The Department of Labor's release of the new exemption regulations appears imminent. As we have reported in a number of posts, these new rules are expected to nearly double the minimum annual salary level required for employees under the administrative, executive, and professional exemptions (currently $23,660 to between $47,000 – $50,440); impose an automatic annual (or, possibly, less frequent) indexing to inflation; and significantly increase the highly compensated employee exemption (now set at $100,000). Once issued, these new rules will significantly change employee eligibility for overtime and will impact virtually all employers operating in the United States. The rules are likely to become effective within 60 – 120 days, or possibly longer.
The overtime rule amendments will be the first major revisions to the "white collar" exemptions since 2004. Those modest changes in the regulations resulted in a dramatic increase in wage and hour litigation at that time. Consider this: in 2003, the year before the last amendments, the number of federal court wage and hour filings stood at 2,751, according to the Annual Report of the Director, Judicial Business of the United States Courts; a year later, in 2004, that number jumped to 3,617, an increase of almost 32%, followed by another double-digit percentage increase in 2005 to 4,039, up nearly 12%.1
With that as a backdrop, we have been predicting another surge in new wage and hour lawsuits following the anticipated new rules this month. That prediction has now been underscored by an article published late last week by the Bloomberg BNA Daily Labor Report. That article, "Plaintiffs' Bar Plans Outreach on Overtime Changes," leads with the not-so-subtle statement by an attorney at a well-known plaintiff-side law firm, "Once the regulation's done, that's only the beginning..." Reportedly, these lawyers are planning to "educate" employees about the requirements of the regulatory changes through techniques that may include "using radio, television and online advertising." We can only assume that the aim of such "education" is to find new clients, who then become plaintiffs against employer-defendants.
Where Plaintiffs' Counsel Are Looking
This effort may initially focus on previously exempt employees who, because of the minimum salary level increases, are reclassified as non-exempt. In some cases, these employees may continue to be paid a set weekly salary but for work limited to 40 hours per week, a perfectly lawful method of pay for non-exempt employees. Both employers and employees paid in this manner may not realize, however, that an overtime premium is due for work over 40 hours in a week, notwithstanding the salary method of pay.
Additionally, reclassified employees may feel that they are expected to continue performing the same duties they had as exempt employees, when they regularly worked more than 40 hours a week. As non-exempt employees, company policies may prohibit them from working beyond 40 hours without supervisory approval and will typically require them to keep track of and record their work time accurately. Those who fail to do so may be disciplined and may also later argue that they were denied overtime pay and seek compensation for such time, as well as liquidated damages, attorneys' fees, and, under some state laws, penalties and interest.
As plaintiff-side attorneys "switch their focus from outreach to enforcement," this article reports, new lawsuits will be filed for past alleged violations uncovered from increased scrutiny given to wage and hours issues more generally, in addition to alleged overtime violations seen as arising from the new rules. This is likely to result in claims alleging exempt status misclassification and off-the-clock unpaid work. "[T]his will only add to the recent swelling of private FLSA litigation," and a further "surge in overtime pay lawsuits," commented one labor and employment lawyer for this story.
Further adding to this expected spike in new wage and hour lawsuits is likely to be dissatisfaction among newly reclassified non-exempt employees who may see their reclassification as a form of demotion and reduction in status. Morale issues may follow, which could adversely impact productivity and may also provide an incentive among those workers to seek legal redress.
What Happened the Last Time the Regulations Changed?
It is no surprise to employers that wage and hour laws—both federal and state—are complicated, often difficult to apply, and the source of potentially crippling exposure from collective and class actions. In the decade following 2005, lawsuits under the FLSA and state laws have continued to increase in record numbers, more than doubling in federal court filings, alone (from 4,039 to 8,781 in 2015). We have discussed the causes contributing to this escalation in previous posts. As discussed, the 2004 amendments and the publicity that surrounded them led to an increase in awareness of the FLSA and state wage and hour laws. Other causes include:
- The vague and ambiguous text of the FLSA and DOL regulations, adopted in 1938 and amended just nine years later with the Portal-to-Portal Act of 1947;
- The workplace and our economy at that time were extremely different from now, and applying those legal requirements to today's businesses is difficult and presents issues, the answers to which are often unknown and unknowable as courts struggle to reach consistent decisions; and
- Large settlements and verdicts have given employee attorneys an incentive to focus more on procedurally advantageous collective actions in which the plaintiffs' burden in obtaining conditional certification is lower than Rule 23 class certification and often easier to prove than claims of employment discrimination.
The same ingredients that led to the sharp increases in wage and hour litigation a dozen years ago are present today. The plaintiffs' bar is gearing up by aiming its attention on the risks and hurdles that employers will face in complying with the soon-to-be released new regulations. The challenge for employers is to understand their current wage and hour policies, practices, and job classifications and how the new rules are likely to impact them. The opportunity is to plan for the implementation of the likely changes to the law so that necessary workforce adjustments can be made thoughtfully and consistently based on business goals and culture.
As we near the release of the new regulations, we repeat what we have said many times before: employers should assess their pay practices and classification decisions through an audit conducted by experienced in-house or outside wage and hour counsel. As plaintiff-side lawyers plan for another wave of wage-hour lawsuits, employers are well advised to take steps now to reduce their chances of becoming future litigation targets. We also invite you to visit Seyfarth Shaw's FLSA Exemption Resource Center for more information and resources for employers on the new regulations.
1 The source for all statistics of case filings in federal courts reported in this article is the Annual Report of the Director, Judicial Business of the United States Courts, available at http://www.uscourts.gov/statistics-reports/caseload-statistics-data-tables?tn=c-2.
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