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A new Department of Labor rule that doubles the salary threshold at which white collar workers are entitled to overtime pay looks to increase wage-and-hour litigation against employers.
The long-awaited rule, introduced last week and effective Dec. 1, raises the threshold below which white collar workers are entitled to overtime. The new threshold is $913 per week or $47,476 annually for a full-time employee compared with the current $455 per week or $23,600 annually.
The promise for much of the past century to American workers has been that they would get overtime for working above 40 hours a week, the Labor Department said in a statement. “We are taking action that will make that promise a reality again for more of America's workers.”
The federal agency said the overtime rule would immediately affect about 4.2 million workers. Currently, about 7% of full-time salaried workers get overtime versus 62% in 1975. The new overtime threshold is expected to increase that to 35% of full-time workers, the Labor Department said.
However, experts say the changes also are expected to result in more litigation.
“I think it's going to trigger a slew of litigation,” said Robert A. Boonin, a member of law firm Dykema Gossett P.L.L.C. in Detroit.
Mistakes in the way time is kept or misunderstanding about bonuses could be sources of such lawsuits, he said.
One entirely new aspect in the rule allows employers to count nondiscretionary bonuses and incentive payments that include commissions made at least quarterly to satisfy up to 10% of someone's salary.
“The most significant litigation development is likely to be class actions on behalf of employees who are entitled to overtime payments and don't get them because now you have millions of employees who are entitled” to these payments, said Richard D. Glovsky, a partner at Locke Lord L.L.P. in Chicago. “If a company gets it wrong, they'll have a big problem.”
“There will probably be a spike of litigation because of the publicity and employees who think they are not being paid right,” said John E. Thompson, a partner at Fisher & Phillips L.L.P. in Atlanta.
He added there was a spurt of litigation in 2004 — the last time the white-collar overtime-exempt threshold was adjusted — and “there will probably be some lawsuits challenging the changes” that just have been made.
The Labor Department said the $913 per week/$47,476 per year threshold also will be adjusted every three years starting Jan. 1, 2020.
Already, “we have a ton of wage and hour litigation,” said Michael J. Killeen, a partner at Davis Wright Tremaine L.L.P. in Seattle. Even if just 1% of the 4.2 million new people entitled to overtime file suit, “it's going to add up to a lot of claims.”
A July 2015 report by New York-based NERA Economic Consulting said wage-and-hour settlements, which include unpaid overtime and other issues, totaled more than $3.6 million between January 2007 and the first three months of 2015.
“It's very likely employers will adjust their operations and pay practices to try to keep their labor costs as static and level as possible,” said Matthew S. Disbrow, a partner at Honigman Miller Schwartz & Cohen L.L.P. in Detroit. Still, most employees “will not realize a substantial increase in their pay” and some may even see a reduction, he said.
“Employers are going to have to be doing some fairly detailed analyses of what to do with that population of people,” Mr. Disbrow said.
“This is something that is going to have a traumatic effect on small businesses, nonprofits, higher education, public agencies, local businesses and other organizations that don't have excess revenue” to pay the higher wages, Mr. Killeen said.
The Labor Department said employers have several ways to comply with the revised overtime rule: increase an employee's pay to maintain their overtime-exempt status; pay them overtime above 40 hours a week; reduce their hours to avoid overtime; reduce their base pay but pay them overtime above 40 hours; or some combination of the options.
Observers say it's unlikely that Congress would try to overturn the rule and, even if they voted to do that, President Barack Obama would veto such a bill.
Furthermore, “I don't think here's much question this is within the DOL's statutory authority under the regulations,” said Shannon D. Farmer, a partner at Ballard Spahr L.L.P. in Philadelphia.-
"Oh, boy!" That's likely to be the understandable reaction to many employers in reaction to the new U.S. Department of Labor overtime regulation issued last week. The overtime rule increases the threshold below which workers are entitled to overtime to $913 per week, or $47,476 annually for a full-time worker, from $455 per week or $23,600 per year.