Deep Dive Episode 48 – The Wage & Hour Trifecta: DOL Proposals on Overtime Exemptions, the Overtime Calculations, and Joint Employment
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After over two years of regulatory inactivity, the Wage and Hour Division of the U.S. Department of Labor recently published three proposals to revise the FLSA regulations – on joint employment, the “white collar” overtime exemptions, and the regular rate/overtime calculation. All three will have a significant impact on how employees are classified and paid. In its Notice of Proposed Rulemaking (NPRM) on joint employment, the DOL proposes to adopt the Ninth Circuit’s four-part Bonnette test. The NPRM on the overtime exemptions proposes to increase the minimum weekly salary that employers must pay to exempt employees from $455 to $679, formally revoking the 2016 Final Rule raising the minimum to $913 which was enjoined by a Texas District Court. Finally, the DOL’s NPRM on the regular rate will clarify the types of compensation that employers must include in (and may exclude from) the overtime compensation. Join Tammy McCutchen, former Administrator of the DOL’s Wage & Hour Division, for a briefing on all three proposed regulations.
Nate Kaczmarek: This afternoon we bring you a great call entitled “The Wage & Hour Trifecta: Department of Labor Proposals on Overtime Exemptions, the Overtime Calculations, and Joint Employment.” The U.S. Department of Labor recently published three proposals to revise the Fair Labor Standards Act regulations on joint employment, the white-collar overtime exemption, and the regular rate overtime calculation. All three proposals will have a significant impact on how employees are classified and paid. And we are, therefore, very fortunate to have Tammy McCutchen, who is a Principal at Littler Mendelson PC. Tammy is a former administrator of the Wage and Hour Division at the U.S. Department of Labor and is a leading authority on federal and state wage and hour laws. If you’d like to learn more about Tammy’s work, please visit RegProject.org where we have her full bio listed. Thank you for joining us. Tammy, the floor is yours.
Tammy McCutchen: Thank you very much, and thank you for having me. Welcome, everyone. I don’t think this has ever happened before and I doubt it will ever happen again. We have three major regulatory proposals out of the DOL’s Wage and Hour Division at the same time, and all of them will have a significant impact. And they involve all aspects of the employment relationship. I’m going to start today by briefing you on the joint employment proposal. So here we’re talking about who is an employer of an employee. Then next we’ll move to the overtime exemption regulations, where we’re talking about, “Yes, this person is my employee. Now I’ve got to figure out whether I have to pay them overtime or whether they’re exempt from overtime.” And finally, the regular rate. That regulation is about how you calculate overtime for those people who are your employees who do not qualify for an exemption so you have to pay them overtime. So from the first question to the last this is all aspects of the timeline of the decisions you have to make as an employer in order to ensure compliance with the FLSA.
So without further ado, the Joint Employment Act was actually released last. It was — and the comments on the joint employment regulation are not due until June 10th. But I’m going to talk about it first today since this is first in the timeline of an employment relationship. And as you know, we’ve heard a lot about joint employment recently from the National Labor Relations Board. So back in the last administration, the National Labor Relations Board vastly expanded the definition of who is a joint employer under the Browning-Ferris decision. That decision, however — and there was a lot of reaction to it, and we thought we almost got a reversal of it, but then there was all of these issues about the board members, and we didn’t get a reversal of it. And at this point, the D.C. Circuit has partially affirmed the Browning-Ferris standard but remanded it to the NLRB. And in response to all of this, the NLRB has itself undertaken a rare rulemaking process. The NLRB does not do a lot of rulemaking as you probably know. And under that proposal, they would go back to the pre-Browning-Ferris standard under the NLRB.
So we’ve had a lot of talk, a lot of noise about the NLRB. And as a wage-and-hour expert, I’m here to tell you that I’ve been talking all along that says the joint employment issue is even more important under the FLSA. It’s more impactful under the FLSA because if you’re a joint employer with another company under the FLSA, you are jointly and severally liable for all FLSA violations. Now, can you imagine if a large franchise or brand was jointly responsible for all back wages, for all violations for all of its franchisees? Basically, that would, I think, be the beginning of the death of the franchise industry in general if they were responsible for every violation regarding every employee of every franchisee.
