Seyfarth Shaw (Photo: Diego M. Radzinschi/ALM)
The U.S. Labor Department has big decisions to make about regulations that will determine the overtime eligibility of millions of U.S. workers.
The Labor Department under Secretary Alexander Acosta has until Oct. 31 to decide whether to appeal a Texas court ruling that struck down an Obama-era rule that would have increased the overtime salary threshold for workers from $23,660 to $47,476. The regulation was set to take effect Dec. 1, 2016. Several states and the U.S. Chamber of Commerce sued to spike the rule.
The last update to the overtime regulation was in 2004. Acosta has acknowledged the salary threshold should be revisited. In court filings, the Labor Department argued in June for its authority to set a threshold but did not commit to the $47,476 salary, or $913 per week, that Obama’s Labor Department set. The final rule was the product of more than two years of discussion and hundreds of thousands of comments.
The Labor Department sent a request for information opening the floor for stakeholders and observers to propose changes to the rule. There were 157,587 total responses before the comment period recently closed. Some of the big questions included: Should the department appeal the Texas court’s ruling? How should the salary threshold be determined? Should multiple salary levels and automatic updates be considered? Should only duties be considered in determining overtime status?
Here’s a snapshot of what a handful of U.S. law firms—representing management and employees—told the Labor Department during the comment period.
Littler Mendelson | The employment-side firm took issue with the 2016 overtime rule for allegedly ignoring “Congressional intent” by shifting the balance of overtime status being determined by a minimum salary and the duties performed by the employee. The firm pushed for the salary threshold to be determined by the 2004 methodology, which calculates the 20th percentile for salaried employees in the South, the lowest-wage Census region, and retail industry. Under that level, the minimum salary level would be $32,000 per year, which the firm argues would screen out “obviously nonexempt employees.” The firm argued against multiple salary levels and different levels of exemption.
Littler Mendelson included a poll it conducted among companies. The survey touched on a question posted by the Labor Department about how companies are responding to the uncertainty surrounding this issue. “About half of the almost 900 responding employers implemented changes to comply with the 2016 final rule before the preliminary injunction was issued. Of the remaining respondents, 39.4 percent had made plans to comply, but did not implement; and 10.6 percent had taken no steps to comply.”
Fisher & Phillips | The firm argued against multiple salary levels and automatic updates to salaries. It pushed for a duties test of workers, which would set status of an employer based on what they do in that position, rather than a salary level. “As with the ‘salary basis’ concept, a salary-threshold requirement serves as a barrier to the exempt status or at least some employees who meet an exemption duties criteria. History has shown repeatedly that it is a fool’s errand to try to resolve an irresolvable question of whether the level is ‘too high,’ or ‘too low,’ or ‘just right,’ or should be set by region, by census area, with reference to employer size, and so on.”
Seyfarth Shaw | The firm supported the Labor Department using the 2004 methodology as well, which excludes from exemption roughly the bottom 20 percent of salaried employees in the South and the retail industry. It argued against multiple salary levels and also against a duties-only test, which would eliminate any salary level. “In sum, it is our view that the exemptions’ minimum salary level must be set at a level that satisfies its historical gatekeeper function. Indeed, since at least 1940, it has remained axiomatic that the purpose of the salary level is to ‘provid[e] a ready method of screening out the obviously nonexempt employees.’ To that end, the salary level should be set at a level that separates those who clearly would not meet a duties test from those who possibly could.”
The firm also stresses a need to address outstanding questions around overtime regulations. “Uncertainty concerning the implementation of the 2016 revisions to the EAP rules created chaotic circumstances for many employers,” the firm told the Labor Department. “Through all of this, it is clear to us that employees suffered as they awaited word of how their career paths would be impacted. Some enjoyed raises without having earned them through merit. Others were reclassified and had their hours reduced. Now that the rules were enjoined and have been declared inoperative, some employers have reversed the changes they made; some plan that reversal; and some will do nothing more. Anything they do will create risks of claims made by impacted employees.”
