new regulations lend some common sense to that area of employer - employee relations. For similar purposes, the new regulations make it easier for an employer to correct an improper salary deduction from an employee (so long as it was made inadvertently and in good faith), without risking the employee's exempt status. But, as usual, there are technical requirements that must be satisfied (i.e., the employer must have a written policy prohibiting improper deductions, it must notify employees of that policy, and it must make prompt reimbursement).
Powell, Trachtman, Logan, Carrle & Lombardo, P.C. is a full service law firm with offices in suburban Philadelphia, PA, Harrisburg, PA and Cherry Hill, NJ. Powell Trachtman represents a variety of commercial enterprises, entrepreneurs and business executives in respect to their litigation, litigation avoidance planning, business formation, business transactions, estate and tax planning, and other needs. We are also approved defense counsel for numerous insurance carriers in matters pertaining to professional malpractice, products liability, employment practices, directors and officers liability, and many other fields. For more information, contact us at info@powelltrachtman.com and visit our website at www.powelltrachtman.com.
