The Department of Labor Changes the Rules for Eligibility for Overtime Compensation
Employment lawyers have been talking about overtime compensation ever since President Obama announced in June of 2015 that he wanted to propose a rule that made a salary of $50,440 as the minimum amount that an employee had to make in order to be deemed by his or her employer as exempt from overtime. Stated another way, President Obama contemplated a scenario where employers had to pay overtime to any and all employees who made less than $50,440 whether that employee was paid by salary or not; whether that employee’s title was manager or not. The final rule has now come out and the minimum salary threshold for exemption from overtime for any employee is slightly less than the initial proposed amount: it is now $47,476. The rule will go into effect on December 1, 2016. Bottom line: if you are an employee who makes less than $47, 476, you must be paid overtime compensation at a rate of 1.5 times your regular rate for any hours worked over 40 during any given week. If you are such an employee, you may find yourself having to use a time clock when you arrive and leave the workplace like an hourly worker. For some, it will come as a shock, especially for those who have titles like manager or assistant manager. If your employer fails to pay you overtime, you have a claim for unpaid compensation that can become substantial in a short period of time and renders liable not only the company but any supervisors who have the power to fire you and/or set your schedule.
But let’s take a step back and understand from a very aerial point of view overtime compensation and exemptions thereto. The correct statement of federal law on compensation (note that there are state laws on compensation with which employers must also comply) is that all employees are owed overtime when they work more than forty hours a week, unless the employer can prove that they qualify for an exemption. The familiar exemptions are for: (1) executive employees; (2) administrative employees; (3) professional employees; (4) computer employees; (5) outside salesperson employees; and (6) highly-compensated employees. Each of these exemptions contemplate employees who are considerably high on an organization’s chart or have a high level of discretion in performing their tasks or have pursued considerable higher education before commencing their profession. In addition to salary requirements, each of the exemptions has requirements in terms of the duties in which each kind of exempt employee primarily engages. While employers have the burden of proving that a particular employee qualifies for a specific exemption from overtime if that decision is ever challenged in a lawsuit, nonetheless, the exemptions have been stretched considerably by companies trying to keep their payrolls in check. Witness the frequent use of salaried assistant managers in retail stores who are required to work more than 40 hours per week. In many instances, they spend the majority of their time performing tasks that hourly employees perform rather than those of a bona fide exempt employee (i.e., stocking shelves or working the register). They do so at a cheaper rate because they are not owed overtime. While the new regulations will not prevent this use (some might say abuse) of assistant managers, it will require employers to provide them with a more generous salary.
So what exactly are the new rules?
1. The minimum salary for exempt employees is increasing to $913 per week or $47,476 per year.
2. The new minimum salary amount will be reviewed and potentially raised every three years, beginning on January 1, 2020.
3. 10% of the new minimum salary amount for all of the exemption categories (excepting that for highly-compensated employees) can be comprised of nondiscretionary bonuses and other incentive payments, including commissions, provided that such payments are made at least quarterly.
4. The minimum threshold salary amount for the highly-compensated employee exemption is now $134,004 rather than $100,000.
In light of the new set of rules regarding exempt employees, employers should confirm that those employees who they view as exempt do, in fact, make the new required minimum salary when the rules go into effect in December. If you are a salaried employee after December 1, 2016 and do not get overtime, confirm that your employer is paying you at least $47,476 per year.
As you can tell from this very brief description of the new rules regarding minimum salaries of exempt employees and the description of who, in fact, qualifies as an exempt employee, this area of the law is potentially very confusing. Because managers who have the power to hire or fire or set work schedules of employees may be individually liable for unpaid overtime compensation, they should spend some time between now and December reviewing and understanding the new rules. Otherwise, they will be giving employees and their lawyers the opportunity for a windfall. In the area of overtime compensation, the pendulum has swung in favor of employees.
If you have any questions about the new Department of Labor rules regarding overtime compensation or more general questions about compensating employees, especially if your business is in New York or Connecticut, feel free to contact one of the lawyers at Cardi & Edgar LLP.
Disclaimer: Cardi & Edgar LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Attorney Advertising.
Arbitration Agreements Are A Must
It is well known that the plaintiff’s bar in New York, Connecticut and elsewhere continues to pursue claims arising under the Fair Labor Standards Act and parallel state law with great enthusiasm. To cite a few examples of these claims, workers may argue that they worked over 40 hours per week but were not paid an overtime rate for that work. Or New York workers may argue that their start and finish time extended longer than 10 hours and were therefore owed spread-of-hour wages that they did not receive. Or workers may argue that they were misclassified as salaried, exempt employees when they were not in fact and therefore all hours worked over 40 hours per week should have been paid at an overtime rate. Faced with these sorts of claims, employers are likely to feel very threatened because damages can become outsized very quickly. The statute of limitations under New York Labor Law relates back six years. The statute of limitations for Connecticut wage claims relates back two years. Further, any monies owed could be subject to what is called liquidated damages, which operates as a penalty equivalent to 100% of the money allegedly owed under most scenarios. In New York, an employer might be subject to double liquidated damages, as many courts have ruled that a violation of wage and hour provisions entitles the plaintiff to liquidated damages under both federal and New York State labor laws. To this threat of outsized liability, add the fact that employers, especially smaller companies, do not staff full-time Human Resources departments, which means that often employers do not maintain sophisticated records to support their contention that they paid their employees properly and the correct amount. If an employer is hit with a misclassification claim, there would be no record of overtime hours worked because the employer would have operated under the assumption that there was no need to track such hours. Therefore, employers with imperfect or no records are confronted with a classic “he said, she said,” scenario, with a presumption that operates in favor of the employee. In short, wage and hour claims are a nightmare for employers and their management teams who might find themselves personally liable for any wages owed.
All of which begs the question, why don’t more employers implement arbitration agreements with respect to employees’ or ex-employees’ claims against them? It is a simple and elegant solution to the continued drumbeat of FLSA, NYLL and Connecticut labor law claims that continue to be brought against employers. By way of example, New York employers can distribute to their employees an arbitration agreement that is memorialized in writing and that is stand alone, i.e., not a part of an employee manual. Or, New York employers can incorporate an arbitration requirement into an employment manual that already exists or that is being introduced for the first time. In most instances, all that the employer needs to do is to reduce the arbitration requirement to writing in one form or another. If the employee continues to work for the employer after being made aware of the arbitration requirement, then the requirement to arbitrate is enforceable. In Connecticut, courts are a bit more suspicious of arbitration requirements implemented in the workplace. They appear to look for clear indications that employees agreed to the arbitration requirement as a condition of their employment. In New York, employers will nonetheless want to guard against factual disputes as to whether each employee was made aware of the arbitration agreement and/or requirement by having each employee sign an acknowledgment of having received the agreement or the manual of which it is a part. While this is not strictly necessary it may spare a New York employer any litigation as to whether a specific employee was made aware of the agreement/requirement to arbitrate. In Connecticut, because of courts’ suspicions of arbitration requirements employers need to implement them with much more care. At the risk of sounding like I am drumming up business, Connecticut employers wishing to implement an arbitration requirement should consult with an attorney.
While an enforceable arbitration agreement/requirement may not discourage all attorneys from representing employees with alleged FLSA and state labor claims, it is likely to discourage quite a few. Further, arbitration agreements/requirements can also include a provision that requires the arbitration of class and collective actions, both of which can get expensive awfully quick.
So employers – consider including arbitration agreements/requirements in your employment manual or as stand-alone agreements with your employees. Just make sure you note that the agreement does not affect the otherwise “at will” status of your employees.
Disclaimer: Cardi & Edgar LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Attorney Advertising.