The U.S. House of Representatives will consider amending the federal Fair Labor Standards Act to permit private-sector employers to offer compensatory time off in lieu of monetary overtime compensation.  The fast-tracked "Working Families Flexibility Act of 2013" (H.R. 1406) was approved by a House committee only eight days after its introduction.

Under the proposal, eligible non-union employees could agree to a comp-time arrangement "in writing or [in an] otherwise verifiable record."  The policy could be implemented for eligible unionized employees via a collective bargaining agreement.  Participating employees would then receive at least 1.5 hours of comp time for each overtime hour worked.

The Devil Is In The Details

Private-sector employers are understandably cheered by such news – comp time has been a long-sought goal.  But the bill contains a number of impact-diluting, unclear, or complicating provisions, including these examples:

♦   No more than 160 hours of comp time could be accrued at any time (representing approximately 106 overtime hours worked).  An employee who works 10 overtime hours each workweek would reach that cap in about 10 workweeks.

♦   Employers would be required to cash-out unused comp time annually and when a worker's employment ends.  The payment would be calculated at the higher of (i) the employee's regular rate at the time the comp time was earned, or (ii) the employee's final regular rate.  But the "regular rate" is not necessarily just the employee's stated hourly rate.  Typically, it also includes remuneration such as bonuses, commissions, incentive payments, and compensation of many other kinds.  Figuring the "regular rate" for cashing-out purposes could therefore be a complex and daunting process as to employees who received such supplemental compensation over a period of time.

♦   On 30 days' notice, an employer could cash-out a worker's accrued comp time exceeding 80 hours.  But this too must be based upon the "regular rate" and entails the same potential complications.  Maybe the payment would normally be based upon the regular rate when the comp time was earned, unless the alternative "final regular rate" is later read to have some broader-than-apparent meaning.

♦   The employer would have to (i) determine and monitor each employee's eligibility to "agree to receive" or to "receive" comp time, which apparently could change over time; (ii) compute and record the hours accrued and keep up with when the balance must be (and perhaps may be) cashed-out; and (iii) administer both employees' cash-out requests and any notices that a non-union employee opts-out of the policy (including keeping up with who's "in" and who's "out").

♦   The employee would be entitled to use comp time "within a reasonable period" after requesting it, unless this would "unduly disrupt" the employer's operations.  By contrast, the employer could not so much as "attempt to" require employees to use comp time. 

The proposal would neither instruct nor even authorize the U.S. Labor Department to issue any regulations.  Nevertheless, employers should also anticipate extensive, convoluted USDOL interpretative provisions.

Is It Better Than Nothing?

We are not convinced that it is.  Many employers will see this as being more trouble than it is worth, especially if (as the bill currently provides) it would expire in five years anyway.  Some who implement such a policy might later find themselves embroiled in litigation over its pitfalls and complexities.

Perhaps there is still time to simplify and refine the measure before it becomes the latest ineffectual minimum-wage tradeoff.

UPDATE 05/09/13:  H.R. 1406 was passed by the House of Representatives on May 8 by a vote of 223 to 204.  The Obama Administration has expressed opposition to the proposal, so one may question whether the bill will even be considered by the Senate.  On the other hand, there is still reason to surmise that the atypical speed with which H.R. 1406 has moved along means that proponents want to make it part of a bargain involving a minimum-wage increase.

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Pressure continues to mount for raising the federal Fair Labor Standards Act's minimum wage in three stages from the current $7.25 per hour to (so far) $10.10 per hour.  Under pending proposals, the rate would thereafter be subject to annual increases linked to rises in the Consumer Price Index.

Leaving aside for now questions about the wisdom of these measures, history suggests that Congressional negotiations are or soon will be underway to strike a bargain – one under which the increases will be passed in exchange for something that ostensibly alleviates some of the impact upon employers.  Experience also counsels vigilance in the interests of steering these discussions toward a tradeoff that actually has value.

The Past Should Not Be Prologue

A good example of what not to do is found in the gimmick that was proudly held up as a worthwhile exchange for the minimum-wage increases beginning in 1990.  This "training wage" temporarily allowed employers to pay 85% of the FLSA minimum wage for up to 90 days to workers less than 20 years old under a variety of restrictions and conditions.  The employee could be paid the training wage for another 90 days by a different employer under certain circumstances.

