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
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
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.