Drastic Changes From DOL’s Final Rule on Overtime Pose BIG TROUBLE for Most Employers in 2016!

May 2016
James B. Sherman, Esq.

What do you get when the U.S. Department of Labor abruptly more than doubles the minimum salary employees must be paid in order to qualify as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA)? For starters, you impact many millions of employees (an estimated 4-5 million). Employers are faced with the dilemma of choosing either to: (1) increase salaries of affected employees to the new minimum - increases of up to 100% in some cases - in order to keep them exempt from overtime; or (2) reclassify workers from exempt to non-exempt status, thus making them eligible for overtime pay. So what’s the big deal? The Obama administration claims the final rule, which takes effect on December 1, 2016, will result in big pay hikes for millions of employees whose salaries currently fall below the new $47,476 annualized minimum exempt salary level.  The administration’s theory is that employees will receive a DOL imposed salary hike, or lots of extra pay in the form of overtime pay at the FLSA required rate of 1½ times the regular rate for all hours worked over 40 hours in a workweek. To be sure, employers who fail to assess the impact of the sweeping changes under the DOL’s new rule, will likely see huge spikes in payroll costs before the year is out; that, or lawsuits from plaintiff wage and hour lawyers who are just licking their chops at the many prospects for claims against unsuspecting employers. The potential impact to the bottom line may be enough to put some employers out of business. Particularly hard hit are retail, hospitality, healthcare and non-profit organizations, although employers in manufacturing, transportation, food and many other industries will no doubt be affected as well.  Wessels Sherman aims to help employers deal with these changes.

Wessels Sherman shareholders James Sherman have been deeply involved in all the issues brought about by the new DOL rule, really from the start. Their webinar last summer on the proposed rule, drew a record-setting crowd.  The comments these attorneys assembled and submitted on behalf of employers in opposition to troubling aspects of the proposed rule, were expressly recognized out of the more than 270,000 comments the DOL received on its proposed rule. Now, their webinar on June 2^nd is among the first in the country giving employers an early opportunity not only to learn the pertinent details of the final overtime rule, but providing practical advice from experienced wage and hour litigators on:

·        Ways to assess the overall impact of these changes on your organization.

·    Determining what to do about the new rule (e.g. for starters, whether to meet the new minimum salary or reclassify certain employees from exempt to non-exempt).

·   Implementing sound policies and practices (handbook revisions, record-keeping, payroll practices, etc.) to address the sweeping changes many employers are sure to face…very soon.

Already, our phones are ringing and emails are buzzing with frantic HR and other business professionals seeking guidance on these changes from our experienced practitioners. Mr. Sherman, along with other lawyers in our firm’s 5 offices around the Midwest, are busy scheduling meetings and conference calls to assist employers with coping with the changes brought about by the final DOL overtime rule. To schedule your company’s initial assessment and develop a “plan of reaction” to the new rule before it takes effect in just 6 months, contact us at our Minnesota or Chicago offices, or any of our firm’s three other offices, below.

We also recommend attending our early webinar on the subject to hear from our highly qualified, experienced presenters. Another record crowd is already registering for this exciting, information packed webinar, scheduled for Thursday, June 2^nd, from 1:00 to 2:00 p.m.  See below to register now!

Five Essential New Year Resolutions Every Employer Should Have for 2016 - 1

1.  Avoiding “joint employer” status and liability under newly adopted federal agency standards –

Last year, the National Labor Relations Board (NLRB) overhauled the test to determine whether two (or more) employers are “joint employers” for purposes of labor law, with its Browning-Ferris Industries decision.  The new test makes it much easier to establish joint employer status and is now being used to pursue claims against McDonald’s Corp. for the actions of its franchisees.  The NLRB’s test is being used to hold multiple employers liable for unfair labor practices committed by one, as in the case of McDonald’s Corp. as a joint employer with its franchisees.  Joint employer status may also be used to impose collective bargaining and union contract obligations, as well as determining whom can be subjected to picketing and other strike activity or economic pressure, from unions. 

The Department of Labor (DOL) recently issued its own definition of “joint employers,” amid allegations from some United States Congressmen of collusion between the two agencies.  Although some of the factors in the two tests are similar (the DOL definition is actually broader than that of the NLRB), the consequences of finding a joint employer relationship by the different agencies differ significantly.  The DOL’s guidance is relevant for the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).  Under these laws, the hours worked for joint employers will be aggregated for purposes of determining if an employee has worked overtime during a workweek.  In either case, both joint employers will be jointly liable for any violations under these laws.  

Because of the severe ramifications at stake and the current heightened focus on the issue, we highly recommend that employers make the New Year’s resolution of auditing any potential joint employment relationships with the help of someone knowledgeable in these areas.   

Illinois Employers Must Track Hours Worked of ALL Employees Including Salary Exempt Employees Under Recent IDOL Regulations

December 2015
By Anthony J. Caruso, Jr., Esq.

A little known regulation (alarming for employers!) exists in the State of Illinois. The Illinois Department of Labor adopted new regulations (to enforce the Illinois Wage Payment and Collection Act) which went into effect in August 2014. There was no notice in the press.

Under one of these regulations, Illinois employers are required to record EVERY employee’s hours worked each day regardless of the fact that the employee is salary exempt (possibly administrative, executive, or professional). Under federal law (Fair Labor Standards Act), there is no requirement for such record keeping.

The Illinois regulation requires:

• Records of hours worked for all employees, and
• Records kept for at least three (3) years.

This Illinois regulation fails to state a penalty on employers who fail to keep records. However, the Illinois Department of Labor will continue its position that if the employer does NOT have written records of hours worked of the employee claiming wages owed, then the employee’s statement of hours worked will prevail.

Based upon this new regulation, should Illinois employers change their record keeping of hours worked to include salaried exempt employees? It depends. If the employer is very certain that all salaried exempt employees are properly classified, the employer probably does not need to keep track of hours worked by the salaried exempt employees. If not, the employer may consider adding the burden of additional record keeping.

Questions?: Contact Anthony J. Caruso, Jr. of Wessels Sherman’s St. Charles office at (630) 377-1554 or via email at ancaruso@wesselssherman.com.

Beware the Risks of Performing Compliance Audits

Lawyers are often asked to audit the employment practices of clients; however, attorneys or other advisers who conduct these audits could face malpractice charges for missing issues that expose the employer to liability.  Earlier this year, for example, a large, international agri-food commercial co-operative brought a $5 million malpractice lawsuit against its national full-service law firm for an allegedly negligent employment practices audit.  This audit stated that the company’s exempt vs. non-exempt classification of employees complied with the federal Fair Labor Standards Act (FLSA), but failed to address California’s state counterpart, under which the outside sales associates were not exempt from the law’s overtime provisions.   Wage and hour law is somewhat unique in that both federal and state law needs to carefully and separately be analyzed to determine compliance.  Relying on this audit, the employer did not change its classifications, and was hit with a class action lawsuit.  The employer, in turn, sued the attorney for what it claimed was a negligent audit. 

This is just one example of how an employment practices audit—in this case, of how California workers are classified—can expose an attorney to major liability. Although this type of audit would seem to require less specialized training than, for instance, litigation of an employment dispute, it carries its own substantial risks.  Those with a more generalized practice may wish to consult with an employment attorney, rather than attempt to take on an audit alone. 

For questions or assistance with an employment practices audit, contact Wessels Sherman’s Minnesota office at (952) 746-1700.