On January 5, 2018, the United States Department of Labor announced that, going forward, it would utilize the “primary beneficiary” test for determining whether interns are employees under the FLSA, consistent with recent rulings from appellate courts. Its updated Fact Sheet #71, a copy of which is linked here, explains the test, which examines “the ‘economic reality’ of the intern-employer relationship to determine which party is the ‘primary beneficiary of the relationship.” Fact Sheet #71 outlines 7 factors that courts should apply on a fact specific basis in making this determination, with no single factor being dispositive:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

This test replaces the older 6 factor test contained in Fact Sheet #71, which some courts had rejected as too rigid. While this guidance from the DOL is persuasive, rather than binding, authority, it should be noted that a version of the “primary beneficiary” test was already being applied by the Fourth Circuit Court of Appeals, at least in the context of whether trainees constitute employees. The adoption of this test by the DOL provides additional support for the application of it by the Fourth Circuit Court of Appeals and District Court for the District of South Carolina.

President Trump issued an Executive Order yesterday which purports to suggest three avenues for offering health insurance at a decreased cost to small employers and consumers for the overall goal of reducing healthcare costs on the grounds that the Affordable Care Act (ACA) has limited consumer choice resulting in an increase in healthcare insurance cost. The Order charges various administrative agencies to act within 60 days.

First, the Executive Order directs the Department of Labor (DOL) to issue proposed rules that would permit small employers to join together and create what can be likened to multi-employer plans for the purpose of obtaining the same discounts for insurance offered to large employers, interestingly one of the two premises behind creation of the ACA Exchanges, by expanding access to Association Health Plans. The proposed plan of action would rely on a “broader interpretation” of a provision of the Employee Retirement Income Security Act (ERISA) that permits multi-employer plans for employers who have a “commonality of interest.” ERISA is statutory law modifiable only by Congress although the Employee Benefits Security Administration (EBSA), a division of the DOL, is charged with enforcing ERISA as they pertain to employer’s healthcare plans.

The Executive Order directs the DOL, Department of Treasury and Department of Health and Human Services (HHS) to issue rules that permit healthcare coverage to be offered through short-term limited duration insurance which is not subject to the ACA by extending the allowable coverage under these types of plans for longer periods and permitting consumers to renew them. The Executive Order also directed the agencies to issue regulations applicable to Health Reimbursement Accounts (HRA) that increased the usability beyond what HRAs already offer.

One concern is the less costly healthcare insurance offered under AHPs or short-term limited duration insurance plans may not contain all of the coverage protections required by the ACA. As a reminder, the ACA requires that all healthcare plans offer coverage for essential health benefits and that the insurance plan provides minimum value (namely covering the cost of covered treatments up to a certain percentage of the total cost). Another concern regarding the proposals are that the changes would result in violations of other federal laws which prohibit disparity in premiums between younger, healthier workers or individuals as compared to premiums charged to those who are older or sicker.

The Executive Order identifies a number of statistics about healthcare insurance costs and coverage all to show that health insurance is becoming less affordable for consumers and too costly for carriers to offer resulting in a decrease of competitive healthcare insurance plans and an increase of uninsured.

President Trump also criticizes the consolidation of providers as a reason healthcare costs have increased, suggesting that the consolidations interfere with healthy competition, and requiring the Federal Trade Commission, along with DOL, HHS and Treasury, to report to him within 180 days on federal and state policies limiting competition and choice in the healthcare industry.

Similar to his January 31, 2017 Executive Order in which he asked enforcement agencies to soften penalties under the ACA where the law allowed, any agency attempting to comply with the admonishment cannot simply and quickly issue new rules that then become enforceable regulations. Finally, as a practical matter, because it is October, most calendar plan years are already engaged in the open enrollment process so the earliest any enforcement changes could be implemented for those plans would be 2019. The Executive Order can be found here.

In the meantime, employers should continue to abide by the ACA. The IRS anticipates issuing its first penalty letters to employers for noncompliance this December.

By now, employers are certainly well aware that on November 22, 2016, a federal judge in Texas issued a preliminary injunction that effectively prevented the implementation and enforcement of the new Department of Labor (“DOL”) regulations regarding the exemptions from overtime for bona fide executive, administrative, or professional (“EAP”) employees. See Nevada, et. al. v. U.S. Department of Labor, et. al., 218 F. Supp. 3d 520, 534 (E.D. Texas 2016).  As we previously blogged, the November 22nd ruling was not final and was effective “pending further order” of the court.