This exception was soon hamstrung by complicated U.S. Labor Department rules consuming more than 9,000 words, 41 sections, and over 15 pages in the Code of Federal Regulations.  By the time the "training wage" expired in 1993, whatever limited utility it might otherwise have had was entirely undercut by what one large employer referred to as an "administrative nightmare".

A similar provision was part of the agreement for minimum-wage hikes that began in 1996.  We have addressed the still-existing "opportunity wage" elsewhere; suffice it to say that this too has been ineffectual.

Address Matters Of Substance Instead

If there is to be a deal, especially a groundbreaking one that puts future increases on "autopilot", then it should consist of truly meaningful FLSA reform.  There are many worthy possibilities, but some we have discussed before include:

An amendment creating at least a presumption of accuracy for time records kept by non-exempt employees under a clear employer procedure requiring and facilitating accurate timekeeping;

A revision allowing employees to be deemed exempt from the FLSA's minimum-wage, overtime, and timekeeping requirements based simply upon their being paid compensation beyond a specific threshold;

A modification excluding many, most, or even all bonuses and incentive pay from the "regular rate of pay" used to compute FLSA overtime compensation; and

Raising the annual-dollar-volume threshold for FLSA "enterprise" coverage to a level higher than $500,000 (an amount set 23 years ago that equates to over $930,000 today) so as to protect small businesses from the impact of minimum-wage increases.

Another candidate would be permitting the private sector's use of compensatory time off in lieu of overtime pay.  A bill to that effect was recently introduced in the U.S. House of Representatives and has already been the subject of a committee hearing; perhaps this is in the offing as a tradeoff.  Assuming for the moment that this amendment (as filtered through the inevitable U.S. Labor Department interpretations) would be of appreciable benefit, it would expire in five years.  The proposed indexing of the minimum wage would not expire in five years; it seems ill-advised to sunset the benefit of the bargain.

Unless employers clearly and vigorously make their desires known to Congress without delay, the most that can probably be expected is something that will turn out to be as meaningless and soon-to-be-forgotten as the "training wage".

UPDATE 04/19/13:   The "comp time" bill referred to in the post, H.R. 1406, has been approved by the Committee on Education and the Workforce for consideration by the full House of Representatives.  The current version still contains the five-year "sunset" provision.

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Readers will recall that, in April 2011, the U.S. Labor Department declined to adopt an interpretation proposed in 2008 that would have acknowledged the federal Fair Labor Standards Act overtime-exempt status of employees doing the typical work of service writers, service advisors, etc. in automobile dealerships and truck dealerships.  Prospects were that USDOL would reverse an enforcement policy of two decades' standing and would begin challenging the FLSA Section 13(b)(10)(A) overtime exemption as applied to these workers.

However, Congress's 2012 Department of Labor Appropriations Act specifically prohibited USDOL from using any appropriated funds for this purpose.  Later comments by a U.S. Wage and Hour Division investigator led us to conclude that, unless Congress renewed this limitation in 2013 appropriations, dealerships should anticipate USDOL attacks on their treating these employees as being overtime-exempt.

Although the 2013 appropriation does not expressly refer to such a restriction, we conclude that the prohibition has been extended.  Among other things, Division F, Section 1105 of the recent appropriation calls for the continuation through September 30, 2013 of "the requirements, authorities, conditions, limitations, and other provisions" of the 2012 law.  Another example is Section 1104's statement that money allocated for 2013 may not be used to "initiate or resume any project or activity for which appropriations, funds, or other authority were not available" during the federal government's 2012 fiscal year.

Even if USDOL is unable to pursue such claims, current or former service writers or similar employees remain free to argue against overtime-exempt status in their own FLSA lawsuits.  And, as we said previously, employers embroiled in these lawsuits should be alert for any signs that USDOL is extending background assistance to these individuals.

