armstrongteasdale.law

With recent administrative and regulatory upheavals, the path to Fair Labor

Standards Act (FLSA) compliance often seems fraught with potholes, speed

bumps and wrong turns guaranteed to land even the savviest employer in

a ditch. While the rules of the road are in flux, careful planning, remaining

alert, and keeping your eyes on the road ahead are fail-safe guides even

in these uncertain times. To plot your course, read on for current points of

interest, cautionary notes and the forecast ahead for the 2016 FLSA Final

Rule, including anticipated rule changes under the Trump administration,

the re-emergence of opinion letters and independent contractor and joint

employer guidance under a revamped Department of Labor (DOL).

2 | armstrongteasdale.law

THE 2016 FLSA OVERTIME RULE

3 | armstrongteasdale.law

SUMMARY

Under the FLSA’s “white-collar” exemptions, which are most commonly referred to as the Administrative, Executive and Professional (EAP) exemptions, employees are only exempt from the FLSA’s minimum wage and overtime provisions if they meet the requirements of both a “duties” test and a “salary basis” test. The 2016 Final Rule amended only the “salary basis” component of the test, doubling the minimum salary requirement from $455 to $913 per week. In addition to the EAP exemptions, the Final Rule raised the salary bar for Highly Compensated Employees from $100,000 to $134,004 per year. Finally, it also required review and adjustment of all salary thresholds every three years, beginning in 2020.

WHERE ARE WE NOW?

On Nov. 22, 2016, a federal district court enjoined the 2016 Final Rule nationwide. That injunction was made permanent on Aug. 31, 2017, when the court granted summary judgment to business plaintiffs. An appeal challenging the injunction, which was proceeding before the Fifth Circuit, was withdrawn by the DOL on Sept. 5, 2017.

In short, it is almost absolutely certain that the provisions of the 2016 Final Rule will never go into effect. This outcome is further bolstered by the election of President Donald J. Trump and appointment of Labor Secretary Alexander Acosta. The Trump DOL did not support the 2016 Final Rule and made no attempt to defend it. Even so, in briefing before the Fifth Circuit, it made clear its position that it is entitled to amend the salary threshold and intends to engage in rulemaking for this purpose. During a March 2017 confirmation hearing, Secretary Acosta indicated his perception that a “reasonable” base salary for the white-collar exemptions is “somewhere around $33,000” per year (or roughly $635 per week).

TAKEAWAYS

Though the 2016 Final Rule is essentially dead in the water, employers should expect a new salary threshold to be set in 2018 via a new final rule. While it will fall below $955 per week ($47,476 annually), employers should still anticipate an increase.

Employers are also reminded that the EAP “duties” test remains in full force and effect. Employers risk exposure if they misclassify workers based on the duties they perform – part two of the EAP exemption test. Moreover, even if workers are making over the current $455 per week, salary remains a litmus test for applying the “duties” test. For instance, classifying an employee making $24,000 a year as an “exempt” EAP is a red flag for potential misclassification. It is difficult to establish that an employee earning less than the federal poverty level for a family of four is vested with sufficient authority, autonomy or discretion, as is required in some form or another under most EAPs, to qualify for an exemption.

Employers would be wise to take this time to evaluate and audit their workforces to ensure proper classification of employees in EAP roles to avoid misclassification suits. As many learned in late 2016, performing this analysis on the front end saves cost, administrative burden and morale headaches when salary requirements rise.

4 | armstrongteasdale.law

THE TRUMP DOL’S ANTICIPATED REGULATORY CHANGES

5 | armstrongteasdale.law

SUMMARY

On the campaign trail, Trump stated plans to make sweeping changes to the DOL – largely through regulatory reform. Shortly after taking office, he signed Executive Order 13777, “Enforcing the Regulatory Reform Agenda.” Section 3(d) of that order explicitly tasks federal agencies, including the DOL, with repealing, replacing or modifying regulations that result in job losses, inhibit job creation or impose undue burden or expense as compared to the benefit they offer. Under the guise of this directive and in connection with the (now abandoned) Fifth Circuit appeal over the validity of the 2016 Final Rule, the DOL expressed its intent to undertake further rulemaking to determine what the minimum salary level should be for purposes of FLSA exempt status under the white-collar exemptions. On July 26, 2017, it carried through on this intent, publishing a Request for Information (RFI) seeking public comment on roughly a dozen key questions designed to assist the DOL in formulation of a new proposed rule. The questions not only address formulation of a new salary basis test, but the need for revisions to classification methodologies and other key issues, including:

