The U.S. Department of Labor (DOL) shifted priorities when President Joe Biden took office in January, and many guidelines and rules were rescinded or revamped. As the new administration takes shape, employers can expect new rulemaking and an uptick in enforcement activities, attorneys said.
“Employers should expect more investigations,” said J. Hagood Tighe, an attorney with Fisher Phillips in Columbia, S.C. They can also expect that DOL audits will focus on the use of independent contractors, which he said is “a hot button issue” for David Weil, a former head of the DOL’s Wage and Hour Division and Biden’s nominee to resume the role.
Along with Weil, Secretary of Labor Marty Walsh is likely to push for a significant increase in the federal minimum wage and the minimum salary level for the Fair Labor Standards Act’s (FLSA’s) white-collar exemptions, predicted Steven Pockrass, an attorney with Ogletree Deakins in Indianapolis.
When Walsh was confirmed as secretary of labor in March, he said he is “committed to ensuring that everyone—especially those in our most marginalized communities—receives and benefits from full access to economic opportunity and fair treatment in the workplace”.
Spotlight on Independent Contractors
Wage and hour compliance is particularly challenging for employers since federal priorities have changed with the new administration. Notably, the DOL withdrew the prior administration’s independent-contractor rule, which would have made it easier for businesses to classify workers as independent contractors rather than employees.
Under the FLSA, employees are entitled to minimum wage, overtime pay, and other benefits. Independent contractors are not entitled to such benefits, but they generally have more flexibility to set their own schedules and work for multiple companies.
The rescinded rule “would have made independent-contractor classification far easier under federal law,” noted Mark Terman, an attorney with Drinker Biddle and Reath in Los Angeles. The rule would have primarily focused on who controls the work and whether the worker has the opportunity for profit and loss, he explained.
For now, the DOL will continue to evaluate employment relationships under an established multifactor test, though Biden has advocated for a more stringent standard.
Weil has also called for a stricter test that would render most gig workers employees. “Weil has made no secret of his belief that independent contractors used by many gig companies should be classified as employees,” Tighe said. He noted, however, that Congress isn’t expected to restrict the use of independent contractors by gig companies any time soon.
Minimum Wage and Overtime Rules
The federal minimum wage is currently $7.25 an hour and hasn’t been raised since 2009. “We can expect the Biden administration to push towards a federal $15.00 minimum wage for all workers,” Terman said. Already, Biden signed an executive order to implement a $15 minimum wage for federal contractors by early 2022. But raising the minimum wage for all workers will require Congressional action.
However, the DOL can engage in rulemaking to raise the exempt salary threshold. Under the FLSA, workers must be paid 1 1/2 times their regular rate of pay for all hours worked beyond 40 in a workweek unless they fall under an exemption. The most commonly used exemptions are the administrative, executive and professional, collectively called white-collar exemptions.
To qualify for these exemptions, employees must perform certain duties, be paid on a salary basis, and meet a minimum salary threshold. The prior administration increased the minimum salary level from $455 a week ($23,660 annualized) to $684 a week ($35,568 annualized).
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“We know that Walsh and Weil will seek an even more significant increase,” Pockrass observed. During the Obama administration, the DOL attempted to increase the threshold to $913 a week ($47,476 annualized), but that increase was blocked by a federal judge.
Walsh recently testified to the U.S. House of Representatives Education and Labor Committee that he believes the minimum salary level is “definitely” still too low and that there should be automatic and regular updates.
“Revising the overtime regulations is on the DOL’s long-term regulatory agenda, which means that we don’t expect a proposed rule to be issued within the next year,” Pockrass noted. “However, employers should keep this issue on their radar.”
In January 2020, the DOL issued a final rule narrowing the FLSA’s definition of “joint employer” and providing clarity to businesses about franchise and contractor relationships.
In September 2020, a federal judge in New York invalidated substantial portions of the rule, and the current administration recently moved to rescind the rule, calling it “unduly narrow.”
If Weil is confirmed to resume his former role with the DOL, Terman said he expects to see rulemaking that will make it easier to establish joint employer liability for wage and hour violations.
Pockrass noted that the DOL actively conducted investigations under the Trump administration but didn’t push as hard for liquidated (or double) damages when resolving matters. “Under the Biden administration, employers should expect the DOL to again push for liquidated damages”.
The DOL also may hire more investigators. Tighe noted that the administration submitted its proposed budget to Congress at the end of May, which “includes a massive increase in funds” for DOL enforcement.
Employer errors can be costly. Recently, the DOL announced that it ordered a federal contractor to pay $238,511 in back wages and benefits to skilled workers at a U.S. Navy base who were found to be misclassified as lower-level general laborers.
Investigators also recently found that a Chicago towing company misclassified workers as independent contractors. The company agreed to pay $166,030 in minimum wages, overtime premiums, and interest to 56 workers, according to a DOL announcement on July 7.
Tom Gies, an attorney with Crowell & Moring in Washington, D.C., said employers may not be aware of all the changes in employee job duties that occurred during the COVID-19 pandemic.
“Employers have been focused on trying to keep everyone healthy and working,” he observed. But they need to audit their wage and hour practices to ensure continued compliance as roles evolve.
“Look for the same old issues,” he said, such as misclassifying employees as independent contractors or as exempt from the FLSA’s overtime requirements.
“Employers should continue to pay very close attention to jobs ‘on the bubble’ that are closer calls,” he said.
Tighe also thinks businesses should take the opportunity now to internally audit their pay practices. “Don’t wait until the investigator comes knocking at your door”.