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U.S. Senator Elizabeth Warren (D-MA) recently asked during a Senate committee hearing why the federal Fair Labor Standards Act's $7.25-per-hour minimum wage has not already increased over time to the level of $22 an hour.  A professor appearing at the hearing opined that a case could be made for a current rate of $33 an hour.

So why isn't the FLSA minimum wage more than 450% higher than it is today?  Maybe the more relevant points to ponder in evaluating this are why President Obama proposed an increase to only $9.00 per hour, and why those who criticized this as being too low are seeking to raise the minimum wage only to $10.10 per hour – and even then to do so in three steps, instead of immediately (links to bills below).

Not Explained By The Poverty Rationale

President Obama's stated reason for an increase, echoed in one form or another by many others, was that no one who works full-time should have to live in poverty.  But the 2013 federal poverty threshold for an individual is a little less than $11,500 annually, which would be achieved by working 40 hours a week at a wage rate of approximately $5.53 per hour, or about 24% less than today's FLSA minimum wage.

By contrast, the current poverty level for a family of four is set at a bit more than $23,500.  A $10.10 minimum wage (which under current proposals would not even be reached until 2015) would produce about $2,500 less than that – only around $21,000 annually at 40 hours a week.

And the Economic Policy Institute projects that over 47% of the workers who would be affected by a rise to $10.10 per hour already have annual family incomes of $40,000 or more – a range that starts at 170% of the family-of-four poverty threshold.  EPI estimates that 30% of those family incomes fall into the range of $60,000 or more, with nearly 21% at $75,000 or more.

Whatever else one thinks about the proposed minimum-wage rates, they have no readily-apparent connection to poverty considerations.

The More-Likely Explanation

Those who take the view that a jump in the minimum wage is ill-advised in the current economic climate do so for a variety of reasons, foremost among them being the prospects that such action will curtail future hiring and will increase already-high unemployment levels.  Many critics of these concerns allow no room even for honest, good-faith, reasonable disagreement on the matter.  The U.S. Labor Department has been so bold as to impugn opponents' veracity and/or intellectual rigor in e-newsletters labeling their concerns as being "myths" that are "false".

Nevertheless, the far-more-likely explanation for why the FLSA minimum wage is not already orders of magnitude higher than $7.25, and why even most of those who propose to increase it do not advocate doubling or tripling it and doing so right away, is the awareness that in fact opponents' concerns cannot be summarily dismissed as "myths" or as being "false".  These concerns must be especially troubling today, when indications are that employers are already contemplating reductions in their workforces and in their employees' hours worked for other reasons.  Perhaps the unstated for-the-greater-good aim is to fine-tune an increase in the minimum wage to a supposedly "acceptable" level and kind of reduced and forgone employment.

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H.R. 1010.pdf (252.68 kb)

S. 460.pdf (248.74 kb)

Now that the election is behind us, employers should consider what they might anticipate in the field of wage-hour law, which is already one of the largest sources of employment-law claims.  While the nature and number of the possible developments are practically unlimited, some of the foreseeable ones include these:

♦   The push to increase the minimum wage under the federal Fair Labor Standards Act, which was at fever-pitch before going dormant as the election season approached, will now re-emerge.  There will be similar efforts under many analogous state and local laws and ordinances.

This will probably include proposals to increase the FLSA's cash-wage requirement for tipped employees for whom employers take that law's tip-credit.  The public-relations approach will be that this increases "the minimum wage for tipped workers", despite the fact that the FLSA minimum wage for tipped employees is already the same as it is for everyone else.

 ♦   Analogous moves might well seek to increase the salary amount required for some of the FLSA's exemptions from minimum-wage and overtime, as well as to impose paid-leave requirements.  Recall the March bill introduced by Iowa Senator Tom Harkin which proposed both, including requiring most employers of at least 15 employees to accrue an hour of paid "sick time" for every 30 hours an employee works, up to at least 56 hours each calendar year.

Another possible measure might involve an attempt to raise the FLSA overtime-pay multiple from its current 1.5 times the regular rate to 2.0 times that rate.  This might be joined with reducing the threshold number of hours for FLSA overtime from 40 hours in a workweek to, say, 35 hours.  Similar FLSA amendments were proposed in the late 70s and early 80s, during another period of high unemployment and persistent economic stagnation.  A further impetus this time around might be the already-burgeoning rates of part-time employment, taken in conjunction with what could be a further trend toward part-time work driven by looming Affordable Care Act requirements.

