Developments in wage and hour law made major waves for employers this summer. They include: (1) proposed new overtime regulations from the U.S. Department of Labor (DOL); (2) an announced crackdown by the DOL on employers who engage independent contractors; (3) new federal court standards for assessing whether unpaid interns should be paid like traditional employees; and (4) a minimum wage hike for certain New York employees. For those who may have missed any of our prior reports this summer, here is a recap, with links to more in-depth analysis.
1. DOL Proposes Regulations that Dramatically Expand FLSA Overtime Eligibility
On June 30, the DOL released its highly anticipated proposed revisions to the Fair Labor Standards Act's (FLSA) overtime exemption regulations, representing the first major proposed change to federal overtime law in more than a decade.
The DOL's proposal would more than double the minimum salary an employee must earn to even be eligible for exemption from the FLSA's overtime pay requirements – from just under $24,000/year ($455/week) to $50,440/year ($970/week). This new salary threshold corresponds to the 40th percentile of earnings for all full-time U.S. salaried workers. In addition, the proposed regulations would allow the DOL to automatically raise the salary threshold annually, without the need for any further, formal rulemaking procedures, thereby enabling the DOL to keep pace with 40th percentile statistics as they may change going forward. The only welcome surprise for employers in the DOL's proposal is that it does not seek to modify the "duties" tests associated with the FLSA "white collar" overtime exemption categories, although some speculate that the DOL may roll out revamped "duties" tests at a later date.
Before the DOL's proposed regulations become final, they are subject to a public comment period (open now) and finalization. Whatever iteration of the regulations ultimately is adopted, the final regulations are not likely to take effect before mid-2016.
Click here for our prior post containing more extensive coverage and analysis.
2. DOL Proclaims "Most" Independent Contractors Are Unlawfully Classified
On July 15, the DOL's quest to expand the number of employees eligible for overtime pay under the FLSA continued, with the agency issuing an "Administrator's Interpretation" (the Memo) concerning which workers may lawfully be classified as independent contractors instead of employees. The Memo is ostensibly meant to provide "guidance" for employers on the standards federal courts use to assess proper independent contractor classifications, although it reads more like a plaintiff-side summary judgment brief than any neutral presentation of actual federal case law.
Per the Memo, an employer must classify a worker as an employee if (s)he is "economically dependent" on the employer. Only if the worker is not economically dependent on the employer, but is, instead, "in business for him or herself," may the employer classify the worker as an independent contractor. The Memo identifies six factors that employers should consider when making this determination, including: whether the work performed is an integral part of the employer's business; whether the worker's managerial skill affects his/her opportunity for profit or loss; whether the work performed requires special skill and initiative; and the extent to which the employer controls the manner in which the work is performed. Interestingly, the Memo de-emphasizes the "control" factor – i.e., whether the worker is subject to direct supervision and can set his/her own schedule. The DOL warns that employers should not give this factor "undue weight" when deciding how to classify a worker.
Although there is no certainty regarding the level of deference courts will afford the Memo (if any), employers would be wise to give it serious attention, as it makes plain that the DOL is eager to prosecute and punish employers that have misclassified any of their independent contractors.
Click here for our prior post containing more extensive coverage and analysis.
3. N.Y. Federal Court Makes Landmark Ruling on the Rights of Unpaid Interns
On July 2, the U.S. Court of Appeals for the Second Circuit issued a new test for determining whether interns must be treated and paid like regular employees. Rejecting the "rigid" test previously laid out by the DOL, the Second Circuit ruled that the answer hinges on whether the employer or the intern is the "primary beneficiary" of their relationship. Under this malleable standard, an employment relationship is created when the benefits provided to the intern are greater than the intern's contribution to the employer's operations.
The court also held that, under its newly announced "primary beneficiary" test, "the question of an intern's employment status is a highly individualized inquiry," casting doubt on whether wage and hour claims by interns will ever be appropriate for class or collective action treatment.
It remains to be seen whether the DOL or its New York state counterpart will issue new guidance to align with that of the Second Circuit. For its own part, the New York Department of Labor previously enumerated 11 factors to determine an intern's employment status.
Click here for our prior post containing more extensive coverage and analysis.
4. N.Y. State Fast Food Workers Likely To Win $15-Minimum Wage Raise
On July 22, a three-person wage board (the Board) convened by New York Governor Andrew Cuomo revealed formal proposals to remedy perceived wage inequality in the state's fast food industry. As many in the business community had feared, the Board proposed increasing the minimum wage rate for "fast food employees" to $15/hour – an increase to be phased in over three years for workers in New York City, and over five-and-a-half years throughout the rest of the state.
Despite unanimous praise for the Board's proposals by worker advocates, the business community is expected to challenge the legality of the proposals before implementation.
Click here for our prior post containing more extensive coverage and analysis.
What's the Takeaway for My Company?
The wage and hour landscape is as lively as ever. Employers nationwide should brace for a slew of changes in the next year – if not in the next few months – that could dramatically impact their operations and workplace policies. It is more important than ever for employers to stay in regular contact with experienced counsel to discuss these issues, and to prepare a cogent plan for facing head-on the constantly changing legal standards in this area.
This article is presented for informational purposes only and is not intended to constitute legal advice.
