President Obama’s Overtime Overhaul: a Blessing in Disguise?
Let’s put politics aside for a moment and consider how President Obama’s recently-announced overhaul of the Department of Labor’s overtime regulations might actually be a blessing in disguise for many employers. Human Resources professionals and business owners will agree that the federal regulations that govern whether an employee is non-exempt (overtime eligible) or exempt (ineligible for overtime) can be murky at best.
For example, determining whether an employee exercises sufficient “independent judgment and discretion,” such that he or she qualifies as an administrative exempt employee, is not always a simple task. Employers often complain that even their best judgment in applying that standard leaves them with an uneasy feeling that their employees have not been classified correctly. The risk that employers assume may be two (three in some cases) years of unpaid overtime compensation if they are wrong and are sued. Plus, the Fair Labor Standards Act gives employees the right to sue a company’s managers individually for violations, which only intensifies the worry.
Now, I am not suggesting that the Department of Labor is going to make the rules any more clear than they are now. In fact, it is likely that the waters will become even cloudier if the regulations are changed as promised by the Obama Administration.
But, the reality is that some employers make exempt/non-exempt classification decisions without doing a careful analysis of an employee’s actual responsibilities. Other employers do even less: they guess at an employee’s classification, hoping (or praying) that no one complains and that the Department of Labor does not come knocking at their door. These are some of the reasons why we are seeing an alarming increase in collective actions filed under the Fair Labor Standards Acts on behalf of employees who argue that they have been denied overtime compensation.
So, where is the blessing?
The blessing is that employers have time RIGHT NOW to prepare for changes that may take effect in a year or so. The preparation that should occur is the employer’s review of all positions in order to ensure that appropriate decisions have been made. When the federal regulations do change, and an employer is forced to make a few minor changes as a direct result, wouldn’t that also be an opportune time to fix other classification mistakes? An employer will be able to explain to an employee that his or her change from exempt to non-exempt is the result of the employer’s review of new federal regulations….and that explanation will be true. Media reports will make employees more aware that the legal landscape has changed and they will more easily accept their classification change than they would otherwise.
We recommend that this type of preventative maintenance of an employer’s pay practices occur on a periodic basis. The President’s announcement makes this the right time to undertake this important project. It should go without saying, too, that engaging legal counsel can help you protect your analyses and conclusions with the attorney-client privilege, and the assistance of counsel can help you evaluate the risks associated with your decisions.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.