 ♦   Aggressive government enforcement at federal and state levels is likely to expand.  There will be an even-more-intensified focus upon whether workers treated as independent contractors should instead be viewed as employees.  Employers should expect further national or regional enforcement initiatives undertaken with respect to entire industries.  These initiatives will include (among others) those directed at what the U.S. Labor Department has called "low wage" sectors, such as hospitality businesses and food retailing, retailing in general, some healthcare segments, landscaping, some construction segments, temporary-help agencies, daycare/homecare, agriculture, janitorial services, garment manufacturing, and guard services.

 ♦   Following a noisy notice-and-comment period that ended in March, proposals that would essentially spell the end of the FLSA exemptions for companions and live-in domestic-service workers suddenly dropped from view as the election season commenced.  These provisions will probably be released in their final form in the not-too-distant future.

Another distinct possibility is the revival of the so-called "Right to Know" regulations, which USDOL said would require "notification of workers' status as employees or some other status such as independent contractors, and whether that worker is entitled to the protections of the FLSA."  USDOL further said that the proposal would "also explore requiring employers to provide a wage statement each pay period to their employees," apparently so as to convey to employees "how their pay is computed."  The reach of these provisions would likely be even broader than USDOL has so far disclosed.

 ♦   The "wage theft" movement toward increasingly-draconian penalties and punishments will move forward with renewed energy, especially at the state and local levels.  For proponents of these measures, wage-law violations are unrelated to the multi-jurisdiction, patchwork nature of differing, obscure, sometimes-conflicting, ambiguous and ill-defined, rapidly-changing requirements that are proliferating across the nation.  No, as this publication [Editor's Note:  Link Apparently Taken Down] illustrates, in their eyes employers are instead "dishonest", unscrupulous scofflaws who are "stealing" money from workers.  Employers who remain disengaged on this front and who acquiesce in these pejorative campaigns do so at their peril.

It has never been more important for employers to remain vigilant, informed, and assertive about all of these matters.  It is also essential that each employer ensure right now that it is in compliance with all applicable wage-hour requirements.

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Readers will recall our April 2011 newsletter and blog post regarding the U.S. Labor Department's having declined to recognize the overtime-exempt status of vehicle-dealership employees typically called "service writers", "service advisors", or "service salesmen".  In so doing, USDOL appears to have revived its previously-abandoned interpretation that the federal Fair Labor Standards Act's Section 13(b)(10)(A) does not apply to employees whose role is to diagnose the mechanical condition of or to determine service needed by a vehicle, to assign service work to employees, to monitor their progress and results, and otherwise to take responsibility for the service work.

Dealerships across the nation were understandably alarmed by the prospects that USDOL would resume challenging the exempt status of these employees for the first time in almost 24 years.  However, Congress's 2012 USDOL appropriation prohibited the agency from devoting any of its funding to such efforts.

A U.S. Wage and Hour Division investigator recently told a dealership that its service writers are non-exempt, but that USDOL is temporarily precluded from doing anything about it.  The investigator said that USDOL will "enforce the law" in this respect once it is able to do so.

We take from this that, unless Congress renews its limitation in the 2013 USDOL appropriation, the Wage and Hour Division fully intends to attack the Section 13(b)(10)(A)-exempt status of these kinds of employees.  Employers who are unwilling to entrust things to the political process in a presidential-election year might want to consider implementing a pay plan meeting the requirements for the FLSA's Section 7(i) overtime exception for commission-paid employees of a retail or service establishment.  We have summarized this provision in an earlier post.

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Recently introduced legislation proposes to exempt "any employee employed in insurance claims adjusting" from the federal Fair Labor Standards Act's overtime requirements under certain circumstances.  Under H.R. 6346 (link to available version below), introduced by Representative Denny Rehberg (R-MT) and Representatives Jo Bonner (R-AL) and Alcee Hastings (D-FL), these adjusters would be exempt while performing specified insurance-claims work under particular conditions following a "major disaster", including natural catastrophes (such as a hurricane, tornado, earthquake, or blizzard) or fires, floods, or explosions.

