Category Archives: DOL

DOL Says Goodbye to Six-Factor Unpaid Internship Test

Contributed by JT Charron, January 10, 2018

On Friday, the Department of Labor abandoned its six-part test for determining whether an intern must be paid, and replaced with the more employer-friendly “primary beneficiary test.” This announcement came less than a month after the Ninth Circuit became the fourth federal appellate court to expressly reject the DOL’s six-factor test in favor of the primary beneficiary test.

Background

Under the Fair Labor Standards Act (FLSA) employers must generally pay employees minimum wage for all hours worked, and overtime for all hours worked over 40 in a week. The FLSA, however, exempts certain individuals from these requirements, including bona fide interns. To determine whether an intern was bona fide, the DOL introduced a six-factor test in 2010, which required that:

  1. The internship was similar to training that would be offered in an education environment;
  2. The internship experience was for the benefit of the intern;
  3. The internship was not displacing a regular employee;
  4. The training provide by the employer to the intern may have impeded the employer’s operations;
  5. The intern was not expecting a permanent position at the conclusion of the internship; and
  6. Both the employer and the intern understand that there was no compensation.

    56243229 - interns wanted internship training trainee concept

    “interns wanted” sign

According to the DOL, if even one of these factors did not apply, the individual was an employee — not an intern — and was required to be paid minimum wage and overtime.

The Primary Beneficiary Test

First articulated in 2015 by the Second Circuit Court of Appeals, the primary beneficiary test is a case-by-case approach that gives consideration to the following seven factors:

  1. 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.
  2. 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.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. 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.
  7. 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.

Importantly, no single factor is dispositive, and the employee/intern distinction will be based on the unique circumstances of each case.

Bottom Line

While the primary beneficiary test will provide more flexibility for businesses preparing for the 2018 internship season, employers must still be careful in designing internship programs. As the above factors indicate, the primary beneficiary of any program must still be the intern — not the employer.

Déjà Vu All Over Again? DOL Appeals Overtime Rule

Contributed by JT Charron, December 1, 2017

At this time last year, employers across the country were preparing for implementation of the DOL Final Overtime Rule, which would have more than doubled the minimum salary level for exempt employees. At the eleventh hour, employers were granted a reprieve when the Federal District Court for the Eastern District of Texas temporarily halted implementation, which was subsequently made permanent in August of this year.

In the interim, a presidential election occurred. And with the change in administration came uncertainty about what—if any—action the DOL would take regarding the now-defunct overtime regulations. We began to get answers following Alexander Acosta’s appointment as Secretary of Labor. Since his confirmation hearing in March Acosta has repeatedly stated that—while the jump to $47,476 was excessive—the salary level test should be increased to somewhere between $30,000 and $35,000.

In July, the DOL followed up on Acosta’s comments by issuing a request for information (RFI) regarding the overtime exemptions. The RFI sought responses to eleven sets of questions pertaining to the overtime exemptions, including questions regarding whether annual indexing of the salary test would be appropriate and the impact on the wages of exempt employees caused by the anticipation of the 2016 Final Rule. The comment period ended on September 25, 2017, with the DOL receiving over 200,000 comments.

On October 30, 2017, the DOL filed its appeal of the Texas court’s decision to permanently block the overtime rule. That appeal has been stayed while the DOL develops new overtime regulations. To be sure, the DOL is appealing this decision for one reason—to preserve its authority to revise the salary level test. In both its earlier decisions, the District Court repeatedly emphasized that the duties—not salary level—test should control the determination of exempt positions.

In its August 31 decision the Court attempted to clarify, in a footnote, that it was “not making any assessments regarding the general lawfulness of the salary-level test or the Departments authority to implement such a test.” However, the broad language used elsewhere in the opinion, is difficult to square with this narrow holding. In fact, in its appeal of the preliminary injunction—which was later dismissed as moot—the DOL asked the Fifth Circuit Court of Appeals to “address only the threshold legal question of the Department’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule.” We expect the DOL to take a similar stance in the instant appeal.

