The Proposed DOL Overtime Rule Changes in the Primary Duty Test

 

As you know, on July 6, 2015, the U.S. Department of Labor (DOL) published its proposed changes to the overtime regulations under the Fair Labor Standards Act (FLSA). Under the Act, to be exempt (from overtime), an employee must meet 3 requirements:

The employee must be paid a minimum weekly salary;

The employee must be paid on a salary rather than on an hourly basis. This means that only certain deductions are permitted from the employee’s pay for time not worked and no deductions are allowed based on the quality or quantity of work; and

The employee’s primary duty must be exempt in nature.

Last week, Jonathan Segal, a partner with the law firm Duane Morris LLP shared his knowledge about the proposed changes to the minimum weekly salary requirement (#1 of the 3 requirements above). As of yet, no changes have been proposed, with regard to the salary basis test (#2 of the 3 requirements). But the DOL has asked for feedback about #3 of the 3 requirements, also known as the primary duties test. So, I’ve asked Jonathan back to give us the scoop.

I’m grateful that Jonathan is so willing to take the time to do this. He does have a full-time job that I’m sure keeps him busy. Please remember that his comments should not be construed as legal advice or as pertaining to any specific factual situations. If you have detailed questions, they should be addressed directly with your legal counsel.

Jonathan, what is the primary duty test under the FLSA?

[Jonathan] Primary duty means the job’s ‘principal, main, major or most important function.’ It is a qualitative rather than a quantitative test, as is the case in California, where an employee can be exempt only if he/she spends more than 50 percent of his/her time performing exempt duties.

Under current federal law, an employee can be exempt even if he/she spends 50 percent or less of their time performing exempt duties, if such duties are the reason for their job. That could change. The DOL did not propose any changes but asked lots of questions about the primary duty test, indicating considerable concern that employees may be exempt but a relatively small portion of their time may be spent on exempt duties. The questions they seek input on include, but are not limited to:

What, if any, changes should be made to the duties tests?

Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?

Should the DOL look to the State of California’s law (requiring that more than 50 percent of an employee’s time is spent exclusively on work that is the employee’s primary duty) as a model?

Is some other threshold that is less than 50 percent of an employee’s time worked a better indicator of the realities of the workplace today?

What will the DOL do with the feedback it receives?

[Jonathan] That’s the great unknown. There are a number of options, but here are three approaches the DOL could take to the primary duty test for starters:

Leave the primary duty test alone.

Propose regulations that implement a quantitative test (similar to California.)

Implement final regulations that implement a quantitative test (like California.)

If the DOL were to follow Option #3, there would be challenges that proposed regulations must come first under the Administrative Procedures Act. While the argument has considerable merit, it could fail on the ground that the public was put on notice and has had an opportunity to respond.

I know you’re planning to share with readers how they can get involved. It is extremely important that employers respond on this very important issue. Can you imagine trying to gauge for each position the percentage of exempt work?! That’s already a nightmare for my California employers. It would become a nightmare for all employers! And, it’s not just the front end work. It is the inevitable back end litigation challenges.

Because quantitative requirements are easier to attack, they all but invite litigation. The dollars to defend the litigation have to come from somewhere so a potential adverse consequence of a major change in this area is that employers may need to reserve for litigation money that had been reserved for its employees in terms of compensation and benefits.

Are there any additional changes to the primary duty test that employers should be concerned about?

[Jonathan] Yes, the DOL asked a series of disturbing questions specific to the concurrent duties test for exempt employees. More specifically, the DOL asked:

Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption?

Alternatively, should there be a limitation on the amount of nonexempt work?

To what extent are exempt lower-level executive employees performing nonexempt work?

I think we can all see the direction the DOL wants to go. Whether they get there may depend on the comments they receive.

The current DOL regulation for executives (supervisors and above) recognizes that these individuals often do exempt and non-exempt work at the same time. This is particularly true in retail and in hospitality. For example, in retail stores, managers often supervise employees and stock shelves or perform other more menial tasks at the same time. This currently can count as exempt work toward the (qualitative) primary duty.

If the concurrent duty test is abolished, there may be smaller stores, for example, with no exempt supervisors. This result becomes even more likely if the California approach is adopted. Supervisors can walk and chew gum at the same time. For the same reason, the concurrent duty exemption must remain and comments in support of it are essential.

How do the proposed changes we discussed in the last post (to the minimum salary) relate to the questions being asked about the primary duty requirement?

[Jonathan] That is really the million dollar question. It is extremely difficult to plan when the DOL may have shared with us only part of what it is proposing to do. I am sorry to be jaded but the questions may be ambush proposals that would allow the DOL to issue final regulations on the primary duty without making specific proposals first.

Let’s assume, for example, that an employer has a group of employees that are in the gray zone under the current primary duty test. The employer wants to take a defensible risk and keep the employees as exempt so it raises their minimum salary now or in the near future.

Then let’s say sometime down the road, the DOL proposes or implements the California or another quantitative approach to the primary duty. Now, the employer is going to have to convert the employees to hourly (no longer gray) and pay time and one-half on a higher base rate.

Someone once erroneously said patience is a virtue. But we all are going to need patience until we see what the final regulations include (or don’t include).

You’ve been so great to share this with us. One last question, Is there anything else employers should be doing right now?

[Jonathan] Absolutely. You can bet those who want a higher minimum salary and a quantitative approach will be submitting comments. Those who create jobs, employers, are well advised to do the same. The Society for Human Resource Management (SHRM) is doing a great deal of effective work in terms of advocacy. I am really exited the last post in this series is with Mike Aitken, SHRM’s vice president of government affairs. His knowledge and strategic thinking is second to none, in my book.

A HUGE thanks to Jonathan for sharing his knowledge on this legislation. If you’re interested in keeping up with this topic, be sure to follow him on Twitter @Jonathan_HR_Law or read his blog at Duane Morris.

As Jonathan mentioned, the final post of the series will focus on what you can do to influence the conversation. As business professionals, we can impact what is happening. It’s our time to make a difference.

 

The SHRM Blog does not accept solicitation for guest posts.
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