Last week, the Department of Labor (DOL) issued a news release stating that going forward, it will use the seven-factor “primary beneficiary” test — set forth by the 2nd Circuit and applied by other Circuits — to determine whether interns working at for-profit employers are employees under the Fair Labor Standards Act (FLSA), expressly rejecting its previous test from 2010.
The “primary beneficiary” test that will now be applied by the DOL analyses the following seven, non-exhaustive factors:
- The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
- The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands‐on training provided by educational institutions.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The DOL noted that this new test will be applied in a “flexible” manner, and that whether an intern qualifies as an employee under the FLSA depends on the unique circumstances of each case.
It is widely agreed that the primary beneficiary test is easier for companies to satisfy than the DOL’s prior test, but it’s too early to tell how much of an impact this change will be. If you do have an internship program, it’s a great time to review intern classifications and make sure that they are being treated properly under employment laws.
It seems like we spent the better part of 2016 getting ready to comply with the new overtime regulations that had been set to go into effect December 1, 2016 — until a federal judge in Texas issued a last-minute injunction. The Texas court’s injunction meant that the new overtime standards — including a much higher minimum salary requirement — did not go into effect as planned, even though many employers had already made changes to comply with them. That injunction is currently being appealed before the 5th Circuit, but the new Department of Labor’s positioning in that appeal is raising the potential that the 2016 rules could come back to life — at least until a new, replacement rule can get through the rule making process.
The issue here is that while the new Secretary of Labor has taken steps toward revising the overtime regulations (with an eye toward making them more employer-friendly), the DOL has not asked the appellate court to uphold the injunction that was issued late last November. This sets up a situation where the 5th Circuit could rule to dissolve the injunction — allowing the Obama administration’s rule to go into effect — before the agency has a replacement rule ready via the regulatory process.
Were this to occur, it would create a very difficult situation for the DOL and employers alike. The current DOL would be charged with implementing a rule that it plans to do away with, and employers would have to figure out how to comply with a rule that will likely change in the near future.
We suggest that employers hold tight until more information is known. Given the last-minute nature of the injunction, many employers had already taken steps to comply with the new overtime rules before they were stayed, so if the injunction is dissolved, those employers should be able to pick the process back up where they left off.
It is not clear when the 5th Circuit will issue its decision on the fate of the regulations and injunction, but we will alert you when it does.
Earlier today, U.S. Secretary of Labor Alexander Acosta announced the withdrawal of the U.S. Department of Labor’s informal guidance on joint employment and independent contractors issued during the Obama administration. The announcement states that the withdrawal does not “change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act” and that the DOL “will continue to fully and fairly enforce all laws within its jurisdiction.” We will keep you updated on any additional word from the DOL on these issues, but it appears that by withdrawing these guidelines, the new administration is taking a first step away from attempts of the Obama administration and the NLRB to expand concepts of joint employment.
On September 29th, the Department of Labor released its final rule requiring federal contractors to provide their employees with at least 1 hour of paid sick leave for every 30 hours of work, up to a maximum of 56 hours (7 days) per year.
The rule officially implements President Obama’s 2015 executive order. Once formally published in the Federal Register (which is expected to happen in the next few days), the rule will go into effect 60 days after publication. Federal contractors should take note and ensure compliance with this rule.
Congress has joined the fight in trying to stop or delay the Department of Labor’s new overtime regulations. This week, the U.S. House of Representatives voted 246 to 177 to delay the effective date of the DOL’s overtime rule by six months until June 1, 2017. This bill faces an uphill battle — first having to pass the Senate and then a very likely Presidential veto.
Given that the bill is unlikely to become law, and given the questionable future of pending court challenges, employers should continue to prepare for the new regulations to be effective on December 1st. We will continue to monitor these challenges and keep you apprised.
This week, 21 states and over 50 business groups filed suit in the Eastern District of Texas challenging the Department of Labor’s new overtime regulations, arguing that the DOL overstepped its authority in establishing the new minimum salary level and the automatic increases to the minimum salary every 3 years.
The new regulations (which,as we have previously discussed
, more than double the minimum salary requirement for employees to be eligible for the administrative, professional and executive overtime exemptions) have been hotly contested — in Congress and now in the courts. But it is far from clear that any of the efforts to delay or stop the new standards will be effective.
We will continue to monitor these challenges and keep you apprised. However, unless and until a challenge is successful, employers should plan to be ready for the new regulations on December 1st.
Under final overtime regulations set to be published today, the new minimum salary for employees to be exempt from overtime under the “white collar” exemptions will more than double — to $913/week , which is $47,476/year — with further increases every 3 years thereafter, beginning on January 1, 2020. The new regulations will become effective on December 1, 2016.
In a positive development, according to the Department of Labor’s (DOL) overview and summary of the new rule, employers will be permitted to credit bonuses and incentive payments for up to 10% of the new required minimum salary.
According to the DOL’s summary, the new regulations contain the following changes:
- Increase of minimum salary for “white collar” exemptions from $455/week ($23,660/year) to $913/week ($47,476/year) — which is the 40th percentile for full-time salaried workers in the lowest-wage Census region (currently, the South).
- Increase in the salary threshold for the Highly Compensated Employee exemption from $100,000 to $134,000 — which is currently the 90th percentile for full-time salaried workers nationally (note that the Highly Compensated Employee exemption isn’t effective in a number of states, including Illinois).
- Automatic increases in the salary minimums every 3 years, with the first increase effective January 1, 2020. For the regular “white collar” exemptions, the minimum salary will increase the to the 40th percentile for full-time salaried workers in the lowest-wage Census region (estimated to be $51,168 in 2020). For the Highly Compensated Employee exemption, it will increase to the 90th percentile of full-time salaried workers nationally (estimated to be $147,524 in 2020).
- Up to 10% of the minimum salary for the regular “white collar” exemptions can be met with non-discretionary bonuses, incentive pay, or commissions, provided that they are paid at least quarterly.
- The job duties tests remain unchanged.
The Department of Labor estimates that 4.2 million workers will be impacted by the new regulations.
While December seems like a long time away, changes to compensation structures take time. In order to have all options available, companies need to start thinking now (if they haven’t already) about how the new regulations will impact their workforce and how they are going to react. We strongly recommend that you speak with your employment attorney to determine the best course of action for your company.