The United States Supreme Court settled a controversy that had been brewing for half a decade as to whether the Federal Arbitration Act (“FAA”) made enforceable individual agreements to arbitrate employment-related claims in the face of the National Labor Relations Act (“NLRA”) which is seen to protect individuals’ rights to join together and participate in protected “concerted activity” under Section 7 of the NLRA. In a 5-4 decision, written by Justice Neil Gorsuch, the Court found such class or collective action waivers in arbitration agreements to be enforceable and overturned the decision of the Seventh Circuit in Epic Systems Corp. v. Lewis, (7th Cir. 2016), while resolving a split in the Circuits on this issue. With the resolution of this uncertainty, many other employers may consider individual arbitration agreements, waiving class or collective action, for their employees. Continue Reading A Significant Victory for Employer Use of Individual Arbitration Agreements
In a prior post, we discussed the Department of Labor’s issuance of a new final rule that expanded disclosure requirements for companies that hire union avoidance consultants. The Department’s new “persuader” rule required employers to report the hiring of such consultants whenever these third parties engaged in indirect persuader activities (e.g., planning employee meetings, training supervisors to conduct meetings, and drafting or providing speeches to be made to employees), whereas the previous rule required disclosure only when the consultants engaged in direct contact with workers.
Subsequent to the DOL’s publication of the final version of the rule in late March, business groups and law firms sued to invalidate the rule. Several states joined the case later as intervenors. On November 16, a federal judge in Texas entered a “permanent injunction with nationwide effect,” blocking the DOL from enforcing the rule. Judge Sam R. Cummings of the Northern District of Texas, had previously issued a preliminary injunction relating to the rule back in June. In that earlier ruling, the Court had found that the rule effectively eliminated the Labor Management Disclosure Act’s advice exemption, was arbitrary capricious, and constituted an abuse of discretion. In last week’s decision, the Court granted the Plaintiffs’ summary judgment motions and converted the preliminary injunction into a permanent injunction.
The Obama administration now faces the decision of whether to appeal the ruling, as they did with the Court’s preliminary injunction. However, it is unlikely that the Fifth Circuit Court of Appeals would make any rulings on these issues prior to the inauguration of President-elect Donald Trump, after which the Department’s positions and strategy may change dramatically. We will continue to keep you apprised of developments related to the persuader rule.
Executive, Professional and Administrative employees are exempt from overtime requirements if they meet three tests: the salary level test; the salary basis test; and the duties test. As I am sure you have heard, new overtime regulations raise the required annual salary level from $23,660 to $47,476 (or $913 each week). Under the new salary level test, which goes into effect on December 1, 2016, exempt employees paid less than $47,476 no longer qualify for exempt status. So what is an employer to do? Here are some potential options:
1. Retain Exempt Status. Increase the employee’s annual salary to at least $47,476 and the employee will remain exempt. Please note, however, that the rules establish a mechanism for automatically updating the salary and compensation levels every three years; thus, you may be required to again increase the employee’s salary in three years to meet the new threshold. Additionally, the employee still needs to meet the duties test, and this is a good time to review compliance with that test. This is the only option that does not require the employer to track the employee’s work hours.
a. Example. Currently an exempt employee has an annual salary of $41,600 ($800 weekly) and, therefore, no longer passes the new salary test. Employer raises the employee’s annual salary to $47,476. Employee retains the exemption from overtime pay under the new regulations.
2. Convert to Hourly. Convert the exempt employee from a salary to an hourly wage and begin paying overtime for more than 40 hours worked in a week. The employer must begin tracking the hours worked by the employee. Overtime hours can be controlled by limiting or forbidding overtime without the employer’s express approval.
a. Example. Currently exempt employee has an annual salary of $41,600 ($800 weekly). Employer converts the employee to the equivalent hourly wage of $20 an hour ($800 ÷ 40 hours). The employee’s overtime rate would be $30 an hour ($20 x 1.5). Thus an employee who works 45 hours during one week would be paid $950 (($20 x 40 hrs) + ($30 x 5 hrs.)). Assuming the employee averages working 45 hours a week during a year, this equates to an annual salary of $49,400 ($950 a wk x 52 wks). Under these particular facts, it would be cheaper to pay the employee the $47,476 annual salary and have the employee remain exempt.
3. Remain Salaried, but Pay Overtime. Have the employee remain on a salary, but pay overtime when the employee exceeds 40 hours in a workweek. This will require the employer to track the employee’s time. The regular rate will be calculated by dividing 40 hours into the weekly salary and then paying 1 ½ times that amount for overtime hours. This may be a good option where an employee enjoys the status of a salaried employee and doesn’t want to become an hourly employee. Overtime hours can be controlled by limiting or forbidding overtime without the employer’s express approval.
a. Example. Currently exempt employee has an annual salary of $41,600 ($800 weekly). Employer retains the employee at this salary, but pays the employee overtime for any hours worked over 40 in a week. The employees overtime rate would be $30 an hour (($800 ÷ 40) x 1.5). Thus, an employee who works 45 hours during one week would be paid $950 ($800 + (30 x 5)). Assuming the employee averages working 45 hours a week during a year, this equates to an annual salary of $49,400 ($950 x 52). Please note that the employee is paid the same amount whether he is paid hourly or paid a salary. Under these particular facts, it would be cheaper to pay the employee the $47,476 annual salary and have the employee remain exempt.
4. Fluctuating Workweek Plan. Use the Fixed Salary/Fluctuating Work Week plan, which is approved by the DOL regulations. Under this plan, the employee is paid a fixed salary that covers the straight time for all hours worked, including overtime hours. Thus, overtime is paid at a ½ time rate (compared to 1 ½ time rate) for the hours worked over 40 hours. Under this plan, the regular rate must be calculated each week (by dividing the total number of hours worked by the fixed salary). Certain conditions, including prior employee agreement and paying the same salary when the employee works less than 40 hours in a week, are necessary to use this plan. Continue Reading Employer Options Under the New DOL Regulations