That “further order” came on August 31, 2017, when the same federal judge who issued the November 22, 2016 order issued a final ruling concluding that the new regulation “is invalid.” The judge determined that Congress intended the EAP exemption to apply to employees who perform executive, administrative, or professional duties, and that the new regulation fails to carry out that intent because it improperly uses a salary-level test that effectively eliminates the “duties” test.

It should be noted that the November 22, 2016 ruling is still on appeal with the Fifth Circuit, and the August 31, 2017 ruling is also subject to being appealed. However, the DOL has indicated that it does not intend to pursue the salary level of $913 per week that was a part of the new regulation.  As noted in our blog post dated July 26, 2017, the DOL has requested notice and comment before issuing a revised proposed regulation.  It will be interesting to see how the court’s treatment of the duties test in the August 31, 2017 ruling impacts the DOL’s revised proposed regulation regarding the EAP exemption.

picture of new I-9 Form as of July 17, 2017Last month, the U.S. Citizenship and Immigration Services published a new version of the I-9 Employment Eligibility Verification Form. The Form I-9 is used by employers to verify the identity and employment authorization of all new hires. The new version of the Form I-9 is identified by a revision date of 07/17/17N and must be used no later than September 18, 2017.

The following minor changes contained in the now current version of the Form I-9 are intended to facilitate completion and reduce errors:

  • The Consular Report of Birth Abroad (Form FS-240) is now a valid List C acceptable document.
  • The prior certifications of report of birth issued by the U.S. Department of State (Form FS-545, Form DS-1350 and Form FS-240) are now consolidated in List C.
  • All List C documents with the exception of the Social Security Card have been renumbered.
  • The U.S. Department of Justice, through its Immigrant and Employee Rights (IER) Section enforces the anti-discrimination provisions of the Immigration and Nationality Act. The Form I-9 instructions now reference the IER rather than the Office of Special Counsel for Immigration-Related Unfair Employment Practices.

The changes are also reflected in the most current version of the Handbook for Employers – Guidance for Completing Form I-9 (M-274) which is available online at: https://www.uscis.gov/book/export/html/59502/en.

Today, July 26, 2017, the Department of Labor issued a Request for Information seeking notice and comment from the public before issuing revised proposed regulations regarding the minimum salary level required to meet the executive, administrative, and salary level exemption from the overtime requirement. As discussed in previous blogs, the DOL issued regulations last year that increased the salary level requirement, which had been last updated in 2004, from $455 per week to $913 per week.  The regulations were scheduled to become effective December 1, 2016.  However, a district court in Texas issued an injunction that prohibited the regulations from becoming effective. See Nevada, et. al. v. U.S. Department of Labor, et. al., 218 F. Supp. 3d 520, 534 (E.D. Texas 2016).  The appeal of that injunction is currently pending.  The DOL has stated that it does not intend to pursue the salary level of $913 per week which was a part of last year’s rule.  In fact, the Request for Information states that “[t]he Department is aware of stakeholder concerns that the standard salary level in the 2016 Final Rule was too high.”

The Request for Information seeks comment on eleven issues, which are summarized as follows:

  1. Whether updating the 2004 salary level for inflation would be an appropriate basis for setting the level (and, if so, what measure of inflation to use), or whether applying the 2004 methodology to current salary data would be appropriate? It also asks whether using either salary level require changes to the duties test, and, if so, what those changes should be?
  2. Whether the regulations should contain multiple salary levels, and, if so, how the levels should be set (size of employer, geographical region, etc.).
  3. Whether there should be different salary levels for executive, administrative, and professional exceptions, and what the impact would be on employers and employees.
  4. Whether the standard salary level should be set within the historical range of the short test salary level, long test salary level, or should it be based on some other methodology?
  5. Whether the standard salary level in the 2016 Final Rule works effectively in the standard duties test or whether it eclipses the role of the duties test, and at what salary level does the duties test no longer fulfill its role in determining exempt status.
  6. What were employers’ reactions to the 2016 final rule in terms of whether they increased salaries to retain exempt status, decreased employees’ hours so that they didn’t work overtime, converted workers from salary to hourly, or made changes to workplace policies limiting employee flexibility to work after normal working hours or to track work during those times?   What was the impact of these changes?
  7. Would a test that focuses solely on the employee’s duties be preferable to the current salary test? If so, what would the duties test be, and would it include examination of the amount of non-exempt work performed?
  8. Does the salary level test in the 2016 final rule exclude from exemption particular occupations that were traditionally exempt, and, if so, what are those occupations? Do employees in those occupations perform more than 20% or 40% non-exempt work per week?
  9. Should the regulations allow non-discretionary bonuses and incentive payments to satisfy the standard salary level and, if so, what would be an appropriate limit?
  10. Should there be multiple total annual compensation levels for the highly compensated employee exemption? If so, how should they be set (size of employer, census region, state, metropolitan statistical area, etc.)?
  11. Should the standard salary level and total annual compensation level (for highly compensated employees) be automatically updated on a periodic basis and, if so, what mechanism should be used for the automatic update, and whether automatic updates should be delayed during periods of negative economic growth.

