The U.S. Department of Labor has proposed the most significant revisions to the regulations governing America's workforce since the passage of the Fair Labor Standards Act of 1938 ("FLSA"). Many administrations in the past thirty years, both Democratic and Republican, have attempted to significantly revise the FLSA and failed. It appears that this attempt might be successful despite some efforts by opponents to prevent the revisions through congressional action.
These new regulations will impact every employer in the United States, and will have some specific impact upon outdoor advertising employers in the areas of outside sales employees and creative professional employees. While this article summarizes the changes proposed by the Department of Labor and is intended to give a preview of the impact these changes will have, businesses would be well-advised to seek the counsel of an attorney experienced in laws governing the workplace to determine what specific changes should be made to their compensation practices.
Revising Job Duties for Exemptions
The proposed regulations revise job duties required to qualify for the exemption to better correspond to the modern workplace. The old regulations, written in 1949, mention job classifications that no longer exist, such as key punch operators, straw bosses, leg men and gang leaders. Clarifying which job duties qualify for overtime pay will help workers and employers easily determine overtime entitlement for millions of workers whose status is currently unclear.
The proposed rule retains the current "short test" reliance on an employee's primary duty as the standard for determining exempt status. It jettisons the long-inactive "long test" rule restricting exempt employees from devoting more than 20% of time in a workweek performing non-exempt duties. With respect to the three primary exempt categories of executive, administrative and professional employees, the result of the changes can be summarized as follows:
- Executive Duties: The proposed executive duties test has three requirements: managing the enterprise; directing the work of two or more employees; and having authority to hire or fire (or such recommendations are given particular weight).
- Administrative Duties: The proposal would replace the "discretion and independent judgment" test, which has been the subject of confusion and litigation, with a new test that employees must hold a "position of responsibility."
- Professional Duties: The proposal recognizes as exempt "learned professionals" certain employees who gain equivalent knowledge and skills through a combination of job experience, military training, attending a technical school or attending community college.
Of particular importance to the outdoor advertising industry are the proposed revisions to the exempt categories of outside sales employees and creative professional employees. Many outdoor advertising firms utilize the outside sales employee exemption to classify their sales force as exempt. Under current regulations, outside sales employees cannot devote more than 20% of the hours worked to activities that are not incidental to and in conjunction with the employee's own outside sales or solicitations. The proposed regulations eliminate this requirement.
Many outdoor advertising firms also employ their own creative professionals to produce art for their clients' advertising. The new regulations raise the minimum salary basis test from $170 per week to $425 per week. If a business wants its artistic employees to be exempt from overtime, it must be prepared to pay them at least this amount. The new regulations also eliminate the following requirements:
- that the work be original and creative;
- that the result of work depends primarily on the invention, imagination, or talent of the employee;
- that employee use discretion and independent judgment;
- that the employee perform work that is predominantly intellectual and varied in character and is of such character that the output produced or result accomplished cannot be standardized in relation to a given period of time; and
- Prohibiting the employee from devoting more than 20 percent of his or her time to activities that are not directly and closely related to exempt work.
The proposed regulation requires simply that exempt creative professionals must have the "primary duty of performing work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor." These revisions will likely allow exemptions to go deeper into employers' art departments whereas previously they generally have been restricted to only upper levels of art department management.
As many employers are acutely aware, attempting to classify modern jobs into 50?year?old pigeon holes can be little more than a guessing game with severe consequences. If a large, national employer misclassifies a job category, it is subject to a collective action lawsuit from all workers in that category for unpaid overtime. Awards to individuals may be negligible, but can cost hundreds of millions in the aggregate and include paying for the plaintiffs' attorneys fees.
Raising Salary Threshold
For the first time since 1975, the Department's proposed regulations would raise the salary threshold - below which workers would automatically qualify for overtime - from $155 a week to $425 a week. Under current rules, an employee earning only $155 a week ($8,060 per year) can qualify as a "white collar" employee not entitled to overtime pay. This increase of $270 a week would be the largest since Congress passed the FLSA in 1938. The anticipated impact of this revision will be to increase the wages of 1.3 million lower-income workers and reduce the number of low-wage salaried workers currently being denied overtime pay.
Disciplinary Deductions for Salaried Employees
The regulations also propose to permit deductions from the salary of exempt employees for full-day absences taken for disciplinary reasons, such as suspensions for sexual harassment or workplace violence. Currently, only non?exempt workers' wages are subject to such deductions and making such deductions from exempt, salaried employees jeopardizes their status as exempt. However, the proposal retains the "salary basis" rule prohibiting deductions from exempt salary for partial-day absences or disciplinary suspensions.
Congressional Maneuvering
Not everyone on Capitol Hill is behind the effort to reform the FLSA; in fact, the regulatory changes have many opponents. Because the changes are regulatory and not statutory, some particularly artful congressional maneuvering is being attempted. Congressmen in the U.S. House of Representatives narrowly lost a vote, 213-210, on a bill designed to prevent the Bush Administration from moving ahead with proposed rule revisions to the overtime provisions.
Opponents were attempting to amend an appropriations bill to prohibit the Department of Labor from using fiscal year 2004 funds to promulgate the rule changes, a move that would have effectively killed the changes for at least a year. The vote closely followed party lines with Rep. David Obey, D-Wis., and Rep. George Miller, D-Calif., leading the Democrats' effort.
It is expected that a similar amendment will be offered to the Senate version of the Department of Labor appropriations bill. Senator Tom Harkin, D-Iowa, indicated on July 11 that he would offer an amendment to the spending measure.
The Department of Labor published its proposed changes on March 31, 2003. It appears that these regulations will become law within the next year, and employers would be wise to become familiar with these new, sweeping changes to the way employees are paid.
COPYRIGHT © 2003 TANNER & GUIN, LLC. This article does not purport to offer legal advice in any form, is not a comprehensive legal assessment, and may include the individual opinion of the writer. A reader's particular legal position is dependent upon the facts of the specific situation. Readers should contact an attorney for application of the law and regulations to their specific fact situation.
Alabama State Bar rules require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.