Now that everyone has spent the last week reading articles about the new overtime regulations that were proposed by the Department of Labor, I thought I would highlight a recent event in the valley. A couple of weeks ago I co-hosted the Maricopa Community Colleges Foundation (MCCF) Women of Maricopa event at the Wells Fargo Museum with a fellow MCCF board member and friend, Misha Patel Terrazas .
It was a small group gathering and networking event to highlight some of the many success stories of the Maricopa Community Colleges. and to provide an opportunity for the attendees to network and develop new relationships.
I thought I would post about the Colleges here because many people don’t realize the true reach of the community colleges in Maricopa County as the 10 colleges, 2 skill centers, numerous education centers, and the Corporate College are all linked together as one. That means if you go to one community college, you can seamlessly transfer to another. You can apply to all colleges at once and take advantage of the 950 degree and certificate programs, and you can apply for numerous scholarships all at once.
The Maricopa Community College District is a significant investment in our region because it is an investment in the people.
That evening, we heard from Dr. Maria Harper-Marinick. the Executive Vice Chancellor and Provost, and also Autumn Barber. a recipient of the Women’s Philanthropy Circle Scholarship. We also talked about various scholarships available, including thirty endowed scholarships dedicated solely to women. These range from the Women’s Philanthropy Circle Scholarship, to the Linda B. Rosenthal Scholarship for re-entry students, to scholarships for single moms, to scholarships for women who are in the U.S. to escape persecution, or scholarships for women pursuing degrees in a certain field. My law firm created and endowed the Snell & Wilmer Leader Scholarship–which is named after the firm’s first female partner, Mary Leader, and is in its second year of being awarded to a minority woman who has demonstrated strong leadership skills and a commitment to serving her community. For those who are interested in supporting MCCF scholarships that are dedicated directly to women, you can check out the link here .
And here’s a short highlight reel from the night.
Special thanks to our amazing sponsors: Snell & Wilmer, Wells Fargo*, Kendra Scott Jewelers, Sumits Yoga, Verde’ Maison Organic Beauty House, Esthetica, and Drybar.
*The Wells Fargo Museum is an absolute gem in downtown Phoenix. Despite being a native Arizonan, I had never gone there. It has an authentic 19 th Century stagecoach and some great exhibits.
New Overtime Regulations Will Impact Five Million Workers
For the first time in over a decade, the Department of Labor proposed updates today to the federal Fair Labor Standards Act (“FLSA”) white collar overtime regulations. These changes will impact businesses throughout the United States. The Department estimates that, in the first year, 4.6 million workers will be entitled to overtime protection because of these changes—specifically, the increase in the salary level threshold.
The FLSA establishes, among other things, minimum wage and overtime laws for workers in the United States. Non-exempt workers are entitled to minimum wage and overtime; whereas, exempt workers are paid a salary and not entitled to overtime protections. As explained in the proposed regulations, “[t]he exemption was premised on the belief that exempted workers earned salaries well above the minimum wage and enjoyed other privileges, including above-average fringe benefits, greater job security, and better opportunities for advancement, setting them apart from workers entitled to overtime pay.” There are various ways that a worker may qualify as exempt from overtime requirements and the proposed regulations, very simply, reduce the number of workers who can qualify as exempt.
An employee must meet certain tests to qualify for the white collar exemption. In particular, an employee must generally:
- be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”), and the amount must be more than a certain minimum amount identified by the Department (the “salary level test”); and
- primarily perform bona fide executive, administrative, or professional duties, as identified by the Department regulations (the “duties test”).
If the Proposed Rules Are Adopted, What Will Change?
The Salary Level for Exempt Employees Will Be Changed.
Currently, the minimum salary level required for an exemption for an executive, administrative, or professional employee is $455 per week ($23,660 annually). This means that, if an employee makes at least $455 per week, the determination of whether an employee is exempt depends on whether the employee otherwise meets the salary basis test and the duties test.
The new regulations propose to increase the minimum amount of pay and set the standard salary level to the 40th percentile of weekly earnings for full-time salaried workers. Using 2013 data provided by the Bureau of Labor Statistics, that amount would be increased to $921 per week ($47,892 annually). The Department estimates that the 2016 level will be approximately $970 per week ($50,040 annually) .