So DOL has gotten into the game, finally, and I think it’s a good thing. They are proposing to revise part of the FLSA. The regulation is at 29 C.F.R § 791. These regulations are very short. They don’t say much. And they were last revised in 1961. So that is law that has not been touched despite all of the changes in how we do business in the last 58 years.
So what have they done? I think these are — by the way, all three sets of these regulations are really good regulations, and I would actually put them under the deregulatory category because they’re not imposing any new obligations, new compliance obligations or otherwise, on the employers. What they’re doing is clarifying really old laws and confusing laws. And they’re going to make it easier and less costly for employers to actually comply.
Back to joint employment. In the Joint Employment reg, what the Department is proposing is to adopt a four-part balancing test for determining when an employer — when there is joint employment which is based on the standard that was adopted I think back in 1983 by the Ninth Circuit in the Bonnette case. And it’s actually a good standard for employers in general. It’s probably the — it’s only four factors, not six or twelve or whatever. And it’s from the Ninth Circuit, so who can question the DOL for adopting a Ninth Circuit standard.
So the four factors that DOL is going to look at is whether the potential joint employer actually exercises the power to hire and fire the employee; to supervise and control the employees’ work schedules and condition of employment; to determine the employees’ rate or method of payment; and whether the potential joint employer maintains the joint employee records. So it’s really just like the NLRC. It’s focusing back down to, really, are you supervising and controlling the life of the employee – how they’re paid, how they work? And that is a relief – a vast relief, and vastly clearer than the administrator’s interpretation on like an independent contractor and joint employment that the Department of Labor issued during the Obama administration but was withdrawn at the beginning of the Trump administration.
More importantly then this clear, easy test is they’ve put in the proposal just some great language, like clarifying that there are two separate issues. And this is where that administrative interpretation went wrong. One issue is are you an employee at all or are you an independent contractor? And issue number two is who is your employer? And what the Department of Labor is doing in this proposed reg is to clarify that those are two separate issues.
So, for example, they state the definition in the FLSA of the word “employ” as to suffer or permit to work has nothing to do with the issue to who’s your employer. It just has to do with the issue of whether you’re an employee at all. They also state—and I think this probably surprised a lot of folks—that economic dependence on a particular company does not, by itself, make you a joint — make this employee your joint employee. I think that really — there was a great decision by Judge Easterbrook on the whole economic dependence issue a few years ago where he basically says, “Well, everybody is dependent upon everybody. So this economic dependence stuff doesn’t get you anywhere.” And the DOL has really embraced that.
Another great thing about this reg is it gives us examples. Lots of wonderful examples of business practices that do not have anything to do with joint employee status. I think the way they put it in the reg is “does not make joint employer status more or less likely.” And some of those business practices include operating as a franchisor, being a franchisor, being a franchisee without more does itself create a joint employment relationship.
Other things that they say don’t impact joint employment status is requiring a business partner to institute sexual harassment policies. That’s a great thing in the #MeToo era. Or to have workplace safety programs, to even set wage floors. So if you tell a business partner “We’re not going to work with you unless you’re paying your employees $10 an hour,” that is not going to make you a joint employer.
Providing your business partners, your franchisees, with sample employee handbooks; allowing another company to operate a facility on your premise; jointly participating with another employer in an apprentice program; an association health plan or retirement plan: none of that affects joint employment status in any way.
Now, I am getting questions as I’m starting to write the comments on these. I’m getting other examples in from clients about things they would like to see the Department of Labor identify as not affecting the joint employer status. And they’re in line with the whole sexual harassment thing. Can we provide information to a business partner on how to comply without becoming their joint employer? Can we provide training without becoming their joint employer? So I think that is where a lot of the comments are going to be focused on this regulation is to ask DOL to add other examples of business practices that is not going to be impactful on the joint employment decision.
That’s joint employment in a nutshell. I’d like to pause now and ask you to ask me questions.
Nate Kaczmarek: Okay, very good. Let me queue that up. In a moment you’ll hear a prompt indicating that the floor mode has been turned on. After that to request the floor, please enter star then the pound sign. When we get to your request, you’ll hear a prompt. Please state your name and affiliation and then ask your question. We will answer questions in the order in which they are received. Again, to ask a question, please enter star then the pound sign. Let’s go to our first question right now.