1. Whether the current salary level should be adjusted. 2. Whether the DOL should set different salary levels based on employer size. 3. Whether salary level should be based on the applicable exemption. 4. What classification methodology should be used? 5. Does the 2016 Rule eclipse the duties test? 6. How did employers respond to the 2016 Rule (e.g., did they actually raise salaries, or did they reclassify workers and drop their hours and pay)? 7. Should the salary test be abolished? 8. Did the 2016 Rule exclude from exemption previously exempt occupations? 9. Was the Rule’s inclusion of bonus and incentive pay provisions helpful? 10. Should the DOL amend the basis for determining highly compensated employee pay? 11. Should the salary level automatically be updated?

WHERE ARE WE NOW?

Public comments were accepted until Sept. 25, 2017. All affected employers were encouraged to participate by submitting comments electronically through the Federal eRulemaking Portal. It will likely take the DOL several months to parse through the comments and develop a proposed rule. Once it does so, via a Notice of Proposed Rulemaking, the public has 60 days to submit comments. After the comment period closes, it is expected to take the DOL at least six months to issue a final rule. And, of course, any effective date is likely to be set several months in the future.

TAKEAWAYS

Employers must expect changes to FLSA guidance and regulations in 2018, though implementation may not be required until 2019. Some changes are likely to require workplace reforms for large swaths of the United States workforce. In addition to anticipating an increase in the salary level necessary to sustain exempt classification for workers, larger-scale reforms to classification methodologies and scaled solutions may impact implementation for employers that operate across multiple jurisdictions or industries. While many of these changes may be beneficial for employers, they may still require organizational changes or efforts to boost morale and worker satisfaction. Accordingly, it is critical employers not become complacent in the coming months. The greater the impact of the 2016 Final Rule on an organization, the greater its need to participate in the RFI process. Given the potential impact on proposed rules and fact that comments are public record, employers are encouraged to consult and work closely with experienced legal counsel in crafting their responses.

6 | armstrongteasdale.law

INDEPENDENT CONTRACTORS

7 | armstrongteasdale.law

SUMMARY

On June 7, 2017, the DOL withdrew controversial independent contractor guidance issued by its Wage and Hour Division (WHD) under the Obama administration. The guidance, Administrative Interpretation No. 2015-1 (July 15, 2015), greatly narrowed the definition of “independent contractor” such that most workers would need to be reclassified as employees. In fact, the guidance noted: “most workers are employees under the FLSA’s broad definitions.” Prior to 2015, the determining factor in most independent contractor analysis was the degree of control exercised by the business over the worker, and by the worker in carrying out his obligations. The guidance represented a significant departure from this approach. It focused instead on the “economic reality” of the relationship – asking “is the employee economically depending upon the business?” If the answer is “yes,” the worker is likely an employee.

WHERE ARE WE NOW?

Now that the guidance is withdrawn, independent contractor analysis should revert to the control test. Even so, some ambiguity remains as DOL “Fact Sheet #13: Am I an employee? Employment Relationship Under the Fair Labor Standards Act (FLSA)” (May 2014), which applies the economic realities test, remains. While the withdrawal of guidance at the administrative level is a positive sign, it is unlikely to immediately impact pending litigation.

TAKEAWAYS

Though employers received a sudden boost in their defenses to claims of independent contractor misclassification, the prudent course for employers gauging whether to enter or revise their Independent Contractor Agreements is to continue applying the factors set forth in Fact Sheet #13. Once this Fact Sheet is recalled, employers may have more leeway and less exposure in entering these agreements.

8 | armstrongteasdale.law

JOINT EMPLOYERS

9 | armstrongteasdale.law

SUMMARY

On June 7, 2017, the DOL withdrew contentious guidance pertaining to joint employers, Administrative Interpretation No. 201601 (Jan. 20, 2016). Prior to the guidance, the joint employer test looked at whether an entity exercised direct control over the workplace of another. That standard changed in 2016 to one of “indirect control.” It created a new framework in which entities exercising any control over a workplace or employees face liability for FLSA violations of a third party over whom they have little or no control.

WHERE ARE WE NOW?

The Trump DOL returned to the “direct control” standard. While positive, employers are not yet in the clear due to similar guidance issued by the National Labor Relations Board (NLRB) that is not yet withdrawn. Until the NLRB’s two open seats are filled, the guidance remains in effect. Though there are efforts underway to write the direct control standard into law, it will take time.