To ensure the salary level does not, again, become outdated—since the last time the salary level requirement was updated was in 2004—the Department is proposing that the salary and compensation levels be automatically updated annually. The salary level will remain a threshold question when determining the applicability of an exemption and, even if a worker meets the salary basis test and the duties test, the employee will not be considered exempt if he/she does not have a salary above the new minimum salary level. More specifically, a worker who is exempt today and makes $24,000 annually will not be exempt when these regulations are finalized (assuming they are finalized as-is) unless his/her salary is at or over the 40th percentile (e.g. projected to be $50,040 in 2016) for full-time salaried workers.
The current standard of $455 per week, or $23,660 annually, falls below the poverty line for a family of four. The Department stated in its Frequently Asked Questions that the 40th percentile salary level “minimizes the risk that employees legally entitled to overtime will be subject to misclassification based solely on the salaries they receive, without excluding from exemption an unacceptably high number of employees who meet the duties test.”
The Department is seeking guidance as to whether nondiscretionary bonuses or incentive payments (e.g. tied to productivity or profitability) should be included in the calculation of the salary level. In particular, the Department is considering whether it should permit the nondiscretionary bonuses or incentive payments to account for 10% of the standard weekly salary level or, whether it should consider a lower amount, a higher amount, or not permit it to apply at all. “[T]he Department envisions that in order for employers to be permitted to credit such compensation towards the weekly salary requirement employees would need to receive bonus payments monthly or more frequently. For similar reasons, the Department is not considering employers to make a yearly catch-up payment.”
The Salary Level for Highly Compensated Employees Will Be Changed.
In addition to the change to the salary level for exempt employees, there is another proposed change relating to the level of compensation necessary to qualify as a highly compensated employee. The highly compensated employee exemption currently applies only to employees who have a guaranteed total annual compensation of at least $100,000 and who “customarily and regularly” perform one or more of the exempt duties of an administrative, executive or professional employee, and are not engaged in manual work.
The assumption is that the high salary is a strong indicator that an employee is properly classified as exempt; therefore, the other tests are relaxed when determining whether an employee is properly classified. Just as the Department proposes increasing the salary level for all employees to qualify for an exemption, the Department also has proposed increasing the salary level for highly compensated employees to qualify for an exemption. The Department proposes that the level be set at the 90th percentile ($122,148 total annual compensation) for the highly compensated employee. Under the proposed regulations, the total annual compensation may continue to take into account commission payments, nondiscretionary bonuses, and other nondiscretionary compensation. However, it does not include board, lodging, or other payments for medical insurance, payments for life insurance, contributions to retirement plans and the cost of other fringe benefits.
There Are No Proposed Changes to the Duties Test .
There are no proposed changes to the duties test, which is one of the tests that must be met for a worker to be classified as exempt. Rather, the Department is seeking comments on whether the tests, which were last updated in 2004, are working properly. The expectation is that setting the salary level threshold at the 40th percentile will eliminate the need for “a more robust duties test to ensure proper application of the exemption.”
How Will This Impact My Business?
Right now these are just proposed regulations. Nothing is changing today, but big changes are on the horizon. The Department explained that, in 2013, there were 144.2 million workers in the U.S. of whom the Department estimated 43 million are white collar salaried employees. Of those, 21.4 million may potentially be affected by the proposed rule; whereas, a subset of workers who meet different exemption tests (e.g. physicians, teachers, judges, outside sales workers, etc.) may not be impacted by the change. In the first year of implementing the regulations, the Department estimates that 4.6 million exempt workers will be directly affected as they fall between the current $455 weekly salary level but less than the 40th percentile ($921) proposed by the Department and, accordingly, will need to be reclassified as non-exempt. With automatic updating of the salary levels, this amount is expected to increase to 5.1 to 5.6 million workers within ten years. In addition, an estimated 36,000 workers will be impacted by the change to the highly compensated employees salary level—originally set at $100,000 and, now, set to increase to the 90th percentile ($122,148).
