WASHINGTON — Employers are waiting in the wings as the U.S. Department of Labor works to update its overtime regulations under the Fair Labor Standards Act (FLSA), but one of the agency's former Wage and Hour Division administrators is skeptical that its efforts will proceed as planned.
At the Society for Human Resource Management's Employment Law and Legislative Conference Tuesday, Tammy McCutchen, currently a shareholder at Littler Mendelson, said DOL's planned timeline for finalizing the rule is "very squished," with a target effective date in the first quarter of 2020, just months before a presidential election that could undermine the proposal if it's delayed.
"I am concerned that the political expediences will have them giving us like 60 or 90 days to comply," McCutchen told attendees. "The people who are going to be hurt by it are the people in this room who have to deal with what they're adding."
Adding to the complexity of the situation is the fact that the overtime rule proposed earlier this month by the Trump administration isn't the only one that could take effect; McCutchen repeated her long-standing warning, also offered at last year's edition of the conference, that the Obama administration's version of the update is still alive. "The 5th Circuit, whenever they want to, could uplift the state of the appeal and rule on that decision," she said. "It's not outside boundaries because nobody thought we would win the injunction in the first place."
With this in mind, McCutchen described her "worst-case scenario" for employers, the following series of events:
- President Donald Trump loses re-election in the fall of 2020.
- The new rule is not yet final or effective before inauguration, with new, Democratic leadership taking office at DOL.
- The new administration moves to restart litigation in the 5th Circuit and defend the 2016 final rule.
- The 5th Circuit reverses the lower court's injunction.
- It's back to the Obama administration's proposed rule, without the need for any rulemaking on the part of the new administration. "In fact, it would be effective very fast," McCutchen said, perhaps within 30 to 60 days of the court issuing of its mandate.
On top of all that, there's the possibility that rule could be implemented retroactively. That could mean employers having to pay overtime to every exempt employee that made less than $47,476 a year during the time the rule was enjoined; "Think about what that would do to your business," she said. McCutchen noted, however, that there would likely be litigation in the event retroactivity is raised.
Don't wait to start planning
McCutchen said she encourages employers should ask DOL to finalize the rule soon when the comment period opens, and also advised attendees to begin compliance planning based on the available details of the new rule.
"If you wait until the final rule comes out, it might be too late," she said. "You have to decide who gets reclassified, who gets a salary increase. You have to look at, do you have timekeeping for the reclassified employees. Reclassifying employees is tough; it takes a long time."
For DOL, one huge obstacle to getting the rule officially on the books will be the mandatory period of public comment, which hasn't even started yet because it has yet to be published in the Federal Register. McCutchen, who went through the process during her tenure as WHD administrator in drafting the rules' 2004 update, estimates the process of responding to those comments could take anywhere from eight to 10 months. Failure to provide an adequate response could cause litigation against the rule to pile up, causing further delay.
"You have to do a good job reacting and responding to the criticisms of your rule," McCutchen said. "My concern is that the quicker they go, the quicker they do this, the more vulnerable they're going to be to legal challenge."
McCutchen also advised employers to emphasize in their comments whether they would need extra time to comply with the new rule. DOL is required to read every comment submitted, she said, so this is the forum by which to share that concern.
And when reclassifying employees, McCutchen said employers should take a look at several facets of their compensation plans, including benefits and incentives. The new rule allows employers to count certain bonuses as up to 10% of workers' wages for the purpose of the rule.
Communication also is a key aspect of reclassification, and employers should stress to any workers ultimately reclassified that the change won't affect their bottom line. She also suggested using language that emphasizes employees aren't to blame for the move: "This has nothing to do with you, it has nothing to do with your value to the company, there was a change in the law, and we have to do this."