John Rotabah (sp): Tammy, John Rotabah. My question is is it important to have collinearity across agencies in interpreting basic legal issues like joint employer? And if so, is there any variability between what’s come out from your end and the NLRB, much less the [EEOC]? Are we similar or are we still a little bit askew?
Tammy McCutchen: Well, we’re askew, and unfortunately a little bit. But I think the Department of Labor has done the best job they can to bring the joint employment test as close to the common law, which is what the NLRB and EEOC are under. Here’s the problem: there’s some very, very old Supreme Court cases that have stated that the concept of employment under the FLSA is broader than the common law. And so the overall test that DOL has to work under is developed by the Supreme Court is this economic reality test; that the economic realities that show that this person is an employee. So they can’t go all the way back to the restatement second of master and servant, right? Which is what the FLSA has done.
And so they’re still operating under that economic reality test, right? But what they’re saying is this Ninth Circuit Bonnette standard, the four-part standard, that is how you determine the economic realities. And those four factors are very close, as close as you can get to common law because it focuses on the control of the employee, their work, their wages, their terms and conditions of employment, which is what I think the NLRB is trying to get back to also. In reality, the only way that we can have the same test under all federal laws is through legislation that overrules [the] old Supreme Court cases that talk about economic realities and goes back to the common law.
John Rotabah (sp): Well, thank you. And of course, the reality is that’ll never happen. Thank you.
Tammy McCutchen: Nope. It won’t. [Laughter].
Nate Kaczmarek: Okay, very good. Let’s go to our next question. Again, if you’d like to ask a question about the joint employment discussion, please enter star then the pound sign.
Richard Samp: This is Richard Samp. I have a general question about what, if anything, the Department of Labor can do to prevent the complete reversal of this policy the next time there is a change in administration. I realize if you do a formal regulation, it’s perhaps a little bit hard to overturn that regulation without a new regulation and that can take time. But is there anything the Department of Labor is pointing to in the law that suggests that it really would be contrary to the Fair Labor Standards Act to go back to some of the things that the Obama administration was saying?
Tammy McCutchen: Right. Well, that’s a really good question because there’s been a lot of discussion publicly among the employee advocates whether the Department of Labor even has authority to do a joint employment regulation. And of course they do because they have authority to issue any guidance, in any form, to the public on these very ambiguous terms from back in 1938. I think going through notice-and-comment rulemaking is the absolute best they can do to make sure it sticks the longest. And I will tell you that my 2004 overtime exemption regs have so far stuck for 15 years. So there is — and I’m crossing my fingers for longer than that on the duties tests.
But unlike the overtime exemptions that we’ll talk about soon, there is no specific grant of authority by Congress in the regulation to regulate on these issues. I mean, the concept of joint employment really isn’t anywhere in the statute itself. It’s just a common law idea. So this is the best they could do to make it stick. Obviously, it’s far tougher than the administrator’s interpretations and other informal guidance, which is all we got out of the Obama administration because you saw that took like a day to get rid of that.
So it is much harder to get rid of. The question will be the level of deference. And that brings us, of course, to the Wilkie case on Auer deference that we heard arguments of a few weeks ago before the Supreme Court. What is the level of deference that courts will pay to these regulations, which is really going to be only source of the Department of Labor’s views about what it means to be a joint employer? I think they deserve more deference than an administrator’s interpretation which is done without notice-and-comment rulemaking. But it’s clear that these regulations will not have Chevron deference because they’re not done under a specific grant of authority by Congress.
But I don’t know what else they could do. This is the best they can do, and if you read these proposals, it’s like reading a Supreme Court brief. They are well-sourced. They are well — and this is what Secretary Acosta is about, right? I mean, he’s not going to do anything unless he has authority to do so. And I’m actually pretty optimistic about joint employment because we probably will see litigation filed to stop these regs. But, boy, where are they going to file? Go ahead. File in the Ninth Circuit and complain to the Ninth Circuit about the DOL following a Ninth Circuit standard, right? So who knows when they’re going to file. So I think this has got — and they’ve provided no guidance on this through notice-and-comment rulemaking since 1961. I think this is going to stick for a while.
Nate Kaczmarek: Okay. Very good. Looks like we don’t have any more questions on this proposal. Why don’t we move on to the next?
