Update on Publication of the New FLSA Overtime Regulations

The final overtime rule is edging closer to release: the U.S. Department of Labor (USDOL) has sent its final changes for determining which workers are eligible for overtime pay to the Office of Management and Budget (OMB) for an administrative review.  Procedurally, this is the final step before a new regulation is published as a final rule.  OMB’s final review could take several months or just a few weeks.  Once complete, the final rule will be published in the Federal Register and take effect within 60 days of publication.

Commentators believe that the final rule will work its way quickly through OMB and most likely be published by July 7, meaning it would take effect on Labor Day, Sept. 5.  That has obvious symbolic meaning.  Alternatively, considering other significant events taking place this fall, if the rule is published on September 2 -- the Friday before Labor Day -- it will take effect on November 1, the day prior to Election Day.

Although the proposed regulations were issued in July 2015, the differences between those proposed regulations and the final rule won't be made public until the final rule is actually issued.

According to the Unified Agenda and Regulatory Plan, published in November 2015 by OMB, the earliest the final rule could be released would be in July. Timing is important. Under the Congressional Review Act, a joint resolution from both houses of Congress and the President can undo laws and rules passed during the final 60 legislative days of the previous Congress.  In other words, the Obama Administration must work quickly so that the regulations take effect before President Obama leaves office and to protect the new regulations from being overridden, if a Republican wins the White House.

Employers ought to be planning now for implementation of the new regulations.  Among the changes likely to be reflected in the new regulations when they are published include:

• The salary threshold under which employees would be required to receive overtime pay (regular hourly rate x 1.5 for all hours worked beyond 40 hours in a given workweek) would be the 40th percentile of average weekly earnings in the U.S. The USDOL has projected that the 40th percentile weekly wage in the final rule will be $970, or $50,440 per year for a full-time employee.  This represents a significant jump from where it currently stands -- $23,660.
  
• This new salary-level threshold will be annually updated, based either on the percentile or indexed to inflation.
  
• For highly compensated employees (considered exempt without regard to any duties test), the new annual salary threshold will be $122,148, which is up from the current level of $100,000.

It remains to be seen whether changes in the applicable duties test will be incorporated into the new regulations.  No proposed changes to the duties test were reflected in the proposed rule published in 2015.

To avoid paying overtime to employees who would need to be reclassified as nonexempt, employers might consider increasing the employees’ salaries to a level above $50,440.   Alternatively, employers might considering reducing the hours of employees who would be newly non-exempt and eligible to receive overtime.  A third option is to adjust the hourly rates of newly non-exempt employees downward so that, when their additional overtime pay is considered, their overall weekly compensation remains unchanged.  Most employers will implement some combination of these tactical options in order to control the financial implications of the new regulations.

FLSA: Employer Liability for Uncompensated Work Time

An employee who works through mandated lunch or meal breaks without recording the hours, and who is thus not compensated for all hours worked, can present a thorny issue for the employer, as the employer is exposed to a Fair Labor Standards Act claim for failing to pay for the work performed.  Resolution of the employee’s claim for compensation for missed lunch or meal breaks will turn on whether the employer knew or should have known of the uncompensated work; if the employer allowed it to happen, the employee must be compensated. FLSA regulations are clear about this:  (1) “work not requested but suffered or permitted is work time.”  (29 C.F.R. § 785.11); and (2) if the “employer knows or has reason to believe that [a worker] is continuing to work [then] the time is working time.”(29 CFR § 785.11).

It is easy to say that if the employer does not know or have reason to know that the employee is working uncompensated hours the employer is not liable under the FLSA, but it can be difficult to prove this negative.  A written policy requiring employees to report all work time and to report missed breaks, and making payment to those employees who make such reports, is one way an employer can ensure that it pays employees for all time worked and is not subjected to liability for uncompensated work.  This was confirmed earlier this month when the United States Supreme Court declined to hear an appeal from a decision by the Sixth Circuit Court of Appeals ruling for the employer.

In White v. Baptist Memorial Health Care Corp., 699 F.3d 869 (6th Cir. 2012), the Court granted summary judgment for the employer, basing its decision on the employer’s written policies and the employee’s failure to comply with the policies.   The written policy in the employer’s handbook provided that employees were entitled to unpaid meal breaks that were automatically deducted from the paycheck and also provided that if an employee missed a meal break or the meal break was interrupted for a work-related reason, the employee would be compensated for the time worked.  The employees were instructed to record on a log all of their time spent working.  Ms. White signed a document indicating she understood the policy.  For a time she completed the log (and was paid for the missed breaks) but she then stopped doing so and later claimed she should be paid for the time worked during the meal breaks that were deducted from her paychecks.
 
The bottom line from the White case is if an employer establishes a reasonable process for an employee to report uncompensated work time and the employee fails to follow the process, it is unlikely the employer will be liable.  A different result could occur if there was evidence the employer discouraged employees from following the process, but short of that it is unlikely a court would hold an employer liable when it had no way of knowing the employee was working uncompensated hours.