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Proposed overtime rules take the middle road


The U.S. Department of Labor’s long-awaited overtime proposal was apparently conceived to ensure as smooth an enactment process as possible, experts say.

The proposal issued by the department earlier this month avoids any controversial issues likely to lead to litigation that might stall its enactment, say experts.

These include clauses on periodic escalation of salaries, geographical distinctions and a change in job duties, experts say.

In part because of this, observers generally expect the proposal to go into effect as planned in January 2020. The Obama administration generated significant controversy, which led to a federal district judge in Texas striking down the proposal.

“Basically, the department’s proposal is about as plain vanilla as you can get for a wage-and-hour proposal these days,” said Paul DeCamp, a member of Epstein Becker & Green P.C. in Washington. “It is difficult for anybody, regardless of where they are on the issue, to be too upset about this proposal.”

The department suggested employers must pay overtime to workers who earn less than $679 a week, or $35,308 per year. This is an increase from the $455 threshold, or $23,660 a year, under the current standard, which was set in 2004, but less than the $913 a week, or $47,476 annual salary, that had been proposed by the Obama administration.

Experts point out that the proposed hike falls in the middle between the current level and the Obama administration’s proposal.

The current proposal will impact a little more than a million people, “whereas the prior proposal was going to affect more than 4 million workers,” Mr. DeCamp said.

The department, which said it reviewed more than 200,000 comments as part of a 2017 request for information on the issue, is now seeking comments on the proposal.

Unlike the Obama administration proposal, which called for updating the threshold every three years, the Trump administration proposal would not include an automatic adjustment mechanism. Instead, the proposal says the department plans to propose updates to the earnings thresholds every four years.

Marc Freedman, vice president for workplace policy at the U.S. Chamber of Commerce, which had filed litigation against the Obama administration proposal, said, “We think it’s a reasonable salary threshold approach.”

“I think they did it with a goal of not making any waves,” said Mr. DeCamp. “This DOL is a particularly no drama-focused department.” Secretary of Labor Alexander Acosta “is a cautious, careful incremental kind of guy,” he said.

“He doesn’t want to take big risks. He doesn’t want to issue proposals that are going to draw a lot of criticism, so he is revising these regulations in a fairly straightforward, incremental and transparent manner,” Mr. DeCamp said.

“What they’ve done here is very much consistent with what the secretary has been saying for about two years now, in terms of the salary level and the other aspects of the regulation,” he said.

The salary threshold was higher than some people thought it would be and lower than some had hoped, said Jonathan A. Segal, a principal with Duane Morris LLP in Philadelphia. “Maybe that means it’s just about right,” he said.

“There aren’t many people who are going to be affected by this,” said Eric B. Meyer, a partner with FisherBroyles LLP in Philadelphia, adding relatively few professionals make less than the proposed threshold of $35,308 a year.

The proposal under the Obama administration of increasing the threshold to $47,476 was “more meaningful. I assume (the Trump administration proposal) was done to ruffle as few feathers as possible,” he said.

Among the potential controversies the proposal avoids is not suggesting an automatic escalator. “The DOL is separating that out” to avoid litigation that would block the entire proposal, said Mr. Segal.

The department did not respond to a request for comment.

“If they had put in an escalation clause, that would have made it more likely for the employer side to sue,” agreed Susan Harthill, a partner with Morgan Lewis & Bockius LLP in Washington.

There was also some speculation, which did not come to fruition, that the rule would reflect regional differences, and the higher wages paid, for instance, in the Northeast compared with Southern states.

In the Northeast, most employers already pay their exempt workers more than the proposed threshold, so to an extent the proposed rule would only have an impact on the fast food industry in that region, said Ellen C. Kearns, a partner with Constangy, Brooks, Smith & Prophete LLP in Boston.

With respect to job duties, which the proposal would leave unchanged, under the current rule the employee's job duties must primarily involve executive, administrative or professional duties as defined by the regulations.

In 2004, when the current rule was promulgated, the Department of Labor “spent significant time reviewing the duties that were then in place and coming up with this idea of a primary duty,” which “has worked fairly well in determining whether someone is exempt or not,” said Ms. Kearns.

Many employers, particularly large firms, had already increased the threshold in response to the Obama administration’s proposal, experts say.

Businesses with more than 5,000 employers “have tended to be out in front of these issues, and those employers by and large made their changes in advance of when the Obama rule would have gone into effect, meaning those changes were in place before the court struck down the rule,” said Mr. DeCamp. Most of those employers did not then turn around and undo the change.

“However, a lot of smaller employers did not implement the change in the first place, or they went back once the court in Texas invalidated and restored their old practice, so there are plenty of smaller employers that converted people twice in a relatively short period of time from exempt to nonexempt, and back to exempt.”

Observers also point out that many states and localities, including New York and California, already have rules in place that require even higher thresholds.

“Some states, such as California and new York, already have higher minimum salary requirements,” said Mr. Segal.

In New York State, for instance, outside of New York City, Nassau, Suffolk and Westchester counties, the salary threshold is $832 a week or $43,264 annually.

In Nassau, Suffolk and Westchester counties it is $900 per week or $46,800 annually, and in New York City for firms with 11 or more employees it is $1,125 per week or $58,500 annually.

In California it is $960 weekly, or $49,920 annually.






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