Tammy McCutchen: To the next. So the next one is the overtime regulations, and some of you might know that I authored when I was administrator of the Wage and Hour Division, the last change to the overtime regulations. That was in 2004 when we changed both the duties test and the salary level. So it’s now been 15 years since we’ve had an increase in the salary level, and that’s the main focus of this exemption.
So just for the folks on the call who aren’t wage and hour geeks like I am, the FLSA requires all employees to be paid at least the federal minimum wage for all hours worked and then overtime at 1.5 times an employee’s regular rate—we’ll get to that in a second—for hours worked over 40, unless you are exempt. And of course, the biggest group of exemption is what we call the “white collar” exemptions. And those are exemptions for executives, administrative, professional, computer, and outside sales employees. To be exempt, you all have to meet the duties test under one of those categories. And the Department of Labor is not proposing any changes to the duties test. There have been no suggestion to change them since we redid them in 2004. They are, of course — the other thing is you have to be paid a guaranteed salary – a salary that’s a minimum salary level that cannot be reduced based on the amount of work you perform or the quality of work you perform. That’s called the salary basis test. Currently, the minimum salary level, which was set back in 2004, is $455 per week.
Now, as you may recall, the Obama administration tried to increase that salary level all the way up to $913 a week. So on an annual basis that would’ve taken us from $23,660 annual salary to $47,476 annual salary. But Maury Baskin, who is a member of our Labor & Employment Practice Group and my partner here is Littler, filed suit against the Department of Labor on behalf of the Chamber of Commerce. And we got that 2016 Final Rule permanently enjoined.
The third thing is is that the Trump administration came in and the Department of Justice appealed the grant of the permanent injunction, which means that the 2016 Final Rule actually is not dead yet. What they did is they appealed the permanent injunction to the Fifth Circuit, but they also asked the Fifth Circuit to stay, pending further rulemaking. And that’s what we have now. The proposal basically would raise that minimum salary level up to $679 per week or about $35,309 annually. So obviously, $35,000 is a lot better than $48,000. It’s still a pretty big increase, although that increase was 15 years ago. But the biggest concern to me is if the DOL doesn’t get this regulation done in the sufficient time to have it in effect, to have the lawsuits filed resolved, we still have a live rule at $48,000. And if we lose this election, if President Trump loses and we get a Democrat in the White House, they could get that stay lifted in the Fifth Circuit and start vigorously dissenting that 2016 Final Rule.
Now, we didn’t file in Texas, accidentally, and things were good in the Fifth Circuit and they’re getting better with all of the new judicial appointees there. But there’s still a chance that the Fifth Circuit could decide that the district court, the Eastern District of Texas, Judge Mazz9ant, was crazy and reverse the grant of permanent injunction.
So this is the one that I really, really, really want them to get done. This should be their first priority. In addition to — the minimum salary level is the key thing in it. In addition to that, if you think that’s too high, then there is a proposal to allow employers to make up 10 percent of that minimum salary level. $3,530 to use their bonus and commissions and other non-discretionary pay to make up that so that the real minimum salary level is $611.10 as long as you’re paying $3,531 in commissions and bonuses.
My concern with this part of the reg is if you mess it up, if you’re short by even a penny, even a dollar, then what happens is the employee has not been exempt for the entire prior year, which means you would owe them overtime pay every time they worked more than 40 hours for 52 weeks of the prior year. And the only window of correction, for lack of a better term, that the DOL has provided is that you can pay the employee a make-up payment in the next pay period after the end of the year. One pay period.
So I’m not particularly enamored with this provision, even though it looks like it gives a break to the employers. But I see it as a whole new class of FLSA class actions — collective actions waiting to happen when employees miss the total that they have to pay and they’re short by just a few dollars. So part of my comments to the DOL would be like, “You’ve got to give people longer to correct. Maybe a safe harbor, something, so de minimis mistakes, unintentional mistakes, don’t result in huge overtime liability when all of the sudden you have all of these employees that you thought were exempt but they weren’t.”
