For most of the year, we have been discussing the upcoming FLSA regulations and what employers can expect related to the white collar exemptions. Recently, the DOL delayed the release of proposed rules, potentially for several months. The DOL’s announcement has raised a host of questions, some of which I discussed with SHRM’s legal editor, Allen Smith, this week. The DOL’s own “savage journey to the heart of the American Dream”—at least the part of it that defines how you must be paid while chasing it—continues to raise questions for employers (apologies to Hunter S. Thompson fans…I couldn’t resist). With Election Day upon us, it is a good time to take a deeper look at this issue and review some of the top questions we have received on this topic.
Are there any positive signs for employers that you can glean from the DOL taking more time to issue this proposed regulation, such as spending more time listening to employers?
You would certainly like to think that the DOL would take more time listening to employer input. However, I suspect this acknowledgment is simply a reflection of two things. First, the DOL and the Obama administration generally have limited resources to prepare, vet, and approve draft regulations. The DOL has been busy recently, having just finished the process of promulgating a rule to implement the President’s Executive Order on the minimum wage for federal contractors. Second, there was little chance that the DOL was going to take action at any time prior to or immediately after the midterm elections. As I discuss below, this timeline isn’t that far off of the 2004 timeline when the Bush administration undertook a similarly far-reaching rewrite.
Does the announcement have a downside or create more uncertainty for employers about where the white-collar exemptions are headed?
I don’t see any downside. If anything, it is a brief respite for employers—a few more months under the current regime. Revised regulations are a matter of when, not if, for employers. The Presidential Memorandum to the DOL, as well as Secretary Perez’s comments earlier this year on the issue, are pretty clear about the two areas that will almost certainly change: the minimum salary and the job duties tests. We discussed these in more detail here on the blog back in April.
What changes should the DOL make?
Honestly? Start over. Congress has not made a substantial revision to the FLSA since at least 1983, and before that since the 1960s (the Contract Work Hours Standards Act, Equal Pay Act, and the ADEA). Congress has frankly ceded too much authority to the DOL to legislate, which is the root of so much of the uncertainty surrounding revisions to the white collar exemptions (both now and in 2004). The result is byzantine, complex, and counterintuitive laws and regulations, complicated by inconsistencies in state laws. The FLSA also fails to account for how the U.S. workforce has changed in 75+ years. In July 1939, according to data available from the Bureau of Labor Statistics, manufacturing employment (one component of goods-producing industries) was 9,231,100, while total goods-producing employment was 11,447,000. By comparison, in July 1939, service-producing industries employed 19,115,000. However, in July 2014 (the latest final data from the BLS), manufacturing employed a seasonally adjusted 12,154,000, while goods-producing industries overall employed 19,118,000. In July 2014, service-producing industries employed 119,889,000. The FLSA and its regulations have never been updated to reflect this shift to a service-based economy.
What’s the big picture here? Will DOL still have enough time to issue a final rule in Obama’s administration?
The big picture is that this is a temporary reprieve. Employers have not dodged the bullet; exactly when we can expect a final rule is in flux, but whether we will see one is not. Any proposed rule in early 2015 would give the DOL nearly two years to consider any public comments and to prepare a final rule for approval by the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). At the very earliest, a proposed rule released in January/February 2015 could lead to a final rule by late spring or early summer next year. To put this in perspective, the 2004 regulatory change took over 18 months to implement from announcement to final rule, and we’re not even to the 12 month mark yet with this proposed change. The real wildcards will be the 2016 elections and, after a rule is promulgated, the inevitable legal challenges to any revisions, either or both which could potentially delay their implementation further.