Rudy Exelrod Zieff & Lowe | The plaintiff-side firm principally argued that the Labor Department should appeal the ruling in the Texas case—Nevada v. U.S. Department of Labor—and continue to fight for implementation of the Obama-era rule. The firm argued the test used to set the 2004 regulation was flawed and resulted in roughly 700,000 workers being misclassified.
The firm argues that by the time the Labor Department released its proposed update to the overtime salary threshold in 2015, the applicable $23,660 threshold, set in 2004 without any mechanism for automatic increase, was below the poverty line for a family of four and covered just 8 percent of salaried workers.
“Revisiting the salary threshold from what is reflected in the 2016 final rule is a waste of time and resources that prioritizes the desires of corporate America above the needs of millions of working women and men who have already waited too long for the overtime pay they have earned,” the firm said in its letter to DOL. “The effect of the opinion is to disregard the department’s expertise and authority, overturning a valid exercise of rulemaking which Congress specifically delegated to the department.”
Nichols Kaster | Nichols Kaster, a plaintiffs firm, recommends the Labor Department adopt a threshold reflecting the 50th earnings percentile of full-time salaried workers rather than using the 2004 salary level as a starting point. The firm does not support different standard salary levels for executive, administrative and professional exemptions. It also argues for keeping the salary test and not just relying on duties and for automatic updates to the regulation moving forward.
“A significant increase in qualifying salary is necessary not only to account for the declining real value of the existing salary threshold, but also to correct for the fact that the department set the standard salary level in 2004 without adjusting for the elimination of the more rigorous long duties test. The $455 per week threshold ($23,660 annually) that the department set in 2004 is a prime example of how the salary level can become outdated and ineffective. In 2015, a worker earning $23,660 was under the poverty line for a family of four and yet still met the ‘white-collar’ salary threshold.”
State attorney generals from New York, California, Delaware, Illinois, Iowa, Maryland, Massachusetts, Vermont and Washington said they support the 2016 final rule. The coalition argues to keep a balanced salary test and the $913 per week threshold. The group criticizes a clause in the Labor Department’s request for information that says a review of the salary test will focus on “lowering the regulatory burden,” a directive from the Trump White House to federal agencies.
“The 2016 final rule does not require modification on the grounds set forth in Executive Order 13777; indeed, the 2016 final rule furthers President Trump’s job creation goals,” the state attorneys general said. They added: “An original purpose of the overtime requirement was to create a financial incentive for employers to hire more employees rather than requiring existing workers to work longer hours.
“We note that the 2016 final rule was the carefully considered product of a two-year deliberative process in which USDOL reviewed more than 270,000 comments from a broad array of constituencies, including unions, worker advocacy groups, small businesses, Fortune 500 corporations, state and local governments, and economists,” the attorneys general said in their letter, submitted by New York Attorney General Eric Schneiderman, to the Labor Department.
National Employment Lawyers Association | The group argued there should be a substantial increase in salary levels required to qualify for overtime, along with regular automatic updates to those salary levels. The association criticized the tenor of the Labor Department’s request for information, which the group said “suggests the possibility of fundamental changes that would depart from the historical positions and promulgations of the Department.” The group pushed for the DOL to appeal the Texas ruling and fight for the final rule the Obama Labor Department issued.
“We are disappointed by the department’s failure to more aggressively defend and implement the 2016 final rule, as well as by the poorly reasoned and erroneous decision of the Texas district court purporting to strike down the 2016 final rule. The department’s failure to defend the 2016 final rule vigorously and to indicate immediately that it would be appealing Judge (Amos) Mazzant’s rulings … represents an abdication of its mission and is irreconcilable with eight decades of regulatory history, during which the department issued and enforced comparable salary tests as a necessary and fundamental requirement for establishing” exemptions for executive, administrative and professional employees.