Wage Hour Report
Obama to Seek Drastic Changes to White-Collar Regulations Dealing With Overtime Exemption Under FLSA

March 12, 2014

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Tomorrow, President Obama is expected to direct the U.S. Department of Labor to modify its regulations governing the white-collar exemptions to the federal Fair Labor Standards Act so that more employees now classified as "exempt" would be entitled to overtime.

This move follows the President's controversial statement that he would not "be waiting for legislation" to enact his administration's policies, but instead would work around Congress through executive order and agency actions.

Workers now classified as executive, administrative, or professional employees are exempt from overtime under the FLSA if they are paid a salary of at least $455 a week and their duties meet certain "duties tests" established by DOL regulations. The regulations, which were last amended by the DOL in 2004, do not need congressional approval for implementation.

Minimum Salary

Although the White House has not issued a formal press release describing the proposed changes to the white-collar regulations, the President is expected to order two changes. First, he is expected to recommend that the minimum salary of $455 a week be doubled. Some special interest groups have argued that the federal threshold should be as high as $984 a week, or $51,168 annualized.

Some states already have similar requirements. New York and California, for example, recently increased the minimum salary for exempt status in their states to $600 and $640 per week, respectively. These amounts will rise to $675 and $800 weekly in 2016.

"Duties Test" for Executive Exemption

Second, the President is expected to recommend a change to the "duties test" for the "executive" exemption. The change is expected to require that an exempt executive spend a certain percentage of his or her time (likely to be 50 percent) performing "executive" duties. For example, a restaurant manager who often performs many non-managerial tasks over the course of a day, such as preparing food, serving customers, and bussing tables, would be non-exempt under the anticipated rule unless he or she spends a certain percentage of his or her time on management duties. Currently, a manager is permitted to perform non-exempt duties for as much as 80 to 90 percent of the day without losing the exemption as long as the primary (or most important) duty is management of the restaurant. Moreover, the current regulations recognize the concept of "concurrent duties," in which a manager performing non-exempt work is still considered to be performing managerial responsibilities. It is questionable whether "concurrent duties" will survive in the proposed rule. The obvious effect of the proposed change would be to convert many employees – especially in the retail and restaurant industries – from exempt to non-exempt status.

By dramatically increasing the number of employees who would be eligible for overtime compensation, these anticipated changes will upset well-established business and staffing models. In addition, the changes are likely to spawn an increase in wage and hour lawsuits as employers and employees seek guidance from the courts in interpreting and applying the rules. For all of these reasons, business and industry groups are expected to strongly object to the proposed regulations.

Constangy, Brooks & Smith, LLP's Wage and Hour Practice Group will continue to monitor the situation and update you as new information is released.

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