When final regulations governing white-collar exemptions under the Fair Labor Standards Act (FLSA) took effect in August of 2004, the U.S. Department of Labor's goal was to provide simplicity, reduce the volume of litigation, and update the standards to conform to the modern workplace. Nearly three years later, it's questionable whether these objectives have been met. In fact, it may be only the plaintiff's attorneys who have gained, as many are laughing their way to the bank.
According to Steven S. Greene, managing member with the employment law firm of Helms & Greene, LLC, the revised federal standards are just as complex as the former ones. "We have new rules, not simpler rules," he said, as he presented at WorldatWork's 2007 Conference and Exposition, held May 6 though May 9 in Orlando, Florida. Greene noted that the new rules have not resulted in reduced litigation, with the number of overtime claims exceeding the number of discrimination claims. And, given that the rules are relatively new, historical guidance incorporating the revised language is now limited. "We're waiting for 50 years of litigation to tell us what these rules mean," Greene said.
Federal, state inconsistencies. The biggest challenge for employers, it seems, has been sorting out the varying and sometimes conflicting provisions of federal versus state overtime requirements. The FLSA does not preempt state overtime laws, which means employers can have a wide variety of compliance obligations. Lining up the federal and state standards with the jobs that employees are actually doing can be challenging, to put it mildly. "There are all kinds of disconnects," Greene noted.
"It's a function of the state regulations not being updated," Greene explained. If states would update their laws and regulations to better conform to the revised federal rules, a lot of the issues would be resolved. But most employers aren't in a position to rally for change. "Lobbying is hard because you must disclose your vulnerabilities," Greene said.
Primary duty test v. 80% rule. Under the revised federal rules, an employee's "primary duty" means the principal or most important responsibility that the employee performs. It is performed often, but does not necessarily comprise 50 percent of work time. However, numerous states continue to follow the "80-percent rule" of the former FLSA long test. Under this rule, employees can devote no more than 20 percent of work time to nonexempt tasks--a higher standard than the current federal duties test. "Satisfying the 80-percent rule is brutal for mid-tier jobs," Greene cautioned.
Employers with operations in the following six states are still subject to the 80-percent rule:
- Alaska
- Arkansas
- Minnesota
- New Jersey
- Pennsylvania
- Washington
Different primary duty tests. Other states have primary duty tests that differ from those in the revised federal rules. For example, the federal rules regarding claims adjusters employed by carriers, loan officers in banks, and managers and assistant managers in retail establishments were revised, but there are states that continue to rely on the former federal streamlined exemption tests. In states that retain the old rules, employers now have two different principles to apply. And some state rules say they are based on the federal FLSA, but specify the old rules. Which primary duty test should an employer use?
The issue with different primary duty tests can be found in the following six states:
- Connecticut
- Illinois
- Kentucky
- Maryland
- Montana
- North Dakota
Marching to a different drummer. To complicate matters further, there are six other states that enforce exemption standards that are materially different from either the current or former federal rules. These states include:
- California
- Colorado
- Hawaii
- Oregon
- West Virginia
- Wisconsin
Multi-state employers. Clearly, the dilemma for businesses with operations in multiple states is compounded. Should the employer rely on one exemption result for each job title across the organization? Or should there be one exemption call for facilities in Maryland and a different outcome for those in Pennsylvania? Moreover, state courts and agencies are continually interpreting the rules, resulting in changing standards. "From a compensation administration perspective, we want to make one call in terms of exemption," said Greene. "But from a risk management perspective, we need to reassess whether one size fits all."
Risk management. Unfortunately, employers are forced to evaluate the fine distinctions between the federal and state overtime exemption tests, with the goal of following the provisions that are most protective of workers. To manage the risk, Greene advises employers to consider the following questions:
- Where do you employ a substantial workforce?
- Where should new roles be added?
- What state standards warrant tracking?
- What borderline jobs are not worth the headache?
- What overtime work is being performed by "gray-area positions?"
- How are we capturing actual employee work duties?
As an example of mitigating the risk, Greene discussed the situation with IT jobs in California. While the federal computer employee test was not modified by the final rules, California law now includes an annual cost-of-living adjustment to the salary limit required for exemption. As a result, some companies are strategically choosing not to place IT jobs in California.
The final call on exempt status may ultimately boil down to the number of employees in the position, their pay rates, and how many hours they work. If a job is borderline, give it some careful consideration. "If people work at substantial rates and work substantial hours, the liability can be substantial," Greene concluded.
Steven S. Greene is managing member in the Atlanta office of Helms & Greene, LLC. He represents employers defending FLSA litigation brought by individuals and collective actions, and can be reached at 770-206-3371.
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