WASHINGTON (Legal Newsline) – As the largely bipartisan debate continues over the U.S. Department of Labor's (DOL) newly announced overtime rules that will benefit millions of employees, the early winners will be attorneys, a former DOL official said in a recent interview.
"It’s hard to say what the long-term impact will be, but in the short-term, it will almost certainly result in an increase in lawsuits," Alexander Passantino, former acting administrator of the Department of Labor’s Wage and Hour Division, said during a Legal Newsline email interview.
"The media attention surrounding the increase raises awareness of these issues, which causes people to ask questions about their status. If the employee doesn’t get a satisfactory answer, he or she may seek out an attorney."
Passantino, who was a DOL acting administrator from 2007 to 2009, is a partner member of Seyfarth Shaw's D.C. office, leading the firm's Wage and Hour Litigation Practice Group.
Litigation over the DOL's new rules also will arise when employees find themselves reclassified as a result of the rule, Passantino said.
"An employee may wonder why she gets overtime now when she didn’t before," he said. "If the employer mishandles that question, and the employee seeks counsel, that mishandled question may grow into a lawsuit. It is critical that employers develop a comprehensive reclassification and communication plan as they go through this process."
Employers should also be wary of unpaid overtime, Passantino said.
"Once employees have been reclassified as non-exempt/overtime-eligible, there may be an uptick in off-the-clock-type cases," he said.
"In these cases, an employee alleges that he worked 50 hours as an exempt employee, but once reclassified was told to perform the same job in 45 hours, to limit the employer’s overtime costs. The employee then claims to have recorded 45 hours per week, but to have worked the additional five hours without clocking in, so he would not be criticized or disciplined for a decline in performance."
Any increase in litigation over the new overtime rule may be short-lived, Passantino said.
"Of course, it is also possible - as DOL suggests - that the increased salary will eliminate some of the more borderline exemption decisions, which will reduce litigation," he said. "To the extent that happens, it is likely a longer-term result."
The new rule, announced by the DOL last week, will require employers to pay white collar workers overtime if they earn $47,476 or less a year. That's more than twice the present rule of $23,660 earned per year by "exempt" employees. Employees "exempt" from overtime differ from manual laborers and other nonexempt employees who are legally required to be paid overtime at all earnings levels.
These revisions to the Fair Labor Standards Act (FLSA) also set up automatic updating salary and compensation levels every three years "to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption."
The new rule is set to become effective Dec. 1.
Over this past weekend, President Obama said during his weekly address that the new rules will extend overtime protections to 4.2 million more U.S. workers and will boost wages for working Americans by $12 billion over the next 10 years.
"This is the single biggest step I can take through executive action to raise wages for the American people," Obama said during his address. "It means that millions of hardworking Americans ... will either get paid for working more than 40 hours, or they’ll get more time with their families. Either way, they win. The middle class wins. And America wins."
Predictably, the resulting debate has been along partisan lines. U.S. House Speaker Paul Ryan, R-Wis., took to Twitter and issued his own statement criticizing the new overtime rule.
"This regulation hurts the very people it alleges to help," Ryan said in his statement. "Who is hurt most? Students, nonprofit employees and people starting a new career. By mandating overtime pay at a much higher salary threshold, many small businesses and non-profits will simply be unable to afford skilled workers and be forced to eliminate salaried positions, complete with benefits, altogether."
Whatever might result from that debate, Passantino told Legal Newsline that employers can take certain steps to prepare for the new overtime rule.
"In the interim, employers can raise the salaries of exempt employees to keep them exempt, or they can decide to make those employees overtime-eligible," he said. "Whether a particular employer does so with respect to any employee or group of employees will be based on a wide variety of factors, including the employees’ current compensation, the amount of overtime the employees will be expected to work and the operational needs of the business."
Employers also can take advantage of DOL rules that allow employers to satisfy up to 10 percent of the new salary with commissions, non-discretionary bonuses and other non-discretionary incentive pay.
"As long as those payments are made at least quarterly and the employer 'trues-up' any shortfalls on a quarterly basis," Passantino said. "This is a new, and potentially helpful, development for employers.
Passantino also said there is a streamlined exemption test for highly paid employees.
"The minimum amount required for that streamlined test will be increased from $100,000 to $134,004," he said. Finally, the department included a provision that would automatically update the minimum salaries every three years."
Passantino said he is pleased by some parts of the new rule but not others.
"While I’m certainly pleased that the rule does not change the duties tests and did not go as far as expected on the salary increase, the new rule ultimately will cause heartache for employers and employees alike," he said.
"The department estimates that, of the 4.2 million currently exempt workers impacted by the rule, about 100,000 will get salary increases and remain exempt. The remaining 4.1 million workers will - in the department’s analysis - be reclassified as non-exempt. Determining the work hours of non-exempt employees -- particularly knowledge workers and new entrants into the management workforce -- is fraught with peril."
Some of that heartache will result because of the different environment today, compared to the rule's last significant update more than 50 years ago, Passantino said.
"Smartphones, remote network analysis and telecommuting simply were never contemplated by the regulations, which were last updated in any significant manner in 1961," he said.
"Application of the legal concepts is complicated - and risky - enough that many employers simply choose to limit remote access and smartphone use by their non-exempt workforces. So, the rule will put 4.1 million new employees into situations that limit their flexibility and require them to record their working hours."