HR Connection: Important updates from employment law summer camp

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Do you have fond childhood memories of summer camp? Leaving home for a few days and going to a place where you always had an exciting time? You didn’t have to take the trash out, mow the lawn, or eat vegetables like brussels sprouts and spinach. You stayed up late, ate junk food from the camp store, and participated in seemingly non-stop fun activities with camp counselors and friends you hadn’t seen since last year. That’s how I feel every March when I attend “summer camp” for employment law geeks, the SHRM Employment Law and Legislative Conference in Washington, DC. (However, to clarify for my wife, I did eat my vegetables and had absolutely no junk food — especially not Hostess cupcakes and chocolate milk when I got back to my hotel at night.)

This conference was especially memorable because my friend Louis, a talented labor attorney from NJ, and I were selected to present a breakout session on the National Labor Relations Board. I also got to catch up with Tammy McCutchen, former federal Department of Labor (DOL) Wage and Hour Division (WHD) administrator, and preeminent employment law attorney. As usual, my conversation with Tammy was packed with valuable information and insights on Fair Labor Standards Act (FLSA) issues.

The overtime rule

A perfect storm is brewing and only a few are paying attention. You may remember that in 2017 a federal District Court (E.D. Texas) invalidated the Obama administration’s revised FLSA overtime rule, giving the Trump administration what most thought to be exactly what it wanted. However, in his ruling Judge Mazzant held the DOL lacked the authority to “use a salary-level test that will effectively eliminate the duties test,” nor could the Agency “categorically exclude those who perform ‘bona fide executive, administrative, or professional capacity’ duties based on salary level alone.” Conceding he was bound by Fifth Circuit precedent, which holds the DOL has authority to implement a minimum salary requirement, Judge Mazzant clarified that he was addressing only the 2016 rule’s salary level test.

Recognizing some broad language in the opinion was out of sync with such a narrow ruling and concerned the ruling could cast doubt on its authority to utilize a salary threshold for FLSA exemptions, the DOL, through the Department of Justice, appealed the ruling to the Fifth Circuit. Next, the DOL requested the appeal be put on hold while it “undertakes further rulemaking to determine what the salary level should be.” According to its timeline, the DOL plans to issue a new Notice of Proposed Rulemaking in October 2018.

From McCutchen’s perspective, DOL self-imposed deadlines “are never met … ever. If they publish [a proposed rule] in October 2018 it will be a freaking miracle.” Even with a “freaking miracle,” a final rule wouldn’t be effective until late 2019 — assuming all parts of the process follow a necessarily tight timeline.

Without several freaking miracles, “all of a sudden we’re in 2020,” says McCutchen. That’s when the perfect storm could move ashore. “What happens if Republicans don’t win back the White House [without] a new final rule? You’ve got the Fifth Circuit appeal alive and well, and now that [Democrat] DOL is going to defend that [$47,000] salary level very vigorously.” A successful defense of the 2016 rule results in the Fifth Circuit lifting the injunction, and the DOL issuing a compliance mandate within 30 days. Back to where we started, with a minimum weekly salary of $913 ($47,476 annually), or more. Unlikely? Maybe, or maybe not. Remember, there was no way the rule wasn’t going into effect on Dec. 1, 2016.

PAID?

The federal government is fascinated with catchy names for legislation. Not to be left out, the morphological gurus at the DOL appear to have reverse engineered this acronym.

The WHD announced the Payroll Audit Independent Determination (PAID) program on March 6, 2018. Initially a six-month national pilot, the yet-to-be implemented program’s stated objective is to “improve employers’ compliance with overtime and minimum wage obligations, and to ensure that more employees receive the back wages they are owed — faster.” Open to all FLSA-covered employers, except those with a history of repeat violations, the program can’t be used to resolve existing or imminent litigation or WHD enforcement actions. PAID offers eligible employers an opportunity to address potential FLSA violations proactively, as well as avoid penalties and protect against threats of litigation by the DOL and individual employees.

Under PAID, employers first conduct a self-audit of pay practices. If FLSA violations are uncovered, employers must: (1) specifically identify potential violations, (2) identify affected employees, (3) identify timeframes in which each employee was affected, and (4) calculate the amount of back wages owed to each employee. Employers will also be required to verify audit practices and commit to adjusting pay practices to avoid repeating the violations. Once finalized by the DOL, employers will be expected to pay 100% of the outstanding wages owed by the next regularly scheduled pay period.

Touted as a win-win for employers and employees by the WHD’s acting administrator, Bryan Jarrett, the program has critics on both sides. Employee advocates are calling the program a get-out-of-jail free card for employers, claiming employees won’t get the remedies they deserve. Employers are skeptical as well, expressing concerns that participating in the program will lead to litigation by employees, result in future targeting by the DOL, and fails to resolve state law issues.

McCutchen, an enthusiastic proponent of the program, allayed these concerns. First, most employees will happily take the money. If an employee does refuse the payment, they will have the right to file suit against the employer. However, “if they go to court, the DOL is going to be there saying, ‘This is the amount the employee is owed.’ This puts a powerful witness in [the employer’s] pocket.” Secondly, the DOL is “looking for employers who want to do the right thing.” There are enough bad actors out there to keep the DOL busy without intentionally going after employers who have acted in good faith to report and correct a problem.

Lastly, McCutchen explains what she did to address the state law issue under a similar, less publicized DOL program offered to employers in 2009. “When I helped employers, I went to the California and New York labor departments and entered into separate agreements with them. The state DOLs were fairly welcoming and didn’t ask us to do anything different than we had with the federal DOL.”

Frank A. Cania, M.S.Emp.L., AWI-CH, SPHR, SHRM-SCP, is president of driven HR – A USA Payroll Company. Located in Pittsford, NY, driven HR provides human resource consulting services including HR audits, outsourced HR management, employee handbooks, employee training, and a variety of other services. Frank concentrates on FLSA, FMLA and PFL, ADA, Title VII, and Form I-9 compliance, as well as workplace investigations. This article is brought to you by the Rochester affiliate of the National HR Association, a professional HR organization focused on advancing the careers and workplace leadership of HR professionals.