United States: How Contemplated Changes To The White-Collar Exemptions' Duties Tests Could Reward Your Poor Performers…And What You Can Do In Response

As you have no doubt heard, the Department of Labor's Wage & Hour Division ("WHD") has proposed revisions to the regulations defining which of your white-collar employees qualify as exempt from the Fair Labor Standards Act's overtime pay and minimum wage requirements. In addition to proposing that the minimum salary level for exemption be more than doubled (from its current level of $23,660 per year to approximately $50,440 in 2016), the WHD has asked the public to comment on (among other things) whether it should adopt a California-style bright-line test that requires employers to pay overtime to employees who devote more than 50% of their time to non-exempt work.

Although we remain optimistic that WHD will make no changes to the duties tests, it would be foolish to view WHD's proposal as taking such changes off the table. Accordingly, it is important for employers to be thinking about what WHD might do, based on the questions asked in the preamble. Thus, it is worth noting that WHD's question with respect to the California standard lacks any reference to language similar to California's regulations defining executive and administrative exempt employees: "The work actually performed by the employee during the course of the workweek must, first and foremost, be examined and the amount of time the employee spends on such work, together with the employer's realistic expectations and the realistic requirements of the job, shall be considered in determining whether the employee satisfies this requirement." (emphasis added).

The absence of any reference to this language is a good example of why WHD, in the event that it chooses to make changes to the duties tests, should propose—through a supplemental or additional rulemaking—specific regulatory language, complete with an explanation in the preamble and an appropriate economic impact analysis. These issues are far too important to be left to speculation.

The language we reference above is an important counterbalance to California's requirement that an executive or administrative exempt employee spend more than 50% of her time on exempt tasks. Why? Because of poor performing employees.

More often than not, it is a poor performer who sues his employer. Because poor performers are failing or refusing to perform the duties expected of them, they can testify with a straight face that they spent a high percentage of their time performing the same tasks as the non-exempt employees that they supervise. Similarly, it is easy for them to say that they did not perform many, if any, of the exempt duties that the employer's job descriptions, training programs, and performance evaluations made clear they should perform.

The WHD's current duties test cautions courts not to focus exclusively on the percentage of time an employee actually spends on various tasks; instead, it counsels consideration of which of the employee's duties are the most important or principal tasks. Yet, even under this current duties test, some courts have been willing to find that poor-performing employees have been misclassified based on their own testimony that they did not actually perform the duties they were supposed to perform. In other words, some courts have effectively ruled that an employer must pay overtime (and thus more total compensation) to a poor-performing employee—due to his inability or unwillingness to perform the exempt duties expected of him—than to an employee in the same job position who is performing the duties expected of the job position. To describe such an outcome as an unfair result for employers and high-performing employees alike would be an understatement.

If not counterbalanced by the requirement that courts consider the duties an employee is expected to or supposed to perform, a change to a California-style, quantitative duties test only increases the likelihood that a poor-performing employee could endanger the exempt classification of a job position due to his inability or unwillingness to actually perform the duties required of his position.

What Can You Do To Avoid Poor-Performing Employees Undermining the Exempt Status of Their Job Positions?

First, if you are planning to comment in response to WHD's Notice of Proposed Rulemaking, and, if you plan to address the questions related to the duties tests, you should note that any revisions to the duties tests for the white-collar exemptions that place a quantifiable limit on the amount of time that exempt employees can spend on non-exempt work, should be accompanied by language to the regulations making clear that, in quantifying the number of hours an employee spends on exempt and non-exempt work, an employer's expectations for the job position and the duties the employee should have performed must be considered because poor performance or the refusal to perform should not permit an employee to escape exempt status.

Second, because poor performers have been able to undermine the exempt status of job positions even under the current version of WHD's regulations, and will continue attempting to do so even if WHD does not revise the duties tests of the white-collar exemptions, you should consider how to reduce the risks that poor performers present. While the best methods for doing so will depend on several circumstances specific to your employees, organizational structure, and work environment, one or more of the following options will prove beneficial to most employers:

  • Clearly communicate to employees on a recurring basis through dissemination and re-dissemination of job descriptions, acknowledgments of competency requirements, training materials, counseling, and discipline the exempt duties you expect the employee to perform;
  • Implement a written performance evaluation process that evaluates employees based on the exempt duties they perform;
  • Include in the evaluation process a self-evaluation component where, again, the employees are asked to evaluate themselves on their performance of the exempt duties expected of them; and
  • Do not permit poor performers who fail to improve to remain in the exempt position.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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