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Looming Required Changes Can Help Disguise Past Problems

By: Bill Pilchak – 08/17/16

     The federal government has issued so many regulations that many (most?) companies cannot comply with them all. The Government Accountability Office reports that federal regulators issued 2,400 new rules during the 2014 “presidential year” (1/21/14-1/20/15). In our field of labor and employment law, employers must abide by statutes and corresponding regulations under the Affordable Care Act , OSHA, the Family and Medical Leave Act, the Fair Labor Standards Act, Title VII, the Americans with Disabilities Act, Sarbanes-Oxley, Department of Transportation driver regulations, the plant closing law (WARN), affirmative action, prevailing wages on government contracts, Fair Credit Reporting Act, HIPAA (health information), H1b + other immigration issues, ERISA pension, health and welfare plans, deemed export regulations, etc. (Whew!) The federal regulations under those statutes comprise more than 25000 pages plus innumerable safety standards, guidance memoranda and technical “assistance” manuals.

     Worse, in addition to the regulatory labyrinth of labor and employment laws, our clients must comply with regulations on customer credit and financial data, environmental issues, food safety, product safety, patents and trademarks, taxation and more.

     Inevitably, compliance slips through the cracks. Many new clients come to us only after some agency has levied fines or an attorney asserts claims under some regulation unknown to them.

     As it turns out, most businesses share one species of non-compliance that sits like a time bomb within them: treating employees as salary-exempt when the position does not meet the technical requirements to avoid overtime.  We have written before how plaintiff-side attorneys now find it profitable to delve into the FLSA regulations to ensnare non-compliant companies. (See: Aesop for Employers http://mi-worklaw.com/aesop-for-employers-the-hyenas-and-the-maze/)

     Employers assume that as long as somebody performs non-manual, white collar work that they may be paid a salary without overtime for hours worked over 40 in a week. Not true. To be exempt from overtime, technical requirements must be met. Some frequent examples of misclassifications are:

  • “Administrative” employees must exercise independent judgment and discretion on matters of significance to qualify as salaried-exempt. So, many administrative assistants (executive secretaries) do not qualify; Office managers often lack the requisite authority; Employees who simply match facts to criteria (e.g., credit scores to interest rates; driving records to insurance rates) may not qualify.
  • “Executive” employees must have as their primary duty managing an enterprise or department with at least two fulltime employees (or part time equivalents) with the right to hire and fire or at least make recommendations that are given weight. Working supervisors might not qualify.
  •  “Professional” employees must be in a position that requires advanced knowledge typically obtained in a prolonged course of study. A PhD doing a job that others perform with only a Bachelor’s degree will not qualify. Moreover, the Dept. of Labor is stingy about designating “engineers” as professionals unless they do top-level engineering work.

     Misclassifications are time-bombs because an employee can bring overtime claims for the past two or three years, often in the form of a class (collective) action either during employment or after separation. For each $45,000 per year employee working only 45 hours per week, the overtime due would be $32,445 to $48,667 plus attorney fees that can run into six figures. At 50 hours, the liability increases to $64,950 to $97,425. (hourly rate x 1.5 x 5 (or 10) hours per week x 50 weeks (2 wks vac.) x 2 years (or 3) x 2 double damages)

     The usual dilemma is that fixing the problem often alerts employees that they have been owed overtime all along, which then results in claims.

     For the next few months only, employees can fix misclassifications with less chance of provoking claims.  Under new regulations effective December 1, 2016, employees paid a salary of less than $47,476 per year must be paid overtime.  Employers will have to reclassify them or give them raises.  The new regulation provides a “reason” to start paying employees overtime without implying they were misclassified in the past.  Since the salary threshold will adjust every three years, reclassifying those making more than $47,476 could be justified in anticipation of future increases. Reclassifying those well beyond $47,476 poses more of a risk, but still, careful working announcing a change as part of a broader new reclassification program could help disguise past arguable misclassifications.

     What to do right now: Smart employers should conduct a privileged (with their counsel) audit of salaried positions with counsel in the next 60 days, to identify and cure misclassifications as part of a change in payroll practices required by the new regulations.

Of course, Pilchak & Cohen can help in that regard.

Find us at MI-Worklaw.com.