The U.S. Department of Labor has recently proposed a new rule that, if it goes into effect, would increase the minimum weekly salary threshold (standard salary level) used to determine whether an employee is exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act (FLSA), and the annual compensation level for Highly Compensated Employees (HCEs).
Under the proposed rule, the standard salary level to be exempt would increase from the current $455 per week to $679 per week, i.e., an increase to approximately $35,308 per year. Employers would be allowed to use nondiscretionary bonuses (those bonuses where the employer predetermines the specific criteria that is required to receive a bonus, and employees expect to earn the bonus if they meet the criteria) and incentive payments, including commissions, to satisfy up to 10% of the standard salary level. The compensation level for HCEs would also increase from the current $100,000 per year to $147,414 per year. According to the DOL, an estimated 1.1 million workers are expected lose exempt status under this proposed rule in the absence of action by their employers (e.g., a pay increase). The proposed rule does not call for automatic adjustments in the standard salary or HCE compensation levels, however, the DOL has indicated that every four years it intends to update them.
The proposed rule does not change the duties test that an employee must still perform in order to be considered exempt.
Public comments regarding the proposed rule may be submitted by May 21, 2019. The final rule is expected to take effect approximately January 2020.
The DOL also announced a proposed rule regarding joint employer status under the Fair Labor Standards Act that involves various factors. Four of the major factors are whether the potential joint employer actually exercised the power to (1) hire or fire the employee; (2) supervise and control the employee’s work schedule or conditions of employment; (3) determine the employee’s rate and method of payment; and (4) maintain the employee’s employment records.
The DOL provided several examples emphasizing that an entity’s potential joint employer status turns on the actual exercise of control over the employee. In one example, an office park company contracted with a janitorial services company to clean the office building after hours. Per the contract, the office park paid a fixed fee for the janitorial services and reserved the right to supervise the janitorial employees’ job performance. According to the DOL, the office park would not be a joint employer of the janitorial employees because it did not hire or fire them, determine their rate of pay or method of payment or exercise control over their conditions of employment. The fact that the office park reserved the right (as opposed to actually exercising the right) to supervise the janitorial employees does not in itself mean that the office park was their joint employer.
In another example, a country club contracted with a landscaping company to maintain its golf course. Although the contract did not give the country club the authority to control the landscaping employees’ conditions of employment, in practice, a country club official actually exercised such control by “sporadically assigning [the employees] tasks” during the work week, by providing “periodic instructions” during the workday, and by keeping intermittent records of the employees’ work. Also, the landscaping company agreed to terminate an employee for failing to follow the country club’s instructions. Under these facts, the DOL would find that the country club is a joint employer of the landscaping employees because it exercises sufficient control, both direct and indirect, over the terms and conditions of their employment including, e.g., the indirect ability to fire them
So in one example, the employer had a contractual reserved right to exercise control but did not do so – and the DOL would likely find no joint employment relationship in that scenario; and in the other example, the employer had no contractual reserved right to exercise control but did so anyway – and the DOL stated it would likely find a joint employment relationship to exist in that scenario. The DOL’s proposed rule includes other examples, which provide important guidance to facilities that enter into contracts for services, such as food and janitorial services.
Public comments regarding the proposed rule will be accepted on or before June 10, 2019. The final rule will include an effective date.
