President Obama Sics the DOL on Corporate Profits, Says Reduce the Number of Exempt Workers and Pay More Overtime

by Obermayer Rebmann Maxwell & Hippel LLP
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Just when you thought it was safe to go back in the water . . . or at least thought you might be getting a handle on the highly technical and nuanced regulations under the Fair Labor Standards Act governing the “white collar exemptions,” President Obama is instructing the Department of Labor to revamp those regulations to ensure that more American workers are eligible for minimum wage and overtime pay. It’s been reported that today the President will direct the DOL to begin the process of revising the regulations governing the “white collar exemptions”—clearly, an endeavor to combine his efforts to increase the minimum wage with a broadening of the types of workers who will be entitled to receive the minimum wage and also overtime pay.

As you may recall, the white collar exemption regulations were last revised in 2004, which was about 50 years after the prior substantive modification. These regulations define the requirements for specific white collar exemptions and generally apply to those executive, administrative, and professional employees who are paid a minimum weekly salary amount of $455/week, are paid on a salaried basis, and primarily perform duties in line with those described in the regulations. By meeting the requirements of one of the white collar exemptions under the FLSA, a worker is “exempt” from receiving minimum wage and also from receiving overtime pay for hours worked in excess of 40 in a work week. (Note: In states that have minimum wage and overtime laws, to be exempt, an employee must meet the state law requirements as well.)

From the news reports, it sounds like the President has two basic changes in mind:

1.  Raising the minimum salary amount that applies to most of the white collar exemptions. The President seeks to substantially increase the current $455/week salary requirement, possibly more than doubling it.

2.  Changing the duties requirements.  Word has come from the White House that abuse is rampant among employers for using the “primary duty” test (i.e., the duty that is most important or is the principal function) to treat workers as exempt from overtime pay even though they only perform that duty less than 50% of the time. For example, retail store supervisors whose primary duty is to oversee and manage the store may very well spend more than 50% of their time assisting customers and making sales; however, that supervisor can still be exempt under the regulations if her/his “primary duty” is to manage the store (performing duties such as hiring, disciplining, firing employees; directing work; setting schedules; controlling the flow of inventory and supplies; and planning and controlling the budget).  Apparently, the revisions contemplate ensuring that, to be exempt, workers must perform exempt duties at least a minimum percentage of the time.

This process and potential revision of these regulations is unlikely to happen quickly, as the DOL will need to evaluate the current regulations and draft proposed changes to meet the President’s goals, which will then be subject to public comment before final approval and issuance by the DOL. Regardless, for employers still not out of the woods from the economic downturn, the prospect of having more employees fall out from under these common FLSA exemptions could be harrowing for their future. Strong objection is expected from business and industry groups, especially as regulation changes often yield substantial increases in lawsuits (FLSA lawsuits have already increased more than 350% over the last dozen years) and DOL enforcement actions. We will continue to monitor this issue and provide further reports as it evolves.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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