FLSA EXEMPTION CHANGES WHERE ARE WE NOW?

2 What is going on at the DOL?

Overview Introduction (What is the FLSA?) Current Exemptions (Where did we start?) Final Regulations (What did Obama DOL do?) Federal Court Case (Why didn t those changes occur?) New DOL Request for Info. (Where are we now?) Other DOL / court updates (What else is new?) 3

What is the FLSA? The Fair Labor Standards Act (Act or FLSA) is a federal law that sets minimum wage, overtime pay, equal pay, recordkeeping, and child labor standards for employees covered by the Act. The Department of Labor (DOL) promulgates rules related to the FLSA and also enforces the FLSA and its regulations. 4

Covered or Not? Exempt or Nonexempt? Individuals not covered by the Act include elected public officials, independent contractors, volunteers, and trainees. Individuals covered by the Act fall into two different categories: exempt and nonexempt. 5

Nonexempt vs. Exempt Nonexempt employees are subject to all of the requirements under the Act. Exempt employees are covered by the Act, but are exempt from overtime and minimum wage requirements. 6

Where Did We Start? In 2004, major changes to white collar exemptions. What are the current rules? 7

Current Exemptions There are certain exemptions, including the white collar exemptions, relating to administrative, executive, professional, andcomputer employees. Three general requirements: Employees generally must be paid on a salary basis Employees must meet the duties of a particular exemption Employees generally must be paid at a salary level 8

Current Exemptions Employers carry a significant burden in proving that an employee satisfies every requirement for an exemption. Employers must demonstrate that an exemption clearly and unmistakably applies and that the employee s duties fall squarely within the scope of a particular exemption. 9

Salary Basis The salary basis requirement states that an employee must be paid on a salary, rather than a hourly, basis. An employee must regularly receive a predetermined amount constituting all or part of his or her compensation, without regard to the quality or quantity of the work performed. Administrative and professional employees may also be paid on a fee basis. 10

Salary Level Requirement Under the salary level requirement, an employee must earn a minimum weekly salary. Under the rules, the minimum salary requirement is $455 per week ($23,660 per year). Highly compensated (the salary exceeds $100,000 per year) employees are only required to perform one of the exempt duties or responsibilities of an executive, administrative or professional employee. 11

Salary Level Requirement No requirement for teachers to be paid at a certain salary level in order to be an exempt employee. Academic administrative employees can meet the salary level requirement if their pay is at least equal to the entrance salary for teachers in the educational establishment where they are employed. 12

Primary Duty Requirement The primary duty requirement states that an employee s primary duty must be the performance ofexempt work. The primary duty refers to the principal duty that theemployee performs. The amount of time spent performing exempt work is a useful guide in determining primary duty. 13

Executive Exemption An executive employee is an employee: [1] who is compensated on a salary basis at a rate not less than $455 per week, [2] whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof, [3] who customarily and regularly directs the work of two or more other employees, and [4] who has the authority to hire or fire other employees or whose suggestions and recommendations are givenparticularweight. 14

Administrative Exemption An administrative employee is an employee: [1] who is compensated on a salary or fee basis at a rate not less than $455 per week, [2] whose primary duty is performance of office or non-manual work directly related to the management or general business operations of the employer or the employer s customers, and [3] whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 15

Academic Administrative Exemption An administrative employee is an employee: [1] who is compensated on a salary or fee basis at a rate not less than $455 per week, or (b) a salary basis which is at least equal to the entrance salary for teachers in the educational establishment by which employed; [2] Whose primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment or department or subdivision thereof. 16

Professional Exemption A professional employee is an employee: [1] who is compensated on a salary or fee basis at a rate not less than $455 per week, and [2] whose primary duty is the performance of work: [a] requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged courseof specialized intellectual instruction, or [b] requiring invention, imagination, originality, or talent in a recognized fieldof artistic or creative endeavor. 17

Teacher Bona fide professional employees also include teachers. The salary level and salary basis requirements do not apply to teachers. A teacher is an employee: (1) whose primary duty is teaching, tutoring, instructing or lecturing in the activity of imparting knowledge and (2) who is employed and engaged in this activity as a teacher in an educational establishment by which the employee is employed. 18

Computer Employee Exemption A computer employee is an employee: [1] Who is compensated on a salary or fee basis at a rate of not less than $455 per week or on an hourly basis at a rate not less than $27.63 an hour, and [2] Whose primary duty is: [a] theapplicationofsystems analysis techniques and procedures; [b] the design, development, documentation, analysis, creation, testing or modification of computer systems or programs; or [c] the design, documentation, testing, creation or modification of computerprograms related to machine operating systems. 19

What did Obama DOL do? In March 2014, President Obama issued an Executive Order directing the Secretary of Labor to update and modernize the overtime exemption rules under the FLSA. On June 30, 2015, the Department of Labor issued proposed regulations. 20

Final Regulations On May 23, 2016, final regulations were published and were scheduled to become effective on December 1, 2016. Because of this impending deadline, school districts took action to comply with these final regulations. 21