Restrictions And Conditions Imposed

The exemption would apply only for a 24-month period following the major disaster.  Each employee would have to receive an average weekly income of at least $591 per week for the period in which the work is performed.  Among the duties falling within the exemption would be interviewing insureds and others with relevant information, inspecting property damage, making recommendations about coverage, liability, or value, and negotiating settlements.

Employees of companies (or their affiliates, as defined in the exemption) that underwrite, sell, or market insurance would not be eligible.  Instead, the provision would apply only to those brought in by independent companies that possess the necessary licenses, provide worker's-compensation coverage, and make the required tax withholdings.

Exemption Would Supplant State And Local Law
 
A number of federal courts have found the FLSA's "administrative" exemption to apply to insurance adjusters in a variety of situations.  However, a California appellate court reached the opposite conclusion in July, when it held that adjusters were not exempt under that state's version of the administrative exemption.

The California decision underscores the potential for differences in or divergent interpretations of similar-sounding exemptions in the FLSA and analogous state or local laws.  The drafters of H.R. 6346 apparently intend to eliminate this possibility.  The proposal says that the new exemption would "exclusively" displace state or local provisions with respect to qualifying workers.

H.R. 6346 has been referred to the House Education and the Workforce Committee.  There is no timetable as to when it might be the subject of hearings or brought to the floor for a vote.  We will monitor the progress of this legislation in the coming months.

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HR 6346.pdf (38.82 kb)

We have previously reported on legislation introduced earlier this year to increase the federal Fair Labor Standards Act's minimum wage.  In the last several days, supporters have commenced a coordinated and intensive public-relations effort to generate the necessary political pressure for the passage of such a measure.  This has culminated in the filing of yet more bills in the Senate and House.

First The PR Groundwork . . .

The train actually left the station earlier this summer.  On June 6, Rep. Jesse Jackson, Jr. (D-Ill.) introduced a bill to raise the minimum wage to $10.00 per hour.  On that same day, the Food Chain Workers Alliance issued a paper urging policymakers to "[i]ncrease the minimum wage, including the minimum wage for tipped workers."  This was only the opening salvo.

On July 19, a National Employment Law Project report entitled "Big Business, Corporate Profits, and the Minimum Wage" was released to immediate media fanfare.  The report's stated aim was to "examine[] the connection between [the] opposing extremes of stagnant wages and soaring corporate profits."  Associated media coverage included pieces such as, "Low-Wage Workers Employed Mostly By Large, Highly Profitable Corporations: Report," (Huffington Post, July 19); "Want a Real Recovery? Raise the Minimum Wage" (Huffington Post, July 20); and "An Increase in the Minimum Wage Is Long Overdue" (U.S. News and World Report, July 20).  NELP collaborated with the Service Employees International Union's International President Mary Kay Henry on "Hardworking Americans Should Not Be Living In Poverty" (CNN, July 25).

On July 23, the Economic Policy Institute released an open letter addressed jointly to President Obama and Congressional leadership in which it urged boosting the minimum wage in three 85-cent increments, to $9.80 per hour.  Around that same time, a flurry of supportive press releases and media comment also issued forth from an organization called "Business for a Fair Minimum Wage".

. . . Then The Legislation

On July 26:

♦   Rep. George Miller (D-Calif.) introduced H.R. 6211 to push the rate to $9.80 per hour in three 85-cent increments and to index it to the Consumer Price Index thereafter;

♦   Senator Tom Harkin (D-Iowa) tendered S. 3453 which, according to his press release, also proposes both the $9.80 figure and indexing.

It further appears that both bills seek to raise the minimum cash wage for employees as to whom an employer takes the FLSA "tip credit" from today's $2.13 per hour to 70% of the FLSA minimum wage (that is, to $6.86 per hour at a minimum wage of $9.80 per hour).  This is being portrayed as an increase in the "minimum wage for tipped workers," but of course the current FLSA minimum wage for tipped workers is the same as it is for everyone else:  $7.25 per hour.

