White HouseThe Office of Management and Budget released President Trump’s “America First” budget blueprint for discretionary spending earlier this morning. Overall, it increases spending on defense, veterans’ health, immigration enforcement and combatting opioid abuse while decreasing civilian discretionary spending. Hardest hit are programs such as the National Endowment for the Arts, the Legal Services Corporation, The Corporation for Public Broadcasting, which were cut completely from the budget. The Environmental Protection Agency and State Department received deep cuts, which will reduce foreign aid. The Department of Labor will have its budget reduced by about one-fifth.

The Budget document provides the following introduction to the DOL appropriation request:

The Department of Labor fosters the welfare of wage earners, job seekers, and retirees by safeguarding their working conditions, benefits, and wages. With the need to rebuild the Nation’s military without increasing the deficit, this Budget focuses the Department of Labor on its highest priority functions and disinvests in activities that are duplicative, unnecessary, unproven, or ineffective.

The President’s 2018 Budget requests $9.6 billion for the Department of Labor, a $2.5 billion or 21 percent decrease from the 2017 annualized CR level.

The President would totally eliminate the Senior Community Service Employment Program (SCSEP), which retrains unemployed older workers for unsubsidized private sector jobs on the basis that it is ineffective. It closes underperforming Job Corps Centers, although it does not specify which ones. The budget would limit the Department’s International activity to ensuring that American Workers are protected under trade arrangements. While reducing federal subsidies for job training and employment service grants to states (in favor of greater reliance on state and local government and employer funding), it increases support for “evidence-based” apprenticeship programs to prepare individuals for jobs. Finally, it eliminates OSHA training grants, so that the agency can focus on its core mission of worker safety.

Overall, the cuts do not appear to drastically reduce the ability of the DOL to conduct its investigation and enforcement activities as much as might have been expected. There is much yet to be determined, however, and the budget process is likely to lead to substantial changes in the budget.  It is clear, however, that the Trump Administration is prepared to make major cuts in civilian discretionary spending in order to increase funding for border security and military capacity.

On December 19, the United States Department of Labor issued comprehensive new guidance making it clear that it intends to continue to aggressively pursue employers who misclassify employees as independent contractors. The transmittal message for the new guidance, entitled “Misclassification Affects Everyone,” states the DOL’s position that “The misclassification of employees as independent contractors is a huge problem for workers, employers who play by the rules and our economy.” Although the document states that the DOL supports valid independent contractor arrangements, the definite direction of the DOL is to limit many common ways businesses use independent contractors rather than employees.

The DOL’s new guidance is accessible through a web page and provides quotes from misclassified workers, including one who compares his job as a taxi driver to “modern day slavery.” Although the approach may seem overly dramatic, the web site does provide a variety of useful tools, such as a section entitled “Myths About Misclassification,” which addresses twelve commonly held misconceptions about independent contractor arrangements.

The DOL’s overall direction under the incoming presidential administration cannot be predicted with complete certainty, but employers can safely predict that their classification of workers as independent contractors will continue to be closely scrutinized—not just by the DOL, but also by state and local taxing authorities. Employers should therefore consider auditing their independent contractor arrangements by using the DOL’s new guidance and by consulting with their employment counsel.

BlockedIn a much-welcomed eleventh-hour ruling yesterday, the United States District Court in the Eastern Division of Texas issued a preliminary injunction enjoining the United States Department of Labor (“DOL”) from implementing changes to overtime rules under the Fair Labor Standards Act (“FLSA”) (the “Final Rule”). The Final Rule, which nearly doubles the salary threshold for the overtime exemption, was scheduled to take effect on December 1, 2016. The injunction blocks the Rule, for now. For more information on what the Final Rule would mean for you or your company, click here.

In his Memorandum Opinion and Order, Judge Mazzant found that the Final Rule’s salary increase has the effect of excluding from the exemption some 4.2 million workers who are performing exempt-type work, and that this exclusion conflicts with the FLSA.

The Court imposed the injunction nationwide, not just within its jurisdiction. Thus, the injunction blocks (or at least delays) the Final Rule for all employers.

This is not the end. The judge’s ruling is only temporary, and could be overturned later by the same court or a higher one (including the United States Supreme Court). What is certain, however, is that the Final Rule will not go into effect on December 1, 2016 as previously expected.

So what should employers do now?

If you have already changed your compensation structure to conform to the new rule, it might be unpopular to reverse those changes, although you may have the right to do so-at least temporarily. Conversely, if you were waiting until December 1 to make any changes, you may now wait until the courts (or Congress) render a final decision. It will definitely be worth watching to see what action the new administration takes with regard to defending or disowning the Final Rule, since the litigation is certainly not going to be completed before January 20, 2017.

Sick-Leave-Sign-2-smallThe U.S. Department of Labor recently released its final rule requiring federal contractors and subcontractors to provide their employees with paid sick leave each year. This rule implements Executive Order 13706, which President Obama signed in September 2015. The rule takes effect on November 29, 2016, though generally it applies only to new contracts that are awarded on or after January 1, 2017. Nevertheless, covered contractors should begin taking steps to comply with the rule soon.

Under the rule, employees are entitled to one hour of paid leave for every 30 hours worked, up to a maximum of 56 hours of leave per year. Alternatively, contractors may provide 56 hours of leave to employees at the beginning of each year. In either case, the leave must generally carry over from year to year. In some situations, however, the amount of available leave can be capped at 56 hours.

Employees may use the leave for their own illness, preventative treatment or other health care needs, or to care for a family member or domestic partner. Employees may also use the leave in certain domestic violence, sexual assault, or stalking situations.