Another part of the test here, there is in addition to that minimum salary requirement, the highly compensated test is a shorter, easier duties test to meet if you’re considered a highly compensated employee. And on that one, the DOL’s proposing to raise the level from the current $100,000 total compensation per year to $147,000, which is actually 14,000 higher than the Obama administration had proposed in 2016. And why is it higher? Well, they applied the same methodology that the Obama administration did. They set that at the 90th percentile of all salaried earners in the country without taking into account lower salaries in the South or in the retail industry. And this is what they got. So, yes, I’m telling you between 2016 and 2019 apparently salaries increased by that much, which is a testament to our current president. I love talking to The Federalist Society because I can actually say that. So wages have increased, right? Although I think part of that increase is a lot of folks from 2016 raised salaries in anticipation of that $40,000 a year minimum salary level, proving what we said in 2016 is that it had an inflationary impact. But it’s also just the economy is booming.
The last thing I want to brief you on on this, thank god the Department of Labor has backed away from this idea that they were automatically going to increase the salary levels every three years without any notice-and-comment rulemaking. Apparently, we convinced the Secretary of Labor that that was really a bad idea; that the Administrative Procedures Act required them to propose increases under the notice-and-comment rulemaking process before they do it. So instead, what they’ve proposed — and they’re asking whether they should actually include this in the regulating language themselves. But what they’re proposing is reviewing the salary levels every four years, looking to — what they’re currently doing for that minimum salary level is the 20th percentile of salaries in the South and retail, that they’ll look to see what that level is and if they think an increase is justified, they will issue a new proposed regulation and go through the APA process.
I’m not sure why they would want to commit themselves in a regulation to doing this. And what they’re proposing, too, what they’re suggesting is that if they decide not to increase the salary level that they’ll publish in the Federal Registrar a notice about why. By statute, they have authority to increase the salary and change the duties test whenever they want to. I do not know why they would want to tie themselves into having to do it on a particular schedule. However, I do sort of like the idea of putting the methodology — that 20 percent methodology—that’s our methodology from 2004—I don’t mind that being actually in the regulation as that is how they are going to set the salary in the future. I just don’t think they should commit to doing it in a way that gives that — it’s possible litigation if they don’t.
All right. Let’s take some questions before we go to the last one which is regular rate.
Nate Kaczmarek: Very good. Again, to ask a question, please enter star then the pound sign on your telephone keypad. Again, to join the queue, please enter star then the pound sign.
Tammy McCutchen: If you don’t have a question, I’d love to hear comments about what you think about this $35K salary level. What I am hearing — I am hearing objections from small businesses who still think it’s too high. But generally, most of the major trade associations seem supportive that that is a good number.
Nate Kaczmarek: Okay, looks like we don’t have any — looks like you’ve covered it sufficiently. Maybe we should move to the next proposal and see if we have questions on the last proposal.
Tammy McCutchen: Okay. Well, the last proposal is called the regular rate. And this is a really wage-and-hour geeky proposal. As I mentioned, overtime pay is 1.5 times an employee’s regular rate of pay. A lot of people think overtime is 1.5 times an hourly rate. You’re an hourly employee, you work overtime, you’re paid at $10 an hour, at overtime you get paid at $15. But that’s not actually the case. What the statute says is that overtime must — that calculation must include all remuneration for employment—don’t you love that word? Remuneration—unless it’s specifically excluded. And 29 U.S.C. § 207(e) has a list of specific exclusions from the regular rate like you would expect. The cost of traditional employee benefits, business expense reimbursements, vacation pay, and holiday pay, other pay that you give you employees for time not actually worked. But most bonuses, commissions, shift differentials, and any other type of compensation that you pay to a non-exempt employee that’s not specifically in that list of exclusions, you owe overtime on.
Well, that list — it was written in, like, 1938. It was last updated, I think, during the ‘90s when they added stock options as an excluded category that you don’t have to pay overtime on. But it’s not been updated in a long time, and it really has not kept up with the cool types of compensation that employees are now seeing and now getting from employees.
So we have — and we’re starting to see litigation on them. Believe it or not, I had a client who paid back people’s student loans. Isn’t that great? And they got sued for it. The allegation is they should’ve paid overtime on the dollars that they used to pay back the employee’s student loans. We’ve also seen litigation on seeking overtime pay for tuition reimbursement, and even for employee discounts. You’re a retailer. You give your employees a 10 percent discount. The plaintiffs think you ought to pay overtime on the value of that 10 percent. And from my perspective, it was these are really cool, great new benefits, and this litigation is on the edge of getting rid of them. Because the alternative if somebody loses — the first time somebody loses a big case where they have to pay millions of dollars for their tuition reimbursements, those types of benefits are going to go away.