Companies will need to audit their workforce to determine if employees will need to be reclassified when the final rules go into effect. Legal counsel should be involved to appropriately preserve privileges and to properly evaluate the classifications. While the proposed regulations focus primarily on updating the salary level, there must still be an analysis of the duties required to be performed to qualify for the various exemptions. The Department reaffirmed that “we have always recognized that the salary level test works in tandem with the duties test.” Accordingly, it is important to remember that job titles and descriptions alone do not determine exempt status but, rather, analyze exactly what employees actually do on a day-to-day basis to properly establish an exemption.
Keep in mind that the proposed rules are not final and may still be modified when the final regulations are issued. For those workers who are ultimately re-classified to non-exempt, companies will need to develop methods to track their hours so that overtime and minimum wages can be paid. Certain states may have their own regulations that may also be impacted, if the new FLSA regulations are adopted.
If you want more information, here is a Fact Sheet published by the Department of Labor regarding the proposed changes to the regulations.
We are currently in the notice-and-comment period of the proposed rule. Comments can be submitted to the Department electronically through the Federal eRulemaking Portal for sixty days following the publication of the proposed rulemaking issued today. The Department identified in the proposed regulations specific areas it is seeking comments, but an individual or organization may choose to comment on any areas. The Department will ultimately base its decisions on these comments, as well as its own analysis and other data gathered.
When the final rule is published in the Federal Register. the effective date of the new regulations will be identified.
*If you want to view this as a Legal Alert. as I originally published it today, you can check it out here .
Lunch with Justice Scalia
I initially wanted to hold off on posting this article in order to not inundate the blog with Justice Scalia posts back-to-back (see Abercrombie case ) but I got to thinking—Could there ever be too much Scalia. I don’t think so.
Regardless of whether you agree with his decisions or not, it is simply indisputable that Justice Scalia is a genius and, quite frankly, incredibly entertaining. I had the opportunity to hear him speak a couple weeks ago when he was in Phoenix, and thought I would pass along some gems* from the event:
First, the seriously-let’s-get-some-perspective part of the event. Scalia started off the luncheon by discussing what makes us the free-ist (is that a word? I think I just made it one) country in the world. You know, just another ice-breaker that deals with the heart and soul of our democracy. You might be thinking it’s the Bill of Rights but, not the case, said Justice Scalia. The Bill of Rights is just words on paper. Meaningless. What prevents the centralization of power is
actually gridlock. That is the source of liberties. Only good legislation with solid support will get through.
Justice Scalia also reminded the audience not to over-estimate the importance of his court. Federal law is a small part of the laws that govern our society. Murder – that’s a state crime (unless it goes haywire and crosses state borders, I guess). There are state laws of contract. Automobile accidents. That’s state law. Family court. It’s all state law. Scalia reminded the audience that the most important court should be our State Supreme Court.
Don’t exaggerate the value of my court in your life.
Soon, we transitioned to the audience Q&A portion of the luncheon. When asked about his “favorite dissent” Justice Scalia provided the light-hearted sentiment that “the most important element of a good dissent is a really stupid majority .” The example he gave was, ironically, a case that I had sitting on my desk–PGA Tour, Inc. v. Martin . His dissent is actually a good read – if you haven’t read it, read it here. And you, too, can feel the weight of “the solemn duty of the Supreme Court of the United States, laid upon it by Congress in pursuance of the Federal Government’s power ‘[t]o regulate Commerce with foreign Nations, and among the several States,’ U.S. Const. Art. I, §8, cl. 3, to decide What Is Golf .”
Justice Scalia pointed out that he is not a strict textualist. And he recommends that everyone read The Federalist Papers .
Scalia commented that international law has no relevance to the American constitution. Basically if you think your job is to think about what should the world be. then international law might have relevance, he commented.
Law schools. They are a frequent hot topic discussion point of what is great and what can be improved in this world—depending on who you ask. He said that he does not think that law schools should be reduced from three to two years. Scalia thinks that we need to cut out the courses like “Law on Marbles” (I would love to know what would be taught in that course) and make sure the curriculum is designed to train lawyers.
My favorite quote of the day? I don’t even feel the need to explain it.
More damage has been done by stupidity than [good by] benevolence over mankind.
Some closing remarks are that it is not the job for the judge to write the law. (Spoiler alert: Justice Scalia believes that’s Congress’s job). Justice Scalia commented that sometimes he has to produce “awful” results. “If given a stupid statute, then I am bound by oath to produce a stupid result. ” He also reminded the crowd that questions during oral argument are opportunity and not an interruption. “For skillful counsel, a cold bench is terrible .”
