NEW FLSA REGULATIONS REDEFINE “WHITE COLLAR” EXEMPTIONS

by Charles D. Lawson and William H. Pickering

On April 20, 2004, the United States Department of Labor (“DOL”) announced final regulations which redefine the “white collar” exemptions to the overtime requirements of the Fair Labor Standards Act (“FLSA”).  These exemptions, which apply to “executive,” “administrative,” and “professional” employees, have changed very little since their enactment in 1938.  Public debate over the need to modernize the exemptions led DOL to publish “proposed” revisions in March of last year.  More than 75,000 comments were received during the official 90-day comment period which followed, and the final regulations issued last week contain several changes from the proposed revisions. 

“Standard Duties” Tests
In the new regulations, DOL has streamlined the exemptions by discarding the distinction between “long” and “short” tests in favor of a “standard duties” test for each exemption.  Though not entirely eliminating ambiguities and uncertainties existing under prior law, the new regulations do offer helpful guidance and examples which should allow employers to apply the exemptions with greater confidence. 

Salary Basis
As under the previous regulations, an employee must be paid on a “salary basis” in order to qualify for one of the white collar exemptions.  In general, “salary basis” means that an exempt employee must receive a predetermined amount of compensation that cannot be reduced because of variations in the quality or quantity of work preformed.  Certain specified and limited salary deductions are permitted, and the new regulations allow employees’ pay to be reduced during periods of disciplinary suspension for violations of workplace conduct rules. 

The new regulations also provide a “safe harbor” for employers which establish policies prohibiting improper salary deductions.  Under the “safe harbor” provision, an employer making an improper deduction will not lose the exemption if the employer’s policy against such deductions is clearly communicated and includes a complaint procedure.  Employees must, of course, be reimbursed for any improper deductions, and the employer must make a good faith commitment to comply in the future.

Salary Level
To qualify for one of the white collar exemptions, employees must also be paid at a minimum salary level.  Under the new regulations, the required salary level has nearly tripled from $155 to $455 per week, meaning that employees earning less than $23,660 annually are non-exempt.  Additionally, the “highly compensated” employee exemption in the new regulations only applies to employees earning at least $100,000 annually, up from the $65,000 level contained in the regulations proposed last year.  Commissions, nondiscretionary bonuses, and other nondiscretionary compensation will count toward the $100,000 threshold, but the employee must still receive at least $455 per week on a salary or fee basis. 

Some Employees Automatically Non-Exempt
In response to comments and concerns received by DOL, the final regulations clarify that the “white collar” exemptions never apply to manual laborers or other “blue collar” workers performing work involving repetitive operations with their hands, physical skill and energy, including non-management employees in production, maintenance, construction and similar occupations (e.g., carpenters, electricians, mechanics, plumbers, etc.)  Such employees are entitled to minimum wage and overtime pay under the FLSA no matter how highly paid they might be.
 
Similarly, the new regulations expressly provide that the exemptions do not apply to police officers, state troopers, correctional officers, firefighters, paramedics, emergency medical technicians, rescue workers and similar employees, regardless of rank or pay level, who work in fire, rescue and law enforcement occupations.

Effective Date
The new regulations are not yet in effect.  They were published in the Federal Register on April 23, 2004, and will become effective 120 days from that date (August 21, 2004), barring any challenges in Congress or in the courts.

Employers should take the opportunity between now and the effective date of the new regulations to audit their wage and hour practices.  A careful analysis of employee job duties should be undertaken to ensure that employees currently treated as exempt truly are under the existing regulations and will remain so under the new regulations.  A strategy should be considered for informing employees who may lose their exemption under the new regulations about their new status and time-keeping obligations.

If you have questions regarding the new regulations, please contact a member of our Labor and Employment Group.  Be sure to revisit our website for additional developments in the area of labor and employment law.

 
EMPLOYERS MAY COORDINATE RETIREMENT BENEFITS
WITH MEDICARE ELIGIBILITY

by Charles D. Lawson

On April 22, 2004, the Equal Employment Opportunity Commission (“EEOC”) approved a final rule which would permit employers to reduce or eliminate health benefits for retirees eligible for Medicare, without violating the Age Discrimination in Employment Act (“ADEA”).  The rule will be sent to other federal agencies for review and comment before it is published in the Federal Register and becomes officially binding. 

Of course, employers are not obligated to provide health benefits to retirees in the first place. The new rule thus benefits retirees under age 65, as spiraling health care costs have been forcing employers to choose between either providing identical benefits to all retirees - which may be prohibitively expensive - or foregoing the benefits altogether.  Retirees over 65 also stand to benefit as employers may supplement Medicare benefits under the new rule without having to provide an identical level of benefits.  Employers also win because, under this express exemption to the ADEA, they may now coordinate the provision of benefits with Medicare eligibility, reducing their expenditure on retiree health benefits overall. 

The new rule represents a reversal of the position the EEOC took on this issue in a case heard before the Third Circuit Court of Appeals in 2000 (requiring that pre- and post- Medicare eligible retirees receive health benefits of equal type and value) and a National Policy Statement EEOC released in October of that same year.  The AARP has expressed opposition to the rule and has stated that it is exploring a range of options, including litigation, to block the rule’s implementation. 

Please revisit our website for status updates on the rule, including the date on which it becomes effective.