What’s Next

There is nothing employers need to do at this point. The DOL is currently reviewing the comments it received in response to its RFI, after which it will publish a notice of proposed rulemaking. Following that notice there will be a comment period prior to the issuance of any new regulations. Although it could be months—or years—before we see any new regulations, we fully expect that the current salary level will be increased, the only question is by how much. Stayed tuned – we will keep an eye on any action by the DOL and will keep you updated!

The Trouble with 401(k) Investment Policies

Contributed by Rebecca Dobbs Bush, September 15, 2017

If I had a dollar for every time this conversation occurred…

Lawyer: Do you have a copy of your investment policy?

                Client: Who would have been the one to write that?  Us? Our broker/advisor?

Or, this one…

Lawyer: Is your investment advisor serving as a fiduciary to your plan?

                Client: What does that mean? How would I determine that?

17800977 - an ornate clock with the words time to invest on its faceThe most common area in which 401(k) plans are being scrutinized these days is in their selection and design of investment offerings. While participants often get to direct how their funds are invested, that direction is limited to only those investment offerings that an employer/sponsor makes available as part of the 401(k) plan.

Employers typically rely on investment advisors to help design the options available to participants. In some cases, options are limited depending on the total dollars invested in the plan. In many cases, the investment advisor provides the employer with a model investment selection policy to customize and adopt.

While a model policy is a helpful starting place, in many cases the employer, not quite sure what to do with it, never customizes the model policy and instead sticks it away in a file. The policy is then often forgotten and not reviewed or even referenced each time investment offerings are scrutinized. It is impossible to ensure the selection and design of the investment offerings is in line with the policy if the policy has been completely forgotten.

Every employer that offers a 401(k) plan should ask themselves the following:

  1. What fiduciary status does the plan’s investment advisor maintain? (i.e., who really has the final say on investment option design and selection for the plan?); and
  2. What is our 401(k) investment policy and what are we doing to make sure it’s understood and being followed by decision-makers for the plan?

An employer that can’t answer these questions is not only vulnerable to potential litigation, but also risks the potential of not maximizing the invested assets of all participants.

In most cases with a 401(k) plan, an employer is supposed to serve as a trusted fiduciary maintaining a multi-million dollar investment portfolio on behalf of their employees.  With that much at stake, an employer needs to make sure it is selecting and monitoring investments, along with a skilled investment advisor, carefully and diligently.

IMPORTANT DOL UPDATE: The Final Rule on Doubling White Collar Salaries Is Shot Down By Texas Judge

Contributed by Heather Bailey, September 6, 2017

31096470 - concept of time with businessman that hold an alarm clock

Concept of time with businessman holding a clock

Previously, we reported to you on the U.S. Department of Labor’s (“DOL”) Final Rule that raised the minimum salary threshold required to qualify for the Fair Labor Standards Act’s (“FLSA”) “white-collar” exemptions (executive, professional and administrative classification) from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) as of December 1, 2016 (see our prior articles: U.S. DOL Publishes Final Overtime Rule and; Are you ready for December 1st? The FLSA Salary Changes Are Almost Here).

The Obama administration’s goal with this Final Rule, announced on 5/23/2016, was to give approximately 4 million workers the ability to earn overtime pay, instead of getting paid a fixed salary since many employers would not be able to afford to pay their otherwise exempt employees $47,476 annually. Implementation of this new rule had been temporarily stalled in a federal court in Texas just prior to it going into effect this past December 1st (see our prior articles: Court Enjoins DOL Overtime Rule and; Business Realities Under the Halted DOL Final Overtime Rule).

However, on August 31, 2017, Judge Amos L. Mazzant of the United States District Court, Eastern District of Texas answered many business owners’ prayers by ruling the DOL indeed exceeded its authority by more than doubling the minimum salary threshold for exempting white-collar employees (see the full case here).