So what DOL did was they are proposing a new regulation that clarifies and discusses how these particular types of perks can be excluded from the regular rate and you don’t owe them overtime. And the list in the current proposal is pretty good. Wellness benefits, including gym memberships, fitness classes, that type of thing; those employee discounts; payouts of unused sick leave, which has been a question for many, many years on whether you have to pay overtime when you pay out unused sick leave; tuition reimbursement; repayment of student loans; when you pay an employee for their meal period, that pay does not have to be excluded because the meal period is not work; a whole really great list, including business expense reimbursements, have always been excluded from the regular rate if they’re solely for the benefit of the employer is what the reg says. And the Department of Labor clarified that it doesn’t have to be solely for the benefit of the employer. A business expense reimbursement that also benefits the employee in some way can be excluded.
One of the biggest, troubling, difficult issues under these regulations is that non — you own overtime on non-discretionary bonuses, but not discretionary bonuses. So when I do training on this to like certain audiences I get dozens and dozens of questions about whether this particular bonus is discretionary or not. Most bonuses are non-discretionary under the DOL’s definition, which is not going to change. But what this proposal does do is include additional examples of discretionary bonuses that need not be included in the regular rate, like the employee of the month bonus, severance bonuses, and bonuses that are on-the-spot bonuses for employees who make or do something unique or extraordinary when there is no established criteria. So if somebody stops — a retail employee catches a shoplifter, you give them a $50 gift certificate, you don’t have to worry about paying overtime on that as long as you don’t have a policy that says everybody who stops a shoplifter gets a $50 gift certificate.
So it’s really good stuff. I think what we’re going to see in the comments, and these comments are due, by the way, on May 28th. So overtime is due May 21st, regular rate on May 28th, and joint employment on June 10th. And you can review the complete regulations and file comments at regulations.gov is the website you need to go to. Just click, you can search — there’s searches and there’s also — you can browse for comments due in the next 30 days to bring all of these up. And in any case, I think with these the comments we’re going to see is asking DOL about other types of employee perks because there are regulators, most of the folks over there are very young. They’re not really aware of the types of new employee benefits that employers are providing. So I am hoping that we’ll be able to get more examples into the regulations, like I have clients asking about subsidies for taking public transportation. Well, I think this is a really good one because those who live in the Beltway with me know that almost every federal employee gets $200, $300 a month to ride our metro. So does the value of that have to be included in the regular rate? There’s actually a district court case out of Colorado that says yes. It’s the only case. I’d like to see DOL address that and reverse that.
How about child care subsidies? Or providing a child care facility in your building for your employees? Other things people are wondering: stock options sort of fell out of favor so people are wondering what about restricted stock units. What else? You can think of probably a dozen. I think that’s the way — I think the business community is going to very supportive of these changes, but they’ll want to ask about additional types of perks that really is to make sure that the perks actually survive and employees are still getting them, the DOL needs to address them and clarify that you do not owe overtime when you take care of an employee’s child care.
All right. And that’s the end of that one. Can’t believe I’ve done all of this in 38 minutes so I hope we do have some questions.
Susan April: Hello. My name is Susan April, and I wondered on the — when you mentioned that stock options, as they were a number of years ago, have sort of fallen out of favor, what about when an employee provides some future benefit. . . I think 401K contributions I assume are governed by other laws. But is there anything like that that employers would be tagged for as overtime?
Tammy McCutchen: Well, to me there’s traditional benefits and what I call the new benefits. The traditional benefits are already excluded, and that means life, retirement, and health. But the statute was written long ago, so it would be nice if Congress could update because even in the benefits section, what it says is irrevocable dollars provided to a third party in order to provide these types of benefits are excluded. But that doesn’t cover — what about self-funded health insurance? I had a question from a client today that says we provide same-sex partner health benefit outside of our health plan but we self-fund it. Who knows whether they have to pay overtime on that? It’s possible. And the profit-sharing plans are also in the exclusion list in the statute.
