Stunning New FLSA Requirement Proposed?

Breaking news which comes via the WorldatWork Eagles (an aptly named online community group started by ERI's Jim Brennan ... registration required to view group discussion).  I largely quote Jim in most of what follows.

Buried in the 2010 Spring Regulatory Agenda for the Department of Labor is a proposal for a new FLSA rule that has potential to create tremendous stress in the world of HR.  The proposed rule would require HR to show its FLSA exemption analysis to every worker denied overtime and to retain that document for the Wage & Hour Division inspector.  If you don’t have a current exemption analysis on file, it appears that the job will be considered nonexempt and overtime-eligible.  The back-pay consequences could be immense.  With the Lily Ledbetter Act extending liability windows, the spill-over into other areas could create even more unexpected costs.

From the US Department of Labor: Spring Regulatory Agenda 2010:  http://www.dol.gov/regulations/factsheets/whd-fs-flsa-recordkeeping.htm 

We intend to update the FLSA recordkeeping requirements to foster openness and transparency, to increase awareness among workers, and to encourage greater compliance by employers.  DOL is considering … requiring covered employers to notify workers of their rights under the FLSA, and to provide information regarding hours worked and wage computation. Any employers that seek to exclude workers from the FLSA’s coverage will be required to perform a classification analysis, disclose that analysis to the worker, and retain that analysis to give to WHD enforcement personnel who might request it. … This Notice of Proposed Rulemaking (NPRM) will support the Secretary’s outcome goals of securing minimum wages and overtime and helping middle-class families remain in the middle class.

U.S. Department of Labor - Spring 2010 Regulatory Agenda Fact Sheet

See: http://www.dol.gov/regulations/chat-whd-static-201004.htm
for a demonstration of how little the WHD is willing to disclose about their plans.

A few questions come to mind:

• What are the prospects that this will really happen? And when?
• Do you have a documented exemption analysis report for every job?
• Have you disclosed that analysis to the affected person and informed them why they are exempt?
• How will you deal with non-exempts who are disappointed at being excluded from “management” ranks?
• Can you prepare exemption documents in time to comply without adding to your staff?

Clearly, stealth is becoming the order of the day here - I am shocked that I've heard nothing about this before receiving Jim's announcement. 

Thanks for bringing this to our attention, Jim!

Comments

[Fred]

If you intention is to pay people right, then this is a welcome change that will help you acheive that end. If you are satisfied with just trying to pay people right and don't care too much whether you are paying them right, and don't want to get caught making mistakes, this is an unwelcome change.

[Andy Klemm]

Given the levels of speculated non-compliance with FLSA that run from 70% to 95%, this looks like a permanent full time menu of work for the DOL and consultants who are called to mop up. But, relatively few employers will pay the price.

The game will still be played on the basis of the probability of being caught, which, despite high levels of government growth, will remain low. The government has taught employers over the last 40 years that there is no reward for early compliance - see ERISA for an early example and the health care law for the latest example.

[Ann Bares]

Fred:

I hear what you are saying - but I believe there are a lot of organizations out there, particularly but not only smaller employers, who are trying hard to pay people right, but may not have set up the detailed documentation trail that could be required. With HR staffs cut lean as a result of the recession, compliance could be a real challenge.

Andy:

Given the DOL's new "We Can Help" campaign (with much focus on how to file a complaint) and the increased staffing there around wage and hour compliance, I don't know if I agree that few employers will pay the price. I guess time will tell, eh? ... if the proposed rule does in fact come to pass.

My objective here is just to get the word out on the possible change.

Thanks for sharing your thoughts and comments!

[Kelly]

If this is going to be enforced, the DOL needs to make the FLSA less "gray-area" with regards to exempt and non-exempt duties. In many large corporations, there are at least a handful of jobs that teeter on the edge of exemption and there seems to be very little direction providing a clear answer to guide a decision on exemption (hence, when in doubt, err on the side of non-exempt). We compensation professionals are trying to do our very best in a career path that doesn't involve a law degree...these recent changes in law are about to A) drive me to get a law degree to do my job with confidence or B) drive me right out of HR, running and screaming (which is the more likely scenario).

[E. James (Jim) Brennan]

The 2004 major revisions to the FLSA made it a lot clearer than ever before; but it is still a challenging assignment for anyone not an expert at job analysis who tackles it without software support. Suspect the government just wants more jobs to be paid overtime (the safe option for the employer), since that drives up the hourly wage and looks better for the economy.

[Tom Olkowske]

Suspect DOL is simply trying to take action to ensure employees are paid correctly in light of the sharp increase in FLSA claims received in recent years.

