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White House kicks off new campaign against overtime exemptions

On March 14, 2014 by Schnader in Labor and Employment

By Scott J. Wenner

In what business may view as the White House’s most substantial contribution to the Democrats’ 2014 mid-term election campaign, President Obama has directed Secretary of Labor Thomas Perez to “update” and “simplify” the overtime rules – but with a clear view towards narrowing the executive exemption at the least. On March 12, Perez was on Capitol Hill testifying in support of the other branch of the Administration’s strategy to galvanize the support of lower wage earners: a minimum wage increase to $10.10 per hour.

Tacitly acknowledging rebukes received by the Administration from the courts for imposing significant regulatory changes in the labor and employment arena with insufficient notice or opportunity to meaningfully comment, the President promised that Perez would consult with business and worker representatives alike before changes are mandated.  The message was clear nonetheless:  he was directing Perez “to restore the commonsense principle behind overtime.”  That principle: “if you work more, you should get paid more.”

According to news reports, the Administration may be focused on making a significant adjustment to both the salary basis and the duties tests in their present forms.  More specifically, the President noted that an employee presently can be deemed an “executive” who is exempt from the overtime pay requirements of the Fair Labor Standards Act if he or she earns as little as $455 per week (or $23,660 per year). It seems to be a virtual certainty that the minimum salary component of the test for exempt status will increase – perhaps substantially. Some states, e.g., California and New York, already require a higher salary level to qualify an employee as exempt.

Even more significantly, however, there are suggestions that the Administration is considering replacing the “primary purpose” portion of the duties test with a quantitative measure that will require an employee to spend the majority of his or her time actually performing executive, professional or high-level administrative duties.  This is the present rule in California that has provided some of the fodder for class actions.   Such a rule could require employers to retain consultants to perform expensive time and motion studies in order to justify exemptions, and could also make it impossible for small employers to deem any employees exempt, as necessary multitasking dilutes the time a manager can spend on pure managerial duties.

The President’s proposal and Secretary Perez’s actions on it certainly will heat up this election year.  Stay tuned.