And, for those who know me well–YES, I got my copy of Justice Scalia’s book autographed and added it to my Supreme Court Justice Collection. Send me a message if you hear of any other Justices coming to Phoenix…
*Full disclosure. I wrote my notes as fast as my hand can write, but I have poor handwriting and, actually, don’t often use primitive tools like pens and paper anymore. Combine that *obstacle* with the fact that I was also trying to eat my Ritz Carlton lunch while listening to the Justice–and herein lies my problem. There were a lot of amazing discussion points that I just couldn’t cover here.
The Abercrombie Case
Justice Scalia wrote the majority opinion for the Supreme Court decision issued yesterday in the Abercrombie case. For those who haven’t been following the Supreme Court docket this year (and only stumbled upon this blog post because you were, in fact, looking for a new pair of Abercrombie jeans ), this case relates to the EEOC lawsuit that was filed on behalf of a woman who applied to Abercrombie and was denied a position because the headscarf she wears violates Abercrombie’s Look Policy which prohibits “caps” – and I seem to recall from oral argument that it also prohibits clothing that is black.
The crux of the case is that the woman wore the headscarf due to her Muslim faith and, accordingly, needed an accommodation that would permit her to wear the headscarf even though this would directly violate the Look Policy. During the application phase, the decision was made that the headscarf could not be worn and she was not given the job. The difficult part of this case is that Abercrombie did not necessarily know that she needed to wear the headscarf for a religious reason. Actually, in Abercrombie’s brief in opposition to the petition for writ of certiorari, Abercrombie claimed it did not have any actual knowledge that the need was for a religious practice from any source. So – you might be wondering how Abercrombie would have known it even had to provide a “religious accommodation” under Title VII if it had no idea the accommodation that was needed was for religious reasons. (Stay with me here – I will give you an answer-ish soon….)
Very simply, the issue in this case is whether an employer can be liable under Title VII for refusing to hire an applicant and provide an accommodation of a “religious observance and practice” only if the employer has actual knowledge that a reasonable accommodation was required.
So, jumping to what I know everyone is interested in… the answer… the Supreme Court found that an employer may be liable for discrimination even if it lacks knowledge of the need for an accommodation.
Abercrombie’s primary argument is that an applicant cannot show disparate treatment without first showing that an employer has “actual knowledge” of the applicant’s need for an accommodation. We disagree. Instead, an applicant need only show that his need for an accommodation was a motivating factor in the employer’s decision.
One interesting distinction is that, while Title VII does not include a knowledge component, other statutes – such as the Americans with Disabilities Act – do include one. The ADA, for example, requires accommodations for known physical or mental limitations. Therefore, this case may have turned out differently if it were under the ADA and not Title VII.
Under Title VII, an applicant needs to only show that the need for an accommodation was a motivating factor in the employment decision–not that the employer had knowledge of the need. If a religious practice can be accommodated without undue hardship, then the company needs to accommodate such practice. Confusing as this may sound (i.e. the fact that we now have intentional discrimination without knowledge), this decision confirms there is a “motive” and not a “knowledge” standard.
An employer who has actual knowledge of the need for an accommodation does not violate Title VII by refusing to hire an applicant if avoiding that accommodation is not his motive . Conversely, an employer who acts with the motive of avoiding accommodation may violate Title VII even if he has no more than an unsubstantiated suspicion that accommodation would be needed.
Basically, absent an undue hardship, “otherwise-neutral policies must give way to the need for an accommodation.” At first glance, this sets the bar very low for employees who now arguably do not necessarily have to fully explain why they may be requesting an accommodation or variance from a company’s policies and procedures but can still assert a claim for disparate treatment. It almost sets the onus on the company to ask an employee if he/she is requesting an accommodation for a religious practice, BUT a footnote in the decision provides an inch of leeway that should be helpful for employers .
While this issue was not presented nor decided in the case, it confirms that:
[I]t is arguable that the motive requirement itself is not met unless the employer at least suspects that the practice in question is a religious practice—i.e. that he cannot discriminate because of a religious practice” unless he knows or suspects it to be a religious practice.
