hourglass-small copy.jpgThis blog post was authored by Jeffrey C. Freedman and Brian P. Walter

Did you hear last week from the White House that the President plans to ask the U.S. Department of Labor to change the Fair Labor Standards Act regulations on overtime? Unless you were out of the country or asleep, it was hard to avoid hearing about this as well as the predictable comments from the various sides of the political spectrum.

What is this all about? When the FLSA was enacted in 1938 it exempted from the overtime requirement “any employee employed in a bona fide executive, administrative or professional capacity” but left the authority to define these terms to the Department of Labor (“DOL”.) As a result, a thick volume of regulations was adopted in which these exemptions were fleshed out, and a body of case law developed by the courts to interpret the exemptions further.  The exemption regulations have not been  revised for ten years.

Adoption and amendment of federal regulations does not require congressional action as do statutes. Rather, regulations can be adopted or amended by a federal agency after a publication and hearing process described in the U.S. Administrative Procedures Act. Once actual draft regulatory amendments are proposed, the public is invited to comment on the regulations, the DOL must consider the comments and hold hearings, and the procedure could take months or even years before any new provisions are adopted and take effect.

The press releases of President Obama and DOL Secretary Thomas Perez stated that the updates to the regulations are primarily intended to increase the salary levels required for employees to be classified as overtime exempt.  Currently an employee must earn a salary of at least $455 per week, and also perform executive, administrative or professional duties, in order to be legitimately classified as overtime exempt under the FLSA.  President Obama and Secretary Perez cited gas station managers, and retail, fast food and janitorial workers as examples of employees who might currently be classified as overtime exempt but who do not actually earn wages above the poverty line for a family of four.  Both press releases noted that the salary basis requirement has not kept pace with inflation.

The press releases also expressed a desire to simplify the overtime regulations to make them easier for both employees and employers to understand and implement.  The press releases did not offer any specific details on the anticipated content of the proposed regulations.  Rather, President Obama simply instructed the DOL to create proposed regulations in accordance with the general guidelines laid out in his press release.

The impact of the proposed changes to the DOL regulations on public agencies is unclear at this time.  Most public sector employees who are classified as exempt from overtime earn far above the $455 weekly salary requirement in the current regulations.  Current California overtime law – which does not apply to public agencies – contains a weekly salary requirement of double minimum wage, or $640 per week, which will increase to $720 per week on July 1 and to $800 per week in 2016.  Various news reports suggested that the DOL may seek an overtime exemption salary requirement that is similar to California law or even as high as $1,000 per week.

Another change that the DOL is purportedly considering is to the definition of an employee’s primary duty for exemption purposes.  Under current rules, an employee can be an exempt executive if supervision is the employee’s “primary” job duty regardless of whether performing that duty consumes a majority of the employee’s work time. Thus, a municipal golf course superintendent could be exempt as an executive if he was the only manager on duty and had the authority to hire, fire and discipline. This employee could potentially be exempt under the current regulations and case law even if he spent 90% of his time performing non-management work. The proposed DOL regulations will purportedly seek to apply a quantitative standard similar to current California law, which would require employees to spend at least 51% of their time performing exempt duties.

As noted, the procedure for adopting changes in federal regulations can be lengthy.  This round of regulations is likely to take many months and to be met with vigorous opposition from employers.  The public must be invited to comment on the proposed regulations and the DOL must consider the comments and may revise the regulations based upon the public comments.

The last round of revisions to the overtime regulations, in August 2004, took nearly 18 months to complete and included substantial revisions to the draft regulations that were initially proposed in March 2003. Those regulations were supposed to simplify and substantially overhaul the overtime exemption regulations, but after extensive public comment the DOL significantly revised and “watered down” its proposed changes.  Now, once again, the DOL is being instructed by the President to simplify the overtime regulations.  LCW submitted comments to the DOL on behalf of public employer organizations in 2003 and will again submit comments on behalf of public employers once the proposed regulations are issued.

If you know your history, you will remember that FLSA was adopted nine years into the Great Depression and one of the reason for its enactment was to encourage employers to hire more people by making overtime expensive by requiring time and one half for hours worked in excess of 40 in a week. The goal was to reduce unemployment. Unemployment is high again but whether the changes proposed by the President lead to more hiring remain to be seen.