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July 25, 2005
Predictions on OT Changes Have Been Wrong So Far

The U.S. Department of Labor (DOL) enacted significant changes to the Fair Labor Standards Act (FLSA) last August. DOL officials thought that the revisions would bring clarification to the regulations, make it easier for employers to comply, and cut down on the number of employee-initiated lawsuits under the FLSA.

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Meanwhile, union officials expressed concern that huge numbers of workers would lose eligibility for overtime pay benefits since a new category of "highly compensated workers" performing office or nonmanual work--those making $100,000 a year plus--would be exempt from being paid overtime.

However, what has really happened to date? Joe Schmitt, a leading attorney with Halleland Lewis Nilan Sipkins & Johnson in Minneapolis, Minnesota, says that review of his client companies' experience shows that DOL's and unions' predictions are both wrong so far, noting that his clients have "increased, not decreased, the number of employees who are covered by the FLSA and entitled to receive overtime." He has also noticed a moderate increase in the number of lawsuits initiated by employees under the FLSA in his state, and based on the experiences shared by some of his national client companies, he suggests that this is a national trend as well.

Why have the revisions turned out to be a bust? First, Schmitt notes that the changes that were first suggested by DOL in 2001 were transformed in the final regulations from what was originally intended. For example, the minimum threshold for the "highly compensated workers" exemption increased from $60,000 to $100,000 as a result of political pressure.

Another problem occurred after 9/11, when the New York City Fire and Police Departments expressed concern that some of their employees who were risking their lives every day would be exempt from being able to receive overtime.

Immediately, DOL put into the regulations that all first responders to emergencies were entitled to overtime, says Schmitt. A noble gesture perhaps, but that means that highly paid individuals such as police and fire chiefs and other emergency- organization officials are probably entitled to overtime because chiefs could perform the role of first responders. It probably would have helped if DOL had clearly defined what specific "first responder" roles were eligible.

Also, the new regulations became final right in the middle of budget cycles for state and local governments, who were both experiencing significant budget crunches due to the current economy, says Schmitt. There has been no choice but to pay the overtime wages that probably weren't included in original budgets.

Another FLSA change that DOL officials thought would help clarify overtime-exempt categories of workers to employers has become the most confusing part of the new regulations. That area deals with administrative employees.

"Under the new regulations, an administrative employee that would be exempt from overtime pay is one that 'exercises discretion and independent judgment with respect to matters of significance,'" says Schmitt. But what does that mean? There is no DOL guidance that clearly defines the term so this category leaves employers and employees baffled regarding which employees might fall under this designation.

"We are evolving right now what those words mean, and there hasn't been any consensus reached," explains Schmitt. "My prediction is that this will be defined more by court cases than by the regulations themselves--that's what happened with the old exceptions to the regulations and that's probably what will happen with this as well."

He predicts that this administrative category will see an increase in the number of court cases before the "exercises discretion and independent judgment" phrase becomes better defined for employers and workers.

For more information regarding the FLSA, visit www.dol.gov/fairpay.

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