The stock option thing: the problem is that when Congress exempted those from this, they listed very specific types of stock option products. Stock option, stock appreciation rights, and stock purchase plans. But those things really don’t exist anymore. The intent of Congress was obviously to allow employers to provide equity to their employees without having to pay overtime on that. And in fact, that section was added by Congress after the Wage and Hour Division started going after people to pay overtime on stock options. And that’s when Congress came in and said, “Whoa. No.” But there’s different arrangements now. And the question, the legal question that’s unclear that would be great to get an answer to is what is the scope of that exclusion? Is it so limited that if it’s not a stock option, it’s not excluded? So unfortunately if that’s the answer — and that’s another thing I will say. There’s been a lot of back and forth about if we reveal that there’s a potential that public transport subsidies you owe overtime on now, are we just going to generate more lawsuits, now, from the plaintiff’s bar, right?
Tuition reimbursements. There’s been a few lawsuits, right? Can we expect, now, that the DOL has said that this is an issue in this public way? Employee discounts – the same issue; that we’re going to see a bunch of new lawsuits seeking overtime for employees who provide these new benefits. I certainly hope not. Personally, I think once there’s a lawsuit out there, it’s already public knowledge. And so I don’t think it’s going to cause a lot of additional lawsuits. But I’d rather get these issues fixed.
And here, this is not an employer versus an employee issue. It might be an employer versus a plaintiff’s lawyer issue. But employees love these benefits and they want them, right? And if the unions were smart, they would support this proposal because then they would have a better basis to bargain for these types of benefits for their members – benefits that members value. So it’s not a traditional—in my mind—employee versus employer type of thing; that the employers get their way and employees lose. That’s not the case here. If the employers get clarity on this stuff, more employers are more likely to offer these types of great perks to their employees.
My biggest one – public transport subsidies. Think about that. That benefits the environment, right? That’s a pro-environment. Allowing subsidies for childcare or providing childcare services; that supports women in the workplace, right? So the politics of this one is not quite as clear as the overtime reg or joint employment.
Nate Kaczmarek: Okay. One last call for questions. If you’d like to ask a question, please enter star and the pound sign. I wonder, Tammy, if you could repeat what’s the website that we can check for the comments to date, and also repeat the deadlines for each of the proposals?
Tammy McCutchen: Sure. Yep, I’m going to do that. Let’s start with the soonest — the one that is due the soonest is on overtime. And I’m also going to give you what we call the RIN numbers, the numbers that identify them so that you can actually go and search. So for the overtime regulations — first of all, it’s all at www.regulations.gov. And when you go to that site, you’ll see a big search box. So the comment period on overtime, those are due—they’re the soonest—they’re due May 21st. So you can view the entire proposal and then file comments. And filing comments is easier. There’s a little text box and you can upload a letter or you can just fill out the text box. And let me tell you there will be hundreds and hundreds of thousands of comments generated by the AFLCIO, other unions, and employee advocates you give the language to their members and sign comments on it. So even if all you want to do is just a two-sentence vote of support, that will help the DOL because they’re going to get hundreds of thousands that say everything they do is awful.
So www.regulations.gov. Go there and for the overtime regulations, they’re due on May 21st. And the number you need to search for is 1235–AA20. The regular rate is next. And the regular rate is due on [May] 28th, and its RIN number for you to search is 1235–AA24. And finally, the joint employment regulations. We got a little room on that. They’re not due until June 10th, and their RIN number is [1235—AA26]. So if you put those numbers in the search box, you’ll get right to the proposal and the page where you — there’s a big blue button that says “Comment Now”. All you got to do is push it, and it’ll bring up your screen.
I will warn you, you have to put your name in there. And what I find most funny is in the 2015-2016 overtime regs, I was reading all of the people who were cursing our President Trump and publicly. So your comments are public, so be kind, be civil. But I do encourage everybody if it’s just a few sentences or a few paragraphs, it is so easy to do, and it would be really great if everybody on this call could support the Department of Labor in these efforts because none of them are perfect, but all of them are very good. And we can make a difference in moving them and making them even better.