Proponents of an increase in the minimum wage clearly believe that the current political environment can be turned to their benefit.  Absent a prompt and commensurate response from the employer community, this could turn out to be correct.

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An Iowa federal court has dismissed a worker's claim which alleged that her employer failed to comply with the federal Fair Labor Standards Act's Section 7(r) requirement regarding breaktime for the purpose of expressing breastmilk.  Under this 2010 FLSA amendment, employers are required among other things to provide places for such breaks that are "shielded from view and free from intrusion from coworkers and the public."

Private Enforcement of Section 7(r) Not Authorized . . .

In Salz v. Casey's Marketing Company, the employee sued after she had allegedly complained about the presence of a video camera in the room in which she took these breaks, later received reprimands about performance matters, and thereafter "left her position."  Senior Judge Donald E. O'Brien ruled that the employee could not enforce Section 7(r) in her lawsuit.

The court reasoned that (i) the FLSA does not require compensation for these breaks; and (ii) a worker's remedy for a violation of FLSA Section 7 is limited to seeking unpaid wages.  According to the judge, the employee's only redress under Section 7(r) itself was to complain to the U.S. Labor Department.

. . . But There Are Other Remedies!

However, the court refused to dismiss her "constructive discharge" and retaliation claims brought under FLSA Section 15(a)(3).  This provision says in part that it is unlawful to "discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to" the FLSA.  In the court's view, an employer violates Section 15(a)(3) by taking adverse action against an employee because she asserted her rights under Section 7(r).

There have been significant questions about the enforcement of Section 7(r) since it was adopted as a part of the 2,700-page Patient Protection and Affordable Care Act.  Perhaps little or no thought was given to these matters in the confused and frenetic circumstances under which the PPACA was enacted.

Nevertheless, as we said at the time, it seems clear that Section 7(r) transgressions can subject an employer to a USDOL investigation, to a USDOL lawsuit for court-ordered compliance (backed by contempt-of-court remedies), and to USDOL civil penalties of up to $1,100 for each willful or repeated violation.  Furthermore, as the Salz decision illustrates, an employer could face substantial liability for retaliating against an employee who invokes the requirements of Section 7(r).

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There have been further developments regarding the U.S. Department of Labor's proposed regulation that would drastically limit the Fair Labor Standard Act's Section 13(a)(15) "companionship" exemption.  A collection of our posts relating to these matters can be accessed here.

The comment period for the proposed regulation closed on March 21, but the fight over the exemption continues with the Senate's recent entry into the fray.  A group of 11 Republican senators has introduced S. 3280 to block the proposed regulation.  The "Companionship Exemption Protection Act" would amend the FLSA to preserve the current state of the exemption.

Two of the bill's sponsors, Senators Alexander (R-Tenn.) and Johanns (R-Neb.), argue that the proposed regulation would drive up the cost of in-home care and would force families to institutionalize seniors, thereby straining state Medicaid budgets.  Their proposal is a more-elaborate take on the matter than is the identically-named H.R. 3066, introduced in the House of Representatives last September by Nebraska Republican Lee Terry.  One feature the bills have in common is that each would remove the Secretary of Labor's authority to "define[] and delimit[]" the exemption.

The companionship exemption provides that the FLSA's minimum-wage and overtime requirements do not apply to employees "employed in domestic service employment  to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves . . .."  However, USDOL's proposed regulation would revised the exemption by, among other things, significantly reducing the scope of exempt activities and making the exemption inapplicable to workers employed by third-party staffing agencies.  The most significant practical impact of the proposed regulation would be that far fewer individuals would qualify for the exemption.

As we previously noted, proponents of the effort to narrow the exemption initially sought to do so through legislative action.  However, those efforts subsequently shifted to the regulatory arena, most likely on the basis of political considerations.  Now, the battle appears to have come full circle.

Incidentally, neither of these bills would affect the potential impact of USDOL's proposals upon the FLSA's Section 13(b)(21) overtime exemption applying to "any employee who is employed in domestic service in a household and who resides in such household . . .."

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