On March 17, 2016, in a move that seems in tune with the current political season, Republican lawmakers in the U.S. Congress introduced legislation to block implementation of the U.S. Department of Labor’s (DOL’s) proposed FLSA “white collar” overtime exemption rules. As the FLSA is currently written, the minimum salary an employee must be paid to be exempt from overtime is $455 per week or $23,660 per year. Under the DOL’s proposed rule changes, employees must earn $970 per week or $50,440 per year to be exempt from overtime, putting these workers in the 40% percentile of weekly earnings for full-time salaried workers. The minimum salary for “highly compensated” employees would also increase, from $100,000 to $122,148. For the first time ever, these salary thresholds would be adjusted automatically for inflation.
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The road to potential implementation has been a long and winding one. In March 2014, President Obama issued an Executive Order directing DOL Secretary Thomas Perez to update the regulations regarding overtime exemptions, with the goal of making more American workers eligible for overtime. The DOL expected to roll out proposed regulations by the end of 2014, then announced it would issue proposed rules in early 2015. The proposed rules were finally revealed on June 30, 2015, with a comment period from July 6, 2015 through September 4, 2015.
The proposed overtime rules elicited an outcry from employers across the country. During the comment period, the DOL received approximately 270,000 comments from constituents. By comparison, the DOL typically receives around 75,000 comments during a comment period, and received approximately 50,000 comments when it last amended the FLSA overtime rules in 2004. Many employers pointed out that the proposed salary threshold, which will apply nationwide, instead of being adjusted for different industries and geographical regions. In spite of the outcry, it was widely anticipated that the proposed rules would be finalized in time to take effect sometime in 2016.
Then in November 2015, the U.S. Solicitor of Labor, M. Patricia Smith, disclosed that the DOL did not anticipate finalizing changes to the FLSA overtime eligibility rules until the fall of 2016, meaning that they would not go into effect until 2017. On March 14, 2016, the proposed rules moved to the Office of Management and Budget (OMB) for review, the final step in the rulemaking process. According to the conventional wisdom, the proposed rules were a done deal.
This newly introduced Congressional legislation may have changed all that. Dubbed the “Protecting Workplace Advancement and Opportunity Act,” the legislation (S.2707 and H.R. 4773) essentially seeks to nullify the proposed regulations, and have the DOL start the rulemaking process over. Specifically, the legislation would:
- Invalidate the proposed rule as currently written.
- Direct the DOL to evaluate the economic impact of any proposed rule on small businesses, nonprofits and public employers.
- Amend the proposed rule by removing the automatic increases in the salary threshold.
- Require a new notice and comment period should the exemption “duties” tests be amended in the future.
A key factor to keep in mind is the Congressional Review Act, which gives Congress 60 legislative days, after OMB review is complete, to pass a resolution disapproving the regulation. Some have theorized that the Protecting Workplace Advancement and Opportunity Act is intended to take advantage of the Congressional Review Act, by slowing down the OMB review, and extending Congress’s 60-day review deadline past the January 22nd inauguration of the next President.
What will happen next is anyone’s guess. It is highly unlikely that the bill will become law, given President Obama’s veto power. There is also very little chance that the DOL will scrap the proposed rules altogether, and start over. However, the legislation may force the DOL and the Obama administration to revisit the widespread concerns that the proposed exemption rules will have unintended consequences on the small businesses that drive job growth, and lead to a revision of the proposed rules. Many employers and lawmakers were also angered when, in spite of the overwhelming number of comments received, the DOL refused to extend the 60-day comment period. This legislation may prompt the DOL to re-open the comment period.
Stay tuned . . .