The judge did not say the DOL could not raise the minimum salary at all. Rather, relying heavily on Chevron, USA, Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984), the judge stated that by more than doubling the current minimum threshold, the DOL effectively eliminated the need for looking to the employees’ actual duties and responsibilities—which was the essence of Congress’s intent when it created the FLSA white collar exemptions. The judge looked to the plain meaning of what it means to work in an executive, administrative and professional capacity concluding the primary focus was not the salary minimum but instead the actual duties and responsibilities.

What are the ramifications? The Department of Justice voluntarily dismissed its appeal of Judge Mazzant’s earlier preliminary injunction ruling putting the Final Rule on hold, so it seems unlikely it will appeal this ruling. However, this decision could catapult the Trump administration to issue a new rule providing for a more moderate increase in the minimum salary threshold – one that does not vitiate the primary focus of the “white collar” overtime exemptions: the employees’ actual duties and responsibilities.

Practice Tips:

  • The good news for now is that employers can continue to follow the previous DOL regulations for white collar exemptions (i.e., duties test and salary test).
  • If you did not do so previously, analyze your exempt positions to confirm they meet the duties test and are truly exempt positions. For example, is your manager truly a manager or is she really a lead worker? Is this manager hiring, firing and disciplining two or more employees?  Is your payroll clerk clearly just doing data entry or is he exercising independent discretion and judgment?  If the position does not meet the duties test, you transitioning the position to make it overtime eligible.
  • Ensure management is trained to enforce policies related to overtime pay such as those relating to working time, time clock procedures, meal and rest breaks, working off the clock issues, etc.
  • Did you already make changes to your employees’ pay or duties based upon the final rule going into effect on December 1, 2016?  While there are ways to change those decisions (i.e., you can change an employee’s pay moving forward for work not yet performed), you need to keep in mind morale issues for employees whose compensation may decrease either by way of a salary reduction or loss of overtime pay.  In these situations, it is highly recommended that you work with your counsel on determining the best practices for your business and your workforce.

With the judge’s ruling, many business owners will be able to find some comfort in being able to keep their exempt employees on a reasonable salary without having to break the bank.

Portions of the DOL Fiduciary Rule to go Forward on June 9, 2017

Contributed by Kelly Haab-Tallitsch, May 24, 2017

ERISA

Open book on desk with the words “ERISA The Employee Retirement Income Security Act” written inside

Secretary of Labor Alexander Acosta announced on Monday that portions of the controversial Department of Labor (DOL) fiduciary rule will go into effect as planned on June 9, 2017, with full implementation of the rule on January 1, 2018. Issued in April 2016, the fiduciary rule expanded the definition of a fiduciary under the Employee Retirement Income Security Act (ERISA) and imposed a higher standard of care and significant new procedural requirements on those providing investment advice to retirement plans, plan sponsors and participants. Implementation of the rule was previously delayed from April 10, 2017 to June 9, 2017 and the recent announcement comes as a surprise to many in light of the President’s February 3, 2017 memorandum directing the DOL to review the rule.

The DOL Field Assistance Bulletin No. 2017-02, issued May 22, 2017, announces a temporary enforcement policy related to the fiduciary rule and explains that the expanded definition of a fiduciary and the “impartial conduct standards” requirement for fiduciaries will go into effect on June 9, 2017, with many of the written contract and disclosure requirements effective for 2018. Beginning June 9th, advisers to retirement investors must give advice that’s in the best interest of the retirement investor, charge no more than reasonable compensation, and make no misleading statements.

Most importantly, the DOL announced that so long as fiduciaries are working diligently and in good faith to comply with the fiduciary rule the agency will not pursue claims against them or treat those fiduciaries as being in violation of the rule.

What Does This Mean for Your Retirement Plan?

