OHIO CHAPTER OF CUPA-HR MICHAEL N. CHESNEY, ESQ. 200 Public Square, Suite 3000 Cleveland, OH (216) FLSA UPDATE April 7, 2016

DON’T KILL THE MESSENGER

AGENDA Brief Refresher on FLSA’s Primary Requirements Current Proposed Changes to FLSA Concerns/Issues Raised by Proposed Changes Suggested Actions Other FLSA/DOL Developments (if time permits….)

BRIEF OVERVIEW OF FLSA

OVERVIEW OF FLSA Enacted in 1938, federal wage and hour law that governs minimum wage, overtime pay, and child labor protections Covers employers with greater than $500,000 in annual business or engaged in interstate commerce Coverage is interpreted broadly Covers most public and private sector employees States may enact laws more protective than FLSA Chapter 4111 of the Ohio Revised Code

MINIMUM WAGE Current federal minimum wage for non-exempt employees is $7.25/hr. Ohio’s minimum wage is $8.10/hr. Limited exceptions to minimum wage. Exs.: Certain workers with disabilities (blindness, mental illness, alcoholism, drug addiction) Employees under 20 years old may be paid $4.25/hour in their first 90 days

MINIMUM WAGE Full-time students of colleges and universities can be paid 85% of minimum wage ‒Certificate from DOL required ‒Limited to 8 hours/day and 20 hours/week ‒Only when school is in session

OVERTIME Must pay non-exempt workers 1.5 times their “regular rate of pay” for all hours worked over 40 in a workweek “White Collar” Exemptions: Executive, Administrative, Professional ‒Paid on a “salary basis” ‒Paid a salary of at least $455/week ($23,660/year) ‒Job duties test Was streamlined in 2004

OVERTIME Computer Employee Exemption ‒Paid on a salary basis or hourly rate of at least $27.63/hour ‒Employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in computer field ‒Duties test Highly Compensated Employee ‒Total annual compensation of at least $100,000 ‒Relaxed duties test Outside Sales Employees

RECORDKEEPING REQUIREMENTS Basic list for non-exempt employees: Full name and SS # Address, including zip code Birthdate, if younger than 19 Sex and occupation Time and day of week when workweek begins Hours worked each day and each workweek Basis on which wages are paid (e.g., “$9/hour” or “$500/week”)

RECORDKEEPING REQUIREMENTS Regular hourly rate Daily or weekly straight-time earnings Overtime earnings for workweek Additions or deductions from wages Total wages paid each pay period Date of payment and pay period covered Must preserve records for at least 3 years

ENFORCEMENT, PENALTIES AND REMEDIES Two-year statute of limitations (three years for willful violations) Enforced by the Department of Labor, Wage and Hour Division Conducts investigations (e.g., employee complaints, targeted industries) Can assess back wages, liquidated (double) damages and civil money penalties Can pursue litigation in federal court

ENFORCEMENT, PENALTIES AND REMEDIES Private lawsuits by employees Seek back wages, liquidated damages, attorneys’ fees and costs Collective Actions under § 216(b) “Opt-in” actions “Opt-out” actions under state wage and hour laws Criminal actions by the Department of Justice May seek criminal fines and even imprisonment

PROPOSED CHANGES

BACKGROUND OF PROPOSED CHANGES March 2014 – Presidential Memorandum Directed DOL to “update” and “modernize” regulations Goal – increase overtime and minimum wage protections ‒In other words, more non-exempt employees July 2015 – DOL issues proposed regulations 60-day comment period commences Approximately 270,000 comments received

SUBSTANCE OF PROPOSED CHANGES Increase the minimum salary threshold for white collar exemptions to $970/week or $50,440 annually More than twice the current threshold Tied to 40th percentile for full-time salaried workers (using the CPI-U) Some estimates that could impact up to 15 million workers Increase minimum threshold for the highly compensated employee exemption to $122,148 Tied to 90th percentile for salaried workers