At present, the greatest risk is from the courts. As but one example, in the case of Salinas v. J.I. General Contractors, Inc., No. 15-1915 (4th Cir. 2017), the Fourth Circuit applied the broadest joint employer definition to-date. In essence, the Court reasoned that unless there is complete “disassociation” between two entities, they are joint employers. In determining whether employers are “disassociated,” the Court looked to whether they “share or codetermine the essential terms and conditions” of employment. In the case at bar, the Court considered that the two alleged employers split responsibility for hiring and firing, training, provision of equipment, supervision and instruction. While neither entity bore responsibility for all traditional employer obligations, they were split between them.

TAKEAWAYS

There is no bright line rule, and judicial tests analyzing joint employer obligations are varied and fluid. Courts nationwide typically consider the following factors: who has the power to hire and fire; who supervises employees, controls work schedules or conditions of employment; who determines rates of pay; who manages and maintains personnel records; and who provides training and instruction. At least under Salinas, if two organizations split up these obligations amongst themselves, they risk “joint employer” liability.

In spite of the ambiguity, employers should not despair. The best guidance across all jurisdictions remains: avoid sharing employees, supervising or directing the work of another entities’ employees; hiring, firing or disciplining – directly or indirectly – the employees of another; permitting any contractor or nonemployee to wear company uniforms, use a company email account, use company equipment, tools or supplies, or otherwise hold themselves out as an individual performing services for or on behalf of the company. If contracting or assigning staff is unavoidable, limit the duration to a specific project or clearly defined term (ideally no more than weeks or months). Likewise, when contracting or assigning staff is unavoidable, or central to business operations, ensure the relevant agreements clearly define duties and responsibilities, and that they are carried out in practice. Finally, do not overlook indemnification and hold harmless clauses. Many contracts include surprisingly ineffective terms that, for instance, only authorize indemnification upon final judgment. This does an organization no favors if it is nonetheless forced to incur the cost and risk of litigation. An effective indemnification clause requires indemnification against all joint employment claims, whether arising in tort, under the FLSA or otherwise, and covers not only the risk of liability, but the costs of defending any claim in court, before an arbitral forum or in mediation.

10 | armstrongteasdale.law

DOL OPINION LETTERS

11 | armstrongteasdale.law

SUMMARY

On June 27, 2017, the DOL renewed its practice of issuing Opinion Letters through its Wage & Hour Division (WHD). This announcement comes after a seven-year hiatus. Opinion Letters are important tools for employers. They constitute official, written opinions regarding specific fact scenarios that may be utilized as a complete defense – or at least greatly limit liability and exposure. In years past, the DOL issued dozens per year. Administrative Interpretations were issued in the place of Opinion Letters, but we only saw 11 in seven years. Worse yet, Administrative Interpretations are not official opinions, and are seldom factually specific enough to be of any substantive value.

WHERE ARE WE NOW?

Opinion Letters are once again available to employers and may create powerful affirmative defenses. For instance, letters may be used to help establish a good-faith defense to FLSA claims and may be cited as both a complete defense or to avoid the penalty of double liquidated damages. Even if an Opinion Letter is wrong, employers may rely upon it as a legal defense. While most beneficial to the employer who requested it, any employer may rely upon an Opinion Letter.

While positive, Opinion Letters are not a silver bullet and are not without risk. Even with persistent follow-up, it may take several years for the WHD to issue an opinion. Moreover, an adverse finding is at times more detrimental than a positive finding is advantageous.

TAKEAWAYS

Employers should be on the lookout for newly issued Opinion Letters. In the face of a persistent, recurring concern, employers may file an Opinion Letter seeking guidance and clarification. Between the deluge of anticipated requests, expected budget cuts and general upheaval at the administrative level, employers are encouraged to work with skilled counsel to prioritize and refine their requests for optimum impact. Because the process is slow and cumbersome, employers must carefully evaluate which of their wage and hour concerns is most pressing, and whether there is a more appropriate measure for either rectifying or clarifying the issue. Because an employer may need to rely upon an Opinion Letter as a defense, and due to the risk of an adverse opinion, employers must carefully vet their concerns, skillfully tailoring their requests to their specific situation and facts.

12 | armstrongteasdale.law

As we think about the coming months, there are sure to be a few speed

bumps for employers. But, in working with sophisticated legal counsel,

employers will be able to best develop a strategy for addressing some of the

rules and regulations in flux. With map in hand, we wish you safe travels.

Jovita Foster314.552.6698

jfoster@armstrongteasdale.com

Falon Wrigley314.259.4729

fwrigley@armstrongteasdale.com

13 | armstrongteasdale.law