Many of the compliance activities related to the fiduciary rule fall on investment advisors and are occurring behind the scenes for plan sponsors. However plan sponsors will begin to see increased written disclosures from their advisors and lengthier contracts.

What’s Next?

The DOL is continuing its review of the rule and has stated that additional changes may be proposed, based on the results of the examination. The agency announced its intention to issue a Request for Information for additional public input, including thoughts on a potential delay to the Jan. 1 effective date.

OVERTIME RULE UPDATE – DOL APPEALS PRELIMINARY INJUNCTION

Contributed by Noah A. Frank

As we previously reported, on 11/22/2016, Judge Amos Mazzant (E.D. Texas) granted a preliminary injunction that halted the 12/1/2016 implementation of the DOL’s Final Overtime Rule, which would have more-than-doubled the minimum salary level for executive/administrative/professional exempt employees.Wage-Hour2

On 12/1/2016, the U.S. DOL filed a notice of appeal to the Fifth Circuit Court of Appeals, indicating that it strongly believes that the DOL followed all required administrative processes, and there is no reason to delay implementation of the Final Rule.

This fight is not over. Employers that have not yet undertaken serious analysis of the duties of claimed exempt positions should do so promptly and determine the strategies they will implement should the injunction be vacated. Stay tuned for further news and analysis of this hotly evolving issue.

Business Realities Under the Halted DOL Final Overtime Rule

Contributed by Carlos Arévalo and Noah A. Frank, November 28, 2016

As we previously reported, last week on 11/22/2016, US District Judge Amos Mazzant blocked the 12/1/2016 implementation of the DOL Final Overtime Rule when he issued a preliminary injunction in favor of the plaintiffs (21 States and over 50 business organizations) in litigation pending in the Eastern District of Texas.

THE FINAL RULE

The Final Rule, announced on 5/23/2016, would increase the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) (see our prior article for more information).  Notably, there was no change to the Duties Test to determine whether a white collar executive/administrative/professional position actually qualified for the exemption. For months, employers across the country worked toward ensuring compliance with the Final Rule by analyzing job duties, raising salaries, converting exempt employees to non-exempt, reducing benefits, or least preferably, preparing to let employees go.

WHAT’S NEXT?

Judge Mazzant ruled that the DOL exceeded “its delegated authority and ignore[d] Congress’ intent by raising the minimum salary level such that it supplants the duties test.”  In further support of his decision, he also noted that the Supreme Court routinely strikes down “agency interpretations that clearly exceed a permissible interpretation based on the plain language of the statute, particularly if they have a great economic or political significance.”

While the preliminary injunction puts the Final Rule on hold, the case moves forward until the court determines whether the DOL had authority to make the Final Rule and whether it is valid.  In the meantime, the DOL could issue an amended rule. Alternatively, Congress may choose to act on House Bill 5813 or Senate Bill 3464, which would phase in salary increases starting at $692 per week ($35,984 annually) and reach the DOL’s salary levels in 2019 or 2020 respectively. Then, there is also the possibility that the next president will take action upon taking office.

WHERE DO WE GO FROM HERE?

Of course, a number of employers have already implemented, or notified employees of, changes as a result of the Final Rule. To the extent that such changes (or announcements) included raising salaries, employers must weigh the adverse impact on employee morale of a salary reduction versus financial burdens of staying the course. Consider strategies when hiring new employees, but do so with caution to avoid drawing equal pay or other discrimination charges. For changes not yet implemented or announced, it would be appropriate to hold off until the issue is resolved.

Because the Duties Test remains unchanged, employers that have not yet analyzed their workforce to ensure current compliance must take a critical look at their operations – just because employees are currently paid $455/week or more does not mean they are properly exempt.

Experienced employment counsel can assist with auditing current compliance, and assisting with strategies for implementing changes. In any event, stay tuned as we anticipate that overtime reform is likely to occur in light of this injunction and the 2016 election results, and wage and hour litigation is sure to follow.