[Ann Bares]

Kelly:

I know many feel as you do.

Jim:

It IS a challenge, although the 2004 revisions brought clarity to some areas. And you're right - that the impact of this and other enforcement initiatives will likely result in more jobs being paid overtime, as more employers push to minimize any legal risk.

Tom:

It's probably just the cynic in me, but if this was really about simply making sure employees are paid correctly, why discontinue the opinion letters, which many employers rely on for clarification and guidance? Appears to me to be a migration to a more one-dimensional model ... punishment only, versus guidance (for those employers who are legitimately trying) and punishment (for those who appear not to be).

Thanks all, for the reactions and discussion here.

[JD]

Ann,

You've made it sound like employers can't go to the DOL for help or clarification of FLSA matters, by saying that Opinion Letters will be discontinued, when they can still get assistance. Here is what actually will happen:

The DOL announced that it will discontinue its practice of issuing “opinion letters” in response to specific industry or employer requests. Rather, the DOL will issue “Administrator Interpretations” when the Department determines that further clarity regarding the proper interpretation of a statutory or regulatory issue is appropriate, in order to provide guidance “across-the-board to all those affected by the provision at issue.” Future requests for DOL opinions will receive references to statutes, regulations, and cases that may be relevant, but the DOL will no longer analyze the specific facts presented in the request.

http://www.littler.com/PressPublications/Documents/2010_03_Wage_DOL_ReversesCourse_MortgageLoanOfficers.pdf

[E. James (Jim) Brennan]

Analysts like to know more than simply what the rule says. Practical details about how the words are interpreted and applied are extremely useful in real life. It can be frustrating when bureaucrats refuse to tell you what they mean and refer all questions right back to the original undefined words and unclear terms you started from. But, then again, I'm kinda slow.

[Ann Bares]

JD:

You're correct - the discontinuance of Opinion Letters doesn't mean there are no longer avenues for employer assistance, but it does mean that one particularly helpful tool is no longer going to be offered. I agree with Jim that the practical assistance in interpreting and applying the words are uniquely helpful to those of us without a law degree, and I am very sorry (and somewhat puzzled) to see this particular form of help go.

[Brad]

Ann,

I have looked through the opinion letters many times and found few that applied to my company. When I did find one, it did not apply directly, but the interpretive comments in the opinion were helpful, so I think the change can be good since that is where I found the most benefit. Also, we haven't seen the form of the new changes and have jumped to conclusions as to how they will look and be of value.

Also, I have often felt that the opinion letters were devices that companies used to fish for an exemption for employees or for other rulings favorable to management, especially when there was a buiness oriented Republican administration in power.

Also, I am suprised to hear that you feel that being a lawyer is necessary to understand and explain the FLSA. I am not a lawyer and have not had that experience. Based on your comments, do you offer consulting services on the FLSA or do you refer clients to law firms?

Brad

[Ann Bares]

Brad:

Thanks for sharing your experience here - good to hear, and for others to hear, that you have found value in the interpretive comments. I don't think I am saying that being a lawyer is necessary to understand and explain the FLSA overall - but I do think there are some jobs and situations where the law can be a challenge to interpret. And not every organization is willing to automatically go with the rule of "when in doubt, simply go nonexempt", particularly if there is a lot at stake.

I spent my formative years in a large consulting firm where it was (at least back then) absolutely verboten to offer an opinion to a client on a job's exemption status. Whether right or wrong, to a large extent, that formative experience still colors my outlook - but I also know that many of my peer consultants offer this service without any reservation whatsoever. While that may change in the future, at this time I do not (formally) offer that kind of assistance to clients.

[Kelly]

My understanding is that, with exception of opinion letters and clear direction in the pages of the law, the ruling on exemption can depend largely on who the "judge" is and how they feel that day. That may be a nasty rumor, but it's come straight from the mouths of several consultants with law degrees that I've spoken to.
I know the stretched-way-to-thin small HR staff in my company does our doggone best to try and be fair and equal to all our associates. We want to make this a great place to work. We don't want to lose associates. We want to attract top talent. We aren't looking to cheat anyone.
Constantly evaluating and re-evaluating these decisions with paper trails takes time from making strategic HR decisions. I entered this field to make strategic decisions that would better the economic position for both my company and my "customers" (aka, company associates). The more time that is taken away from that initiative, the more the company and the associates suffer because we can't make progress in this fast-moving and highly technological world.
US employment laws are one of the reasons companies off-shore jobs. Bringing jobs back to the US just isn't going to happen if the US continues to make it more and more difficult to employ Americans who want to work!