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The complex set of rules employers use to determine which of their workers are entitled to overtime pay is slated to undergo its biggest overhaul in half a century, in what many see as an effort to stem a wave of costly litigation. Last month, the U.S. Department of Labor took the first step toward revising federal wage-and-hour regulations when it unveiled proposed changes to the Fair Labor Standards Act. The proposed changes raise the minimum salary for an employee to be considered a “white-collar” worker, and simplify the job description tests that confer white-collar status. The white-collar distinction is important, since it exempts an employee from receiving overtime pay. “This will help employers have a better understanding as to who is and who’s not entitled to overtime pay,” said Alfred Robinson, a senior policy adviser in the DOL’s wage and hour division. But many employment attorneys say the changes actually make it easier for businesses to deprive workers of overtime pay. The proposed changes “are clearly an attempt by the Bush administration to water down overtime protections that have existed since the 1940s,” says Rudy, Exelrod & Zieff’s Steven Zieff. “It’s shocking in certain ways that the Department of Labor would be making these kinds of proposals.” The proposed changes are currently undergoing a 90-day comment period, and could take effect in 2004. According to Robinson, the changes are designed to bring the FLSA, which was passed by Congress in 1938, up to date with the realities of the modern workplace. For example, the proposed regulations eliminate archaic job descriptions like “gang leader” and “straw boss.” And by bumping up the minimum white-collar salary requirements to $22,000 a year, the DOL says an extra 1.3 million low-wage workers will automatically be entitled to overtime pay. Overtime exemption has become one of the most highly litigated areas in employment law over the past couple of years, as workers around the nation have brought class actions claiming they were misclassified and thus unfairly deprived of overtime pay. For businesses that are found liable, the cost of repaying hours of overtime pay to multiple class members can be enormous. In 2001, Zieff won a case representing insurance adjusters for Farmer’s Insurance for $90 million. Since then, many businesses have settled the cases. “It’s been costing California employers millions and millions of dollars,” says Seyfarth Shaw partner Brian Ashe. Some attorneys see the proposed changes as part and parcel of other recent litigation-reform initiatives such as medical malpractice caps. “This is just another tentacle of the actions of a much more business-friendly administration that has heard what its business constituencies want,” says Bingham McCutchen partner Michael Loeb, who represents employers in wage and hour cases. “By getting rid of some of the vague standards, this goes a long way towards making it more difficult to mount a collective action under the FLSA,” says Loeb. The proposed changes streamline the current regulations. In addition to salary level, a worker’s overtime exempt status is determined by various tests which analyze the employee’s job duties. Instead of the long and short tests currently on the books, the proposed regulations feature only a single, short test. The short test is designed to be more straightforward. For instance, under existing law, secretaries are considered white-collar employees if they regularly exercise “discretion and independent judgment” — a standard that has been subject to various interpretations. The proposed regulations instead consider whether the worker holds a “position of responsibility,” which is defined as work of substantial importance or requiring a high level of skill or training. But while the proposed regulations may roll back wage-and-hour litigation on a national level, the effect in California is likely to be more muted since the state has its own set of wage-and-hour laws, considered by many to be much more employee-friendly. “If I were representing employers and I was not in the state of California,” says Loeb, “I would be very pleased with these proposed changes.”

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