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The New Order at the Labor Department

August 6, 2010
Related Topics: Wages and Hours, Featured Article, Legal

Since President Barack Obama’s inauguration, employers and employees have been waiting for signals from Washington as to how the Department of Labor will enforce wage-and-hour laws. Because of delays in the confirmations of new DOL officials, the wait has been a long one. Recently, though, the administration has announced some major new initiatives. And those initiatives suggest the department is more interested in catching noncompliant employers than helping employers to comply with labor regulations.

 Administrator interpretations
Perhaps most notably, the DOL in late March abandoned its long-standing (60-year-plus) practice of issuing opinion letters, replacing them with a new device: “administrator interpretations.”

Opinion letters were the Wage and Hour Division’s responses to inquiries—usually from employers—about how to comply with the overtime pay requirements of the Fair Labor Standards Act. Typically, the employers would ask whether the manner in which they were calculating overtime pay complied with the FLSA, or if a particular class of employees was exempt from being paid overtime premiums. The division would apply the facts provided by the requester to the law and the opinion would become part of the body of interpretations on which employers could rely in designing pay plans for their employees. Significantly, the law provides that if any employer relies on an opinion letter, that reliance is an absolute defense to liability for back pay and other damages should a court later determine that the administrator was in error. In essence, the opinion letters not only provided guidance as to whether a practice or plan was legal, but also gave the employer substantial legal protection if it followed the administrator’s opinion.

The new administrator interpretations differ from opinion letters in one key respect: Instead of addressing a specific factual situation, they will, the DOL says, “set forth a general interpretation of the law and regulations, applicable across-the-board to all those affected by the provision in issue. Guidance in this form will be useful in clarifying the law as it relates to an entire industry, a category of employees, or to all employees.”

But will it? As explained by the DOL: “The Wage and Hour Division believes that [issuing administrator interpretations] will be a much more efficient and productive use of resources than attempting to provide definitive opinion letters in response to fact-specific requests submitted by individuals and organizations, where a slight difference in the assumed facts may result in a different outcome. Requests for opinion letters generally will be responded to by providing references to statutes, regulations, interpretations and cases that are relevant to the specific request but without an analysis of the specific facts presented.” (Italics added.)

In other words, when an employer wants to know whether a practice or plan complies with the law, the Wage and Hour Division will no longer give the employer a “yes” or a “no,” but instead it will only point the employer to existing law, expecting the employer to figure out the law for itself. While the broad-stroke administrator interpretation may provide employers with some guidance if they’re in a particular industry or interested in a particular job category, the interpretations will be too broad to address nuances of particular pay plans or jobs. As a result, it is unlikely that administrator interpretations will help employers resolve specific questions, and further, it is even more unlikely that they will provide employers with an absolute defense to liability should they, in good faith, rely on the interpretation.

That is not to say that these administrator interpretations will have no significance. To the contrary, these broad interpretations will likely be used as arguments to strike down specific practices and create more litigation.

This is evidenced by the first administrator interpretation, which—in a broad stroke—reversed a 2006 opinion letter recognizing that mortgage loan officers could be deemed exempt administrative employees. Instead, the administrator interpretation concluded that, as a class, these workers are not entitled to be classified under the overtime pay exemption. Not only does this reverse prior interpretations, but it is also not narrowly tailored to a particular job since not all mortgage loan originators do precisely the same job. Thus, despite the clear principle that an employee’s exempt status will depend on the specific facts at issue, the department announced a broad rule that such employees will not be eligible for this exemption.

Interpretations of this kind are often given deference by the courts while reviewing a particular practice. Since the interpretations will not be narrowly tailored to address nuances that in the past would have been recognized as being distinctive enough to make a difference, courts—as well as attorneys for employees and DOL investigators—will attack practices with broader strokes. If an employer wishes to distinguish itself from the broad-stroked interpretation, it will have no choice but to do so in the context of litigation.

 ‘We Can Help’
When the abandonment of opinion letters is reviewed in the context of other recent initiatives, it appears that the DOL is consciously going to do less to help employers comply with the law through meaningful advice and other cooperative tools, and will instead focus more on adversarial proceedings including litigation.

For instance, a week after announcing that it will no longer publish opinion letters, the DOL launched a new campaign, titled “We Can Help,” to urge employees to file claims against their employers. This campaign includes nine 30- to 60-second public service announcements, some in Spanish, featuring officials and celebrities telling employees how to file claims.

The DOL has also recently announced that it is developing a new “Plan/Prevent/Protect” compliance initiative that will require employers to audit their pay practices, document how they make decisions regarding each employee’s exempt status and pay calculations, as well as document the basis on which each independent contractor is not given employee status. As the DOL recently explained: “Employers and others in the Department’s regulated communities must understand that the burden is on them to obey the law, not on the Labor Department to catch them violating the law. This is the heart of the Labor Department’s new strategy."

This initiative covers more than just wage-and-hour matters; it includes OSHA and other areas regulated by the DOL. Employers will need to create written plans and track how they are implemented. Employers who fail to do so to the DOL’s satisfaction would be deemed out of legal compliance and sanctioned.

The new game plan
Certainly there is nothing wrong with expecting employers to comply with the law or providing employees with information on how to remedy violations. But in light of these recent initiatives, the goal of helping employers comply now appears to be secondary to the goal of catching employers that are not in full compliance. While violating the law should not be tolerated, the vast majority of employers try to comply with it. Wage-and-hour law is complex and nuanced, and therefore the borders between compliance and noncompliance are at times gray. Employers still want to comply. The DOL’s new game plan is for employers to do their best, but the government is not “here to help.”

For these reasons, employers now, more than ever, must audit their pay and other employee practices and develop a compliance plan and a compliance culture. Navigating these obligations also is much more challenging than in the past because of the DOL’s new approach and the recent addition of 250 investigators to its staff. Employers should therefore be proactive, seek advice of legal counsel and avoid drowning in what could be a tidal wave of aggressive and expensive wage-and-hour enforcement initiatives and litigation.

Workforce Management Online, August 2010 -- Register Now!

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