Therefore, companies need to consider to what extent they need to evaluate requests for accommodations and/or seek additional information regarding applicants or employees who are making such requests–when they cross over the minimum threshold of information and suspect the request may be one for a religious accommodation. Particularly in the application context, less is more–meaning that the less you know about an individual’s protected class the better, because it cannot influence the decision-making process, but now–perhaps there needs to be more inquiry. If an employer can be liable under the disparate treatment theory for discrimination even if it did not have knowledge, then perhaps there is more than needs to happen if an employer suspects that a request is being made as an accommodation.
The last thing to keep in mind is that this case is still on-going. It has been remanded to determine whether Abercrombie violated or didn’t violate Title VII now that the standard is clear.
A Key Consideration in the New Industrial Revolution: Remaining Competitive and Relevant While Mindful of Employment Laws
This morning I have a thought-provoking article written by my colleague and friend, Manuel Cairo. It provides an interesting op-ed perspective for those with independent contractors or who are thinking of utilizing them.
America is experiencing an industrial revolution not unlike that which it went through in the early twentieth century. Then, America’s industrial revolution was characterized by mass consumption that required the likes of Henry Ford’s assembly line to quench the demand of thirsty consumers. A byproduct of that mass consumption was consumer access to products and services previously reserved for a select subset of society. The character and nature of the economy forever changed and it is happening again now.
According to The Economist. technological advances and ingenuity is again delivering consumers access to products and services previously unobtainable. See Workers on Tap. The Economist, Jan. 3rd-9th, 2015, at 9, 17-20. Take for example Uber, which operates a mobile app that allows individuals to effectively and efficiently have a private chauffeur. Stated differently, Uber, like so many other new businesses, is harnessing the power of technology to provide products and services whenever required by the consumer creating what the publication calls an “on-demand economy.” So powerful is this trend, The Economist reports venture-capital investment in the on-demand economy by this country approached nearly $1.5 billion in 2013—an exponential growth compared to total investments from 2009. It appears, then, the “on-demand economy” may very well be here to stay and all businesses will have to adapt to remain competitive and relevant.
As businesses begin adapting to this new business paradigm, they should keep in mind that the marketplace often evolves faster than the regulatory system. Therefore, businesses should remain mindful of employment laws when developing strategies to compete, such as how to classify its employees. Indeed, employers contemplating these strategies often consider classifying workers as independent contractors instead of employees because the former classification can provide greater flexibility in responding to consumer demands while affording substantial savings that in turn allows for the cheap and quick delivery of products or services. The federal government recognizes businesses are tempted by the lure of the independent contractor classification and has long warned that it “presents a serious problem for affected employee, employers, and the entire economy. Misclassified employee are often denied access to critical benefits and protections. and [misclassification] generates substantial losses [to local, state, and federal governments].”
This Workplace Word is not intended to discuss any particular case or legal doctrines concerning the independent contractor classification. Surely, much has already been written on the topic. Instead, this Workplace Word is meant to encourage business owners—large and small—to maintain a big-picture view on this issue. Considering the use of independent contractors involves a multidisciplinary analysis. For example, the independent contractor classification is important in determining application of laws concerning traditional labor, tax, employee benefits, wage and hour, anti-discrimination, immigration, worksite enforcement, heath care, worker’s compensation, and unemployment. Moreover, the proper analysis for each of these areas is different. Tests include “right to control,” “economic realities,” and various modified versions of each of them adopted at both the federal and state level.
Suffice it to say, an independent contractor agreement is generally not enough to overcome the presumption that workers are employees, not independent contractors. Business owners must think about this issue more broadly and approach it with greater nuance and care. The breadth of potential consequences from misclassification is merely a corollary of the multidisciplinary nature of this area and should further cause business owners to think carefully about how they classify workers.
The Economist may be right in spotting the beginnings of a twenty-first century industrial revolution. If true, businesses will have to adapt to these new trends so as to reinvent how they deliver products and services to an ever changing and demanding consumer. In doing so, businesses will undoubtedly turn to the workforce to find solutions for effective evolution. While classifying workers as independent contractors may seem tempting because of the cost savings and flexibility, it could prove expensive if not fatal in the long run for a number of reasons business owners should consider.