Final Regulations Salary Level The final regulations increased the minimum salary level for applicable exemptions at the 40 th percentile of weekly earnings for full-time salaried employees in the lowest wage Census Region (which was the South). The Department estimated that the amount would increase in December 2016 to $913 per week or $47,476 annually. The final regulations established a method for automatically updating the salary and compensation levels every three years to maintain the levels at the applicable percentile. 22

Final Regulations Highly Compensated The final regulations also raised the salary level for the highly compensated employee exemption. Total annual compensation must be at least the annualized earning amount of the 90 th percentile of full-time nonhourly workers nationally, or $134,004 annually. This amount was also to be updated every three years. 23

Final Regulations Nondiscretionary Bonuses The final regulations also made a change related to non-discretionary bonuses and the inclusion of such bonuses with the calculation of weekly salary. With some restrictions, the final regulations allowed districts to count such bonuses, incentives, and commissions toward up to ten percent of the required salary level. 24

Why Didn t These Changes Occur? Litigation ensues. High salary increases challenged. 25

Federal Court Case In September 2016, a group of states and others sued the Department of Labor to challenge the rule, seeking an emergency injunction to block the rule from going into effect. In November 2016, the federal district judge granted an emergency injunction to stop the new regulations from taking effect. 26

Federal Court Case In December 2016, the Department of Labor appealed the decision to issue the emergency injunction to the U.S. Court of Appeals for the Fifth Circuit. In January 2017, the federal district judge denied a motion to stay any final ruling pending the appeal of the emergency injunction. 27

Federal Election On January 20, 2017, Donald Trump was inaugurated as President. On April 28, 2017, Alexander Acosta was sworn in as Secretary of Labor. 28

Federal Court Case On August 31, 2017, the federal district court judge issued a final decision invalidating the final regulations. He ruled that the updated salary test in the final rule was inconsistent with congressional intent. 29

Federal Court Case As a result of the decision, on September 5, 2017, the Department filed a motion with the U.S. Court of Appeals for the Fifth Circuit stating that it is dismissing the appeal of the preliminary injunction. By dismissing the appeal on the injunction, and no other appeal on the judge s decision, the federal judge s decision is now the final decision. 30

Where Are We Now? Likely no appeal in Texas case Consider impact of decision on any positions Some positions may not have been adjusted because of court action Likely no retroactive action for failure to correct before December 1 Some may have been adjusted based on Obama rule Watch for any additional court action 31

Where Are We Now? Department of Labor seeks public input on new rules. Do over! 32

Executive Order In Executive Order 13777, President Trump tasked federal agencies with identifying regulations for repeal, replacement, or modification. Consistent with that Order, the Department is reviewing the exemptions with a focus on lowering regulatory burden. 33

Depart. of Labor Request for Information On July 26, 2017, the DOL published a Request for Information (RFI) seeking public input concerning the regulations on the exemptions. The intent of the RFI is to gather information for formulating a proposal to revise the exemption requirements. All public input is due on September 25, 2017. 34

Dept. of Labor Request for Information The DOL acknowledged that the salary level was too high. The RFI seeks responses to eleven sets of comprehensive questions. The questions show that the DOL will be analyzing a number of different aspects related to the salary threshold and duties tests. 35

Dept. of Labor RFI Questions Some of the RFI includes the following: Should the regulations contain multiple standard salary levels? Should there be different salary levels for different exemptions? Should there be a test that relies solely on duties? 36

Where Are We Now? Provide input on the RFI, due on Sept. 25 Wait for proposed regulations Expect that the new regulations may increase the salary level and may change other aspects of the exemptions 37

Where Are We Now? Continue to apply the existing rules including duties tests. Salary alone does not determine exemption. Plaintiffs still active, even if DOL enforcement changes. Watch for other changes at the DOL and courts 38

What Else is New at DOL? On June 27, 2017, Secretary Acosta announced that the DOL would be reinstating its former practice of issuing opinion letters. This resumes a practice that existed for 70 years prior to 2010. The DOL abandoned this practice in 2010 in part because it viewed the letters as not an efficient use of resources. 39

Dept. of Labor Other Changes President Obama issued Administrator Interpretations. The DOL under President Trump just recently withdrew two Administrator Interpretations addressing the issues of joint employment andindependent contractors. 40

Dept. of Labor Other Changes The White House intends to nominate Cheryl Stanton to be Administrator of the DOL Wage and Hour Division. If confirmed by the Senate, Stanton will oversee an agency in charge of enforcing many federal employment laws, including the FLSA and FMLA. 41

Court Decision Cell Phone Use Allen v. City of Chicago, Case No. 16-1029 (7 th Cir. Aug. 3, 2017). Court concluded that the Chicago Police Department was not liable for overtime compensation when it did not have knowledge that the plaintiffs were performing the work. 42

Conclusion Please contact me with questions. Phone: (608) 286-7233 Email: rverstegen@boardmanclark.com. 43