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Latest FLSA and EEOC Changes Drive Dramatic Shifts in Overtime, Classification and Discrimination

Published by on September 10, 2015

The summer of 2015 continues to be a busy time for federal agencies with responsibility for regulating employment matters. The Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC) issued new interpretations of key employment principles that are currently receiving significant scrutiny in both the judicial and political realms. In addition, the DOL […]

The summer of 2015 continues to be a busy time for federal agencies with responsibility for regulating employment matters. The Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC) issued new interpretations of key employment principles that are currently receiving significant scrutiny in both the judicial and political realms. In addition, the DOL announced that they intend to revise a key rule that will significantly change future wage claims under the Fair Labor Standards Act (FLSA).

On July 6, 2015, the DOL issued a Notice of Proposed Rulemaking (NPRM) proposing to revise one of the standards for determining if an employee is exempt from the overtime requirements of the FLSA. Under the current rule, one of the factors in determining if an employee is exempt is whether or not the employee is salaried.

Though not dispositive on its own, whether or not an employee receives a salary is a key factor in determining their exempt status. In order to be considered exempt, the employee must be paid a salary of at least $455 per week (approximately $24,000 annually).

The NPRM stated that the current salary level does not accurately represent the common wage rate paid to salaried employees in the current economy and proposed raising the minimum qualifying salary to $921 per week ($47,892 annually).

The DOL also suggested additional changes to the rules, proposing an automatic increase in the salary threshold over time to match evolving economic conditions and requiring that employees must perform exempt tasks (tasks associated with management, administration or assignments requiring professional skill) at least half of their time in order to qualify as exempt.

If this rule is instituted, the number of employees across the country who qualify for overtime pay will significantly increase. Basically, anyone making less than approximately $48,000 per year will be entitled to time and a half for all time worked over forty hours per week.Less than ten days later, the Administrator of the DOL’s Wage and Hour Division issued a new interpretation on the proper classification of individuals performing work as either an employee or an independent contractor.

According to the Administrator, the focus of the independent contractor versus employee evaluation has two parts:

First, whether the individual is “economically dependent” on the putative employer or truly in business for him or herself.

Second, whether the individual in question is operating under his or her own business initiative and exercises independent business judgment.

For example, can the individual exercise control over how they complete the job? One of the key indicators of economic independence and business judgment is whether the individual experiences profit and loss and can affect their profit margin in more ways than just by increasing the number of hours worked.

If the individual does not exert such independent judgment, the individual is an employee, not an independent contractor. This interpretation represents a potential sea change for businesses who rely on a business model or service delivery infrastructure made up of individual, independent contractors.

Under this new interpretation, these individuals are more likely to be classified as employees under the law and obligate the putative employer to provide additional benefits, like workers compensation coverage, health insurance and medical leave benefits.

Lastly, the EEOC further expanded Title VII’s coverage by holding that sexual orientation discrimination is already prohibited under Title VII as a form of sex discrimination. The Commission determined that although sexual orientation is not a protected class under the Act, Title VII specifically prohibits relying on “sex-based considerations” in employment decisions.

The Commission found that employers making decisions based, at least in part, on sexual orientation are also inherently inserting sex into their decision-making process. Therefore, the employment decision is covered by Title VII.

For example, two employees display pictures of their female spouses at their respective work stations. One employee is a homosexual woman and the other is a heterosexual man. If the woman is terminated for displaying the picture, but the man is not, the terminated employee could argue that her former employer would not have fired her – but for her sex.

According to the Commission, the issue is not with the female employee’s sexual orientation, but with the fact that the employer treated opposite sex employees who performed the same action differently.

Laconic Lookout:

While the three agency actions address different employment issues, the common thread is clear. Federal agencies want to expand the coverage of federal employment laws and increase the range by which compliance actions are pursued. Employers should act now to avoid future problems under these key agency actions.

Specifically, employers should review the job responsibilities and pay structures for salaried employees to ensure that individuals intended to be exempt from the FLSA are fulfilling predominantly exempt job tasks under the Act and are being paid at least $48,000 per year. It is unlikely that the DOL will reduce its proffered salary threshold now that an NPRM has been released.

In addition, companies relying on individuals working as independent contractors should review their working arrangements to ensure that the alleged contractors are economically independent and exercise independent business judgment.

One key indicator is whether the alleged contractor actually has their own business and/or specifically seeks contract-based work. If the alleged employee has no control over their profit beyond how much work they perform for the alleged employer, the DOL could find that an employment relationship exists.

Lastly, the easiest method for complying with the EEOC’s latest decision is to discipline all employees equally for all policy violations or otherwise prohibited conduct. Employers should ignore the individual’s intrinsic characteristics and focus instead on the action under scrutiny.

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