The Request for Information can be found here.

As this blog previously covered here and here, the United States Department of Labor under President Obama cracked down on misclassification of workers as independent contractors and broadly interpreted who was considered a “joint employer.” Today, new U.S. Secretary of Labor Alexander Acosta announced that the DOL would withdraw its previously-issued guidance from 2015 and 2016 on these topics. You can find the announcement here.

This should be welcome news for most companies as the previous guidance took an expansive view of when a worker is considered an “employee” (as opposed to an independent contractor) and when a company is considered an “employer” of a particular worker (particularly in the context of temporary hires and workers employed through staffing agencies). Interestingly, as you can see here, the DOL has removed the previous guidance from its website altogether.

However, it is important to note that the actual significance of this announcement is difficult to predict and remains to be seen. First, as the announcement makes clear, this is not really a change in the law per se because the guidance was only the DOL’s interpretation of the law. But, this announcement does signal that the DOL under Secretary Acosta will be taking a different approach to the concepts of joint employment and independent contractor classification. Second, it is unclear how this announcement affects the fact sheets and other DOL “guidance” on its website.

As to the issue of classifying a worker as an employee or an independent contractor, the FLSA (and the DOL’s interpretation of it) is only one of many things to consider. For instance, the Internal Revenue Service and the South Carolina courts have their own interpretation of what constitutes an “independent contractor,” and employers would be wise to tread carefully when making classification decisions as the penalties for misclassification can be steep.

As to the joint employment issue, the Fourth Circuit (which includes South Carolina) has developed its own test to determine when an entity is a joint employer for purposes of Title VII liability. The Fourth Circuit’s test is outlined in detail in this blog post and the announcement from the DOL will not impact this decision.

Since the election, employers have wondered what to expect from Donald Trump, particularly with significant changes like the new overtime rule that is now sitting in limbo. On December 8, 2016, Donald Trump named Andrew Puzder as his planned nominee for Secretary of Labor.  So, what does that mean?

In many ways, Puzder fits what one might expect as a Trump nominee. Puzder is a business man.  He has served as CEO of CKE Restaurants (the parent company of Hardee’s and Carl’s Jr) since 2000.  Before that he served as the company’s General Counsel.  Puzder’s track to CKE is somewhat interesting.  He practiced law as a commercial trial lawyer in St. Louis from 1978 through 1991, where he met Carl Karcher, the founder of CKE.  At the time, Karcher was experiencing significant financial issues and asked Puzder to be his personal attorney.  Puzder is credited with resolving these issues and allowing Karcher to retain a significant ownership interest in the company while also avoiding bankruptcy.  Puzder was named Executive Vice President and General Counsel for CKE in 1997, and CEO in 2000.  He is credited with turning around CKE.

Puzder has consistently voiced opposition to what he has called “overregulation” and the “regulatory burdens” of the Obama administration. For example, in writing on his blog about a recent speech, Puzder stated that President-elect Trump’s win can help change “the impact of overregulation on the restaurant industry, jobs, and the economy . . .”  He further wrote that “[i]n order to lower the burdens businesses face and to create strong economic growth, we need a new set of policies.”  Puzder specifically attacked “Obamacare” for its “increased labor costs for businesses.”[1]

Puzder has also opposed an increased minimum wage specifically, as well as the new overtime rule which more than doubled the salary level required to meet the FLSA’s executive, administrative, and professional exemption. In fact, on May 18, 2016, the day that the overtime rule was released, Puzder wrote an opinion in Forbes voicing his opposition. “This new rule will simply add to the extensive regulatory maze the Obama Administration has imposed on employers, forcing many to offset increased labor expense by cutting costs elsewhere.  In practice, this means reduced opportunities, bonuses, benefits, perks and promotions.”[2]

I personally saw Puzder speak in May 2014 at the DRI Retail and Hospitality Litigation and Claims Management Seminar. He spoke passionately about his frustrations over the regulation imposed by the Obama Administration.  His passion on the topic seemed to catch many in the audience off-guard.  Little did I know the man on stage would later be nominated as Secretary of Labor.  With Puzder at the helm of the DOL, employers can expect a much more pro-employer approach and that Puzder will work towards reducing the compliance costs incurred by employers.