SUBSTANCE OF PROPOSED CHANGES Establish a mechanism to automatically, annually update (increase) the minimum thresholds Adjust annually to the 40 th percentile or inflation No changes to duties tests, but seeks comments regarding potential changes Speculation regarding adoption of California test DOL signaled concern regarding executive exemption (“working managers”)

WHEN WILL REGULATIONS TAKE EFFECT? DOL has said will take effect 60 days after publication March 14, 2016 – DOL sent “final” regulations to Office of Management and Budget (OMB) Normal OMB review timeline – 4-6 weeks No minimum review time for OMB, however Strong incentive to publish by May 16 (Congressional Review Act) Possibility of a summer effective date (approx. July) Other political considerations If published July 7 → effective on Labor Day If published early-September → effective just before election

ISSUES OF CONCERN New minimum thresholds are simply too high Do not account for differences in industries, geography, etc. Will result in wholesale reclassification of historically exempt positions DOL estimates 4.6 million in first year As noted, other estimates as high as 15 million Potentially crippling budgetary impact for employers Raising employees’ salaries to maintain exemption Absorbing OT costs for newly reclassified employees

ISSUES OF CONCERN Loss of workplace autonomy, flexibility, prestige, etc. Work-from-home, job sharing, flexible schedules Not all jobs fit an hourly pay model ‒Exs. Postdoctoral positions, coaches, recruiters Lost opportunities for professional development Perceived demotion or loss of status for employers Increased administrative burden and costs Tracking and recording time Ongoing uncertainty as to annual updates INCREASED LITIGATION

SUGGESTED ACTIONS Immediately identify exempt positions that fall below the new minimum threshold Consider who will get a pay raise to maintain exemption Consider who will be reclassified as non-exempt Factor in likelihood of future increases when making decisions For reclassified employees, study average hours for purposes of setting new pay rates

SUGGESTED ACTIONS Consider reclassifying other “vulnerable” positions Expect increased private litigation Expect stepped-up enforcement from DOL Ensure accurate timekeeping of all “hours worked” Train reclassified employees Train managers BYOD concerns ( s, texts, phone calls) Review and update policies and procedures Policies related to working OT Policies related to recording hours worked

SUGGESTED ACTIONS Communicate the changes Expect the unexpected Potential changes to proposed regulations ‒Change to salary threshold ‒Inclusion of non-discretionary bonuses ‒Changes to automatic, annual updates ‒Revisions to duties tests??? Timing of effective date

OTHER RECENT DEVELOPMENTS

NEW DOL TEST FOR INDEPENDENT CONTRACTORS New DOL “Administrator’s Interpretation” issued on July 15, 2015 Emphasizes that FLSA defines “employ” as “to suffer or permit to work” – very broad De-emphasizes historical “control” element Endorses “economic realities” test, which looks to 6 factors (excluding many formerly included): ‒Work performed is an integral part of employer’s business ‒Worker’s opportunity for profit/loss ‒Worker’s retained on permanent or indefinite basis ‒Worker’s investment relatively minor compared to employer’s

NEW DOL TEST FOR INDEPENDENT CONTRACTORS ‒Worker exercises business skills, judgment and initiative; and ‒Worker has control over meaningful aspects of work performed Concludes that “most workers are employees” Part of DOL’s ongoing initiative targeting misclassification of independent contractors Independent contractor status is disfavored

STUDENT ATHLETES’ LAWSUIT Berger v. NCAA – lawsuit filed by current and former members of U. Penn. women’s track team Alleged that they were employees of the University by virtue of their participation on the team Sought to certify a collective action under the FLSA and represent all current and former Division I student athletes In February, a federal judge in Indiana dismissed the claims – rejected arguments that claims should be analyzed under the DOL’s intern test Court pointed to the “revered tradition of amateurism” in college sports and noted the educational benefit to students