Over the past few weeks there have been two big developments regarding federal overtime pay and minimum wage law. Recent policy announcements by both the White House and the Department of Labor offer the promise of greater protection from wage exploitation for millions of working men and women. For many Cleveland employees with wage and hour claims, this is potentially a very big deal.
The Fair Labor Standards Act is the federal law that requires employers to pay at least the minimum wage and to pay certain employees time-and-a-half for overtime. Not everyone is covered though. Among its limitations, the FLSA applies only to individuals defined as “employees,” and not to independent contractors. Not surprisingly then, a common tactic for employers who want to avoid paying overtime is to simply label employees as independent contractors. The FLSA also excludes from protection certain white collar employees, as long as they are paid at least $455 per week. Annualized, that amount falls below the poverty line for a family of four.
As a result of these limitations, the FLSA does not always protect the people who need it most—for instance, low-wage office staff, non-union blue collar workers like delivery drivers and cable installers, and others working paycheck-to-paycheck. Thankfully, the recent announcements by the White House and Department of Labor suggest that the FLSA may soon provide increased protection for these economically vulnerable workers.
The Department of Labor on Misclassifying Employees as Independent Contractors
The first development is the recent guidance issued by Department of Labor limiting the ability of employers to mislabel employees as independent contractors, and therefore avoid having to pay overtime.
Misclassification has become an increasingly common issue in wage and hour litigation over the past years. Not all employers misclassify employees with ill intent. Nonetheless, when employees are incorrectly labeled as independent contractors, they may be denied significant protections in the workplace like minimum wage, unemployment insurance, the right to workers’ compensation, and presently relevant, the right to overtime pay. Some jobs where FLSA misclassification issues typically arise include cable and internet installers, delivery drivers, telemarketers and other remote workers, and even professional cheerleaders.
Under the FLSA, courts use a multi-factored “economic realities” test to determine employment status. Among the factors to be considered are:
- whether the work performed is an integral part of the employer’s business;
- whether the worker has opportunity for profit or loss depending on skill;
- the extent of the expenditures by both the employer and worker;
- whether the work requires special skills and initiative;
- how permanent the working relationship is; and
- the degree of control exercised by the employer.
Although no one factor is determinative, I think in practice the question of the employer’s level of control tends to be particularly important. Conversely, you will notice that the label used by the employer for the worker is not one of the factors. That’s because it is not important in the analysis. At its core, the test basically examines whether the worker is economically dependent on the employer.
The Department of Labor guidance addresses how to apply the varying factors of the economic realities test. The guidance does not exactly break new ground in terms of the law. What it does do, however, is interpret the test broadly in favor of coverage. In fact, the Department went so far as to say explicitly that the employee vs. independent contractor test should be broadly construed in favor of protection for the worker. The guidance also not-so-subtly suggests that the Department of Labor is looking closely at the issue of employee misclassification, and may be undertaking increased enforcement efforts.
Expanding Protection for Lower Wage Office Workers
The second recent development in FLSA law is potentially even more impactful. Under a proposal announced by President Obama in a June 29th Huffington Post editorial, millions of workers who have been previously denied overtime pay would become eligible for protection under the FLSA.
As I mentioned above, a series of exemptions exclude many white collar jobs from the FLSA. Among the most commonly cited of these are the executive and administrative exemptions. While their tests vary somewhat based on the employee’s primary job duties, both require that the employee be paid not less than $455 a week. Over the course of a year, that comes out to $23,660, an amount below the poverty line for a family of four. These exemptions have therefore been used to exclude low-wage office workers from the right to overtime pay, no matter how many hours they are required to work per week.
Under the recent proposal by the Obama administration, the minimum salary requirement to exempt white collar workers would increase from $455 to $970 per week, or $50,440 per year for 2016. After that, it would be indexed to inflation. One study suggested this change would bring five million low-wage workers within the protection of the overtime rules. The proposal has to be adopted by Congress before it would take effect. Whether that will happen is anyone’s guess, at best.
The right to overtime pay is critically important for countless employees who work hard but struggle to make ends meet. The two recent developments in overtime pay law are big (albeit potential) steps in helping to protect these employees. No matter what, the FLSA remains incredibly technical and fact-specific. It can be difficult for employees to know whether their rights under the FLSA have been violated. If you think you are being denied overtime pay or minimum wage, call the Cleveland employment law attorneys at Bolek Besser Glesius LLC to help determine your rights.