[1] Available at http://andy.puzder.com/

[2] Andrew Puzder, “The Harsh Reality of Regulating Overtime Pay,” (May 18, 2016) (available at: http://www.forbes.com/sites/realspin/2016/05/18/the-harsh-reality-of-regulating-overtime-pay/#415bd30b2321).

Late Tuesday, November 22nd, a federal judge issued an order that effectively pauses the new “overtime rules” that had been scheduled to take effect December 1, 2016. The ruling enjoins the Department of Labor from implementing or enforcing the new “overtime rules” on a nationwide basis “pending further order” of the court. It is important to remember that the ruling is not final. Rather, it is a preliminary injunction that suspends the new rule during the litigation or further order form the court.

It is very likely that the rule will ultimately be enforced because its promulgation could be found to be within the Department of Labor’s authority granted to it by Congress when the Agency was created. For more on the power of administrative agencies, see this post. However, at least for the time being, employers are granted a reprieve from the new rule. Thus, employers may continue to follow the “old” rules for now if they choose. But, what should you do? This is a tougher question that will depend largely on your particular situation. There is no one-size-fits all approach. If you have not notified your employees of changes that will be made to their pay or their classification status, then you may wish to hold off on implementing any changes until further notice.

On the other hand, if you have already implemented changes to comply with the new rules, such as raising salaries to maintain exempt status, you should carefully consider whether it is prudent to leave those changes in place, despite this ruling. There are many factors that should be weighed, such as employee morale and South Carolina state law on providing notice of decreasing an employee’s pay. For those employees that have been reclassified as “non-exempt” you may want to continue classifying those employees as exempt for the time being.

After much anticipation (as discussed previously on our blog here), the final rule regarding the salary threshold for exempt executive, administrative, professional and outside sales and computer employees under the Fair Labor Standards Act was announced today.  The good news is that the rule does not go into effect until December 1, 2016, so employers have time to assess and comply.  The difficult news for employers is that the threshold, while slightly lower than originally anticipated, is still more than double the previous salary requirement for classifying employees as exempt.  The final rule also includes an automatic increase.

As of December 1, 2016:

  • Exempt employee salary level is $47,476 (current threshold is $23,660)
  • Total annual compensation level for highly compensated employees (HCEs) is $134,004 (current threshold is $100,000)
  • Salary level will automatically increase every three years based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage Census region (the South) beginning January 1, 2020 (HCEs will also automatically increase based upon the 90th percentile of full-time salaried workers nationally)

The final rule does not include any changes to the duties tests for exempt employees. However, your salaried employees must meet the duties test and be paid at least the annual salary set by the new rule in order to be exempt from overtime regulations. More information on the final rule can be found at the Department of Labor’s website at https://www.dol.gov/whd/overtime/final2016/index.htm.

Employers must quickly review those employees classified as exempt and determine if a salary adjustment will be needed or if the salaried employee needs to be reclassified come December 1, 2016. Employers need to review their current policies regarding overtime, communicate changes effectively with their employees and properly train the non-exempt employees and their managers who will be affected by this new change.  Additionally, employers need to be prepared to handle the three-year automatic hike and consider changing annual reviews and compensation changes to be timed with the January 1st timeline.

On Monday of this week, the U.S. Department of Labor (“DOL”) took the next step in finalizing its proposed new overtime regulations by sending its final rule to the White House Office of Management and Budget (“OMB”) for review. [1]  This latest move from the DOL came earlier than anticipated and signals the DOL’s eagerness to finalize this rule prior to the November elections.

The OMB now has up to one hundred and twenty (120) days to review, but could finish its review early. This could mean a final rule as early as April or May. The final rule will be published in the Federal Register and take effect within sixty (60) days of publication. The SHRM announcement on this new development can be found here.

We will continue to provide updates on this important new regulation as they become available and urge employers to prepare now for the rule’s implementation.

[1] You can find our previous posts on this topic here and here.