The rule does not apply to all employees of a covered contractor, but only to those who perform work in connection with a covered contract. There is also a short-term exemption for employees who are governed by a collective-bargaining agreement, if the CBA provides at least 56 hours of paid time off that may be used for sickness- and health- related reasons. These contractors have until the CBA expires or January 1, 2020 (whichever comes first) to comply with the rule.

Because non-compliance can result in significant penalties, including a possible three-year debarment, contractors should review their existing sick leave policies and ensure compliance with the rule before it takes effect. Contractors should also familiarize themselves with the various procedures governing leave administration, including leave tracking, employee notice, and health care-provider certifications.

With the clock counting down toward the December 1, 2016, effective date of the U.S. Department of Labor’s new overtime rules, officials from 21 states have stepped forward to try to stop the DOL in its tracks. In particular, on September 20, 2016, Texas Attorney General Ken Paxton, backed by 21 state officials from across the country, filed a lawsuit in federal court in Sherman, Texas, challenging the DOL’s rules. The lawsuit challenges the rules on several substantive and procedural grounds and seeks an injunction preventing the rules from taking effect. Secretary of Labor Thomas Perez expressed confidence that the rules will survive all legislative, judicial or other challenges. The same day, private sector groups, led by the U.S. Chamber of Commerce, filed a suit seeking the same relief in the same court.

It is clear that both sides of this battle will approach it with vigor, although it is not at all clear in whose favor the court will rule. As a result, employers who are making plans to comply with the rules as of December 1 should not abandon those plans just yet. We will follow the lawsuit closely, and we will be prepared to advise our clients as to any developments that may arise.

By now most employers are (hopefully) aware that the U.S. Department of Labor has significantly changed some of the rules governing exemptions from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”). The revised regulations will go into effect on December 1, 2016, and they will principally do the following:

  • Immediately double the minimum salary threshold for the “white collar” exemptions to $913 per week ($47,476 annualized)
  • Adjust the minimum salary threshold for inflation every three years
  • Change the way the minimum salary threshold is calculated so that employers can count certain bonuses and commissions toward as much as 10% of the threshold
  • Set the total annual compensation requirement for the highly-compensated employee exemption to the annual equivalent of the 90th percentile of full-time salaried workers nationally (i.e., $134,004)

Needless to say, these unprecedented changes present significant challenges for employers. Given the potential consequences of noncompliance it is essential that employers act immediately to ensure they have taken all necessary steps to comply with the new regulations prior to December 1st. While each workplace will be different, some general suggestions that employers should consider include the following:

  • Immediately identify exempt positions that fall below the new minimum salary threshold and consider
    • Who will get a pay raise to maintain the exemption
    • Who will be reclassified as non-exempt
  • For reclassified employees, study the employees’ average hours worked for purposes of setting new pay rates
  • Given the likelihood of increased litigation and stepped up DOL enforcement, consider reclassifying other “vulnerable” positions
  • Ensure accurate timekeeping of all hours worked
    • Train reclassified employees, many of whom will be uncomfortable with or resistant to tracking their hours worked
    • Train managers
    • Address “bring your own device” issues (e.g., after-hours e-mails, texts, and phone calls)
  • Review and update policies and procedures
    • Policies related to overtime
    • Policies related to recording hours worked
  • Communicate the changes to your workforce
  • Plan for future inflation-driven adjustments to the minimum salary threshold to the extent possible

The Department of Labor (“DOL”) issued its Persuader Activity Advice Exemption Rule (“persuader rule”), which requires attorneys and consultants who communicate with employers regarding certain labor relation activities to file a report disclosing the terms of their arrangement, including payments. Since the persuader rule was issued in final form, multiple lawsuits have been filed by employers, attorney organizations, and states. On June 27, 2016, Judge Sam Cummings of the Northern District of Texas issued a preliminary injunction enjoining, on a national basis, the enforcement of the persuader rule. National Fed’n of Indep. Bus. v. Perez, Case No. 5:16-cv-00066-C (N.D. Tex. June 27, 2016).

The court made this decision based on five specific grounds: (1) the DOL lacks the statutory authority to enforce this version of the persuader rule; (2) the persuader rule is arbitrary, capricious, and an abuse of discretion; (3) the persuader rule violates the due process clause of the fifth amendment; (4) the persuader rule violates the Regulatory Flexibility Act (“RFA”); and (5) the persuader rule creates a substantial threat of irreparable harm. First, the DOL does not have the authority to enforce the terms of this persuader rule and, in fact, the rule conflicts with the plain language of the relevant statute, the Labor-Management Reporting and Disclosure Act of 1959. Second, the persuader rule does not explain the need to change the previous interpretation, it conflicts with state rules governing the practice of law, and it violates the first amendment by infringing on free speech, expression, and association rights. Third, the persuader rule is unconstitutionally vague and does not clearly define its prohibitions; instead it replaces a long-standing and bright-line rule with a rule that is ambiguous and impossible to apply. Fourth, the persuader rule violates the RFA. Although the DOL certified that the persuader rule would not have a significant economic impact on a substantial number of small entities so as to exempt it from the RFA, the DOL failed to provide a factual basis for the cost estimates. Finally, the persuader rule will conflict with attorney duties, reduce access to legal advice, reduce access to training sessions, and burden and chill the first amendment, all of which creates serious harm.

This decision came just in time to avoid the persuader rule from becoming effective, as it was issued just days before the persuader rule was set to go in force on July 1, 2016. In light of this ruling, attorneys and advisors who provide unionization related advice to employers will not be required to report to the DOL, at least for now. This injunction prevents the DOL from enforcing the persuader rule unless the injunction is vacated in some way. If the injunction is vacated, employers and their advisors may eventually have to file reports, but the effective date of that requirement may be altered.