Nate Kaczmarek: Okay. Well, one other question I had is you asked you put on the cap for the other side. You’ve done a decent job of providing a perspective of both sides. But in terms of – just quickly, you don’t have to repeat yourself, but in terms of substantive objections that you’ll see to these proposals, could you quickly tick off what you think are the largest objections for one or all three?
Tammy McCutchen: Sure. Well, joint employment, it’s all about employers trying to shed responsibility for compliance with the federal and state wage-and-hour laws by not, for their own benefit, using employees of a small business without the deep pocket. So I’m not responsible. It’s all of these other small companies that are very difficult to sue. It’s easier to sue a large employer with a large number of employees than a 100 small employers with no assets. And so for them, if you make joint employment, if you narrow the concept of joint employment, what you’re doing is allowing employers to shed their responsibilities and making it harder for employees to get justice.
On the overtime, there’s so many objections to this. But basically, they want the highest level possible because they feel that the rate that we set in 2004, the $455 per week, cut down the — greatly expanded the exemption because it was way too low, and therefore you have low-wage workers who are working 50, 60 hours a week, especially in retail and restaurants, who are not being paid overtime for that extra work. And so that to them is really a wage theft issue.
I will dissent my 2004 wage level, and I’m very happy the Department of Labor is going back to that. It was the methodology used was consistent historically with how the DOL has always set wage levels. The one thing that I’m really disappointed on the advocacy side is — basically what we’re seeing is DOL should go back to that 2016 Final Rule. The problem is that Final Rule has been permanently enjoined, so legally the Department of Labor has not done that. And can’t we talk compromise here? There’s a lot of space between $23,660 and $48,000. $48,000 was too high.
The other thing we hear from the advocates is because of this litigation, because DOL has not defended and implemented the Final Rule, that employees have been losing millions and millions of dollars since 2016 because they did not either get that wage increase or get reclassified and get paid overtime. My response to that is had the Obama administration not overreached, had they passed — made a final rule that was more like $38,000, then those employees would not have lost millions of dollars; that the loss of dollars to employees is the fault of overreaching and going so high as to — can you imagine how many people in Mississippi, even senior management, who make $48,000? I want to remind everybody—I actually did this research—it costs less to buy a house in Mississippi than it does to buy a parking space in Manhattan. States are different. This is all about federalism. The federal law has to set the floor. If states do not think it is adequate for them, they can set a higher level, as New York and California have already done.
On the regular rate, this is interesting. I don’t think — the regular rate is such a geeky issue. I don’t think that the advocates—unions and other advocates—really understand the issue. And I said it’s not a clear, political issue like the other two. Basically, the only objection that I’ve heard or read from the advocacy side is that it will allow employers to put more of the income into bonuses that they don’t have to pay overtime on, and therefore the overtime pay rate is disproportionately low. And that’s an argument I think that’s been around for years on allowing bonuses to be excluded from the regular rate. But DOL isn’t doing that. They’re not changing the definition. They’re just providing clarification on what types of bonuses can be discretionary, and thus excluded from the regular rate.
Beyond that, I haven’t heard a lot of interest from the advocacy side from the regular rate issue. And maybe that was a good strategy by DOL, right? We basically had almost no regulatory activity out of the Wage and Hour Division for the first two years of the administration. And now we have three to respond to over 90 days, less than 90 days. And I have complained that it’s not making my life easy because I have all of these comments to write. But on the other hand, the employee advocacy groups are also limited to the same time period. And we have heard that DOL is not going to grant any extensions on the comments period. So if you want to comment, your first due date is that May 21st, and it’s not going to go beyond that.
Nate Kaczmarek: Okay, very good. Just a final reminder to our audience that you can consult the full schedule of our upcoming calls on our RTP website. That’s regproject.org. Tammy, any final thoughts you’d like to leave the audience with?
Tammy McCutchen: Well, I think we covered a lot today. Just please go and read the proposals. I know they’re long, but read them and comment on them. To me, to put this in the context of the Regulation Transparency Act, these are, I think, deregulatory because they’re going to reduce the burden on employers and make it easier for them to comply with the law. So even though it’s going to add words to the CFR, I see it as deregulatory.
Nate Kaczmarek: Okay. Well, very good. Thank you very much. On behalf of the RTP, I want to thank Tammy for her valuable time and expertise.
Littler Mendelson P.C.