Navigating Changing Labor Rules

By: Terri Queck-Matzie

A U.S. Department of Labor rule expanding mandatory overtime pay for salaried employees has been put on ice.

Scheduled to take effect December 1, 2016, the Fair Labor Standard’s Act rule change would have extended overtime protections to nearly 4 million workers nationwide by re-defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards by adjusting the wage parameters.

According to a statement issued by the Texas Cattle Feeders Association: “The rule attempted to increase the salary and compensation levels needed for executive, administrative and professional workers to be exempt from overtime. Specifically, the final rule would have raised the standard salary level from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) and established a mechanism for automatically updating the salary and compensation levels every three years.”

TCFA held a seminar on the rule in November, the same day a Texas federal judge entered a nationwide injunction blocking implementation of the rule, claiming it improperly created a de facto salary test for determining which workers fall under the rule.

In addition, the incoming Republican Congress has indicated the rule is one it intends to repeal.

Shawn D. Twing, a partner with Mullin Hoard & Brown LLP of Amarillo, Texas, presented the TCFA seminar. He serves as human resources consultant for the TCFA.

“It’s doubtful the Fifth Circuit Court of Appeals will overturn the injunction,” says Twing. “The legal argument claiming the automatic future wage guideline increase constitutes government overreach is, in my opinion, a sound one. But people in the ag industry still need to take a hard look at how they use the exemptions.”

Exemptions aren’t for everyone

The most commonly used FLSA rule exemptions are the Ag Exemption, and the “White Collar” Exemption applied to executive, administrative, and professional employees. The Ag Exemption states specifically “any employee employed in agriculture” is exempt from the maximum hour and overtime provision of the FLSA.

But, Twing says, it is not that simple. A worker’s employment must come from the code’s definition of agriculture. First, the employer must be directly engaged in agriculture. Businesses that supply goods and services to the ag industry, such as grain processors or tool manufacturers, do no comply. Additionally, even within ag enterprises, an employee’s job duties matter. They must be engaged in agricultural work.
The definition of agriculture cites cultivation, growing and harvesting of any agricultural products – including livestock. Since animals in a feedlot are there to be grown and harvested, that fits within the definition. It also includes any practices performed on a farm by a farmer that are incidental to farming, such as delivery to market. Farmers can be corporate entities or co-ops.

Exemptions include immediate family members, temporary hand-harvest laborers, and those principally engaged on the range in the production of livestock.

While employees in some ag-related businesses may not fall under the Ag Exemption, certain computer/IT personnel, outside sales representatives, as well as others in executive, administrative or professional positions may be covered under the White Collar Exemption. These people must meet salary and duties tests.

As a general guideline, Twing says the closer the employee’s duties are to growing the animal, the more likely the exemption applies. While those engaged nearer processing, sale and delivery of the end product are less likely to meet the requirements.

In determining whether or not to utilize the overtime pay exemptions, Twing cautions the burden of proof rests on the employer, and the U.S. Supreme Court has ruled “FLSA coverage should be applied broadly” and “exemptions should be construed narrowly.” The employer has the duty to and burden to identify the proper exemption and justify it.

And mistakes can be costly.

“If an exemption is overruled, the employer will likely have to pay back wages, which includes the time and a half overtime premium,” explains Twing. “If the act is determined to be willful violation, the employer can be in for punitive damages up to double the wages owed, plus the employee’s legal expenses. If the suit involves a group of employees, this can be catastrophic.”

He adds there is no insurance to cover FLSA mistakes, like there is for discrimination or liability claims. “And collection is pretty demanding. There are no payment plans.” Collections for violations are often turned over to the U.S. Treasury Department.

Twing says caution in using exemptions is always warranted, but with the new rule on hold, there is no reason to rush into making changes. In situations where employers have already shifted employees from salary to wages to comply with the new rule, they cite employee morale, and higher costs for lower production as the greatest hurdles to overcome.

“It means punching a time clock, closer supervision, and more rigid work hours,” says Twing. The lack of flexibility, especially, can be problematic in ag operations where animal care and business deal making does not stop at a set hour. “There are also questions as to employees working from home and off-hour access to computer systems.”

“The best advice,” adds Twing, “is proceed with caution, and consult an attorney with Department of Labor experience if there are any grey areas.”