THE SKY IS NOT FALLING!

The New FLSA White-Collar Exemption Regulations and The

Publishing/Media Industry

Christopher A. Parlo

History of FLSA

• 1938

• 1949

• 1954

• 1975

• 2003

• 2004

Fair Labor Standards Act enacted by Congress

DOL issued last major revision to duties tests

DOL issued last major revision to salary basis test

DOL last increased the salary level test

DOL proposed sweeping changes to exemption tests

DOL published Final Rule, with August 23, 2004 effective date

Overview of Final Rule

• Increased, but uniform, Salary Level Test– Creation of Highly Compensated Employee

salary level

• Clarification of Salary Basis Test– Addition of another form of permissible salary

docking– Expansion of safe harbor and window of

correction provisions

• Duties Tests essentially unchanged

Salary Level Tests

• Minimum salary/fee level is $455 per week – Executive employees must be paid on a “salary basis”

– Administrative employees may be paid on a salary basis or a “fee basis”

– Professional employees may be paid on a salary basis or fee basis

– Computer Employees may be paid:• on a salary/fee basis of $455 per week or, in the alternative,

• an hourly rate of at least $27.63

– There is no minimum compensation level or required method of payment for Outside Sales employees

Salary Level Tests (continued)

• Highly Compensated Employees will be “deemed exempt” under the new regulations, if they

– receive total annual compensation of $100,000,

– at least $455 per week of which is paid on a salary or fee basis, and

– customarily and regularly perform any one or more of the exempt duties or responsibilities of an exempt executive, administrative or professional employee

Salary Basis Test

• Permissible deductions:– full-day absences for personal reasons or for sickness or disability

– salary offset of jury duty fees, witness fees and temporary military pay

– one or more full days of unpaid disciplinary suspensions pursuant to workplace conduct rules that are in writing and applicable to all employees

– partial-day deductions from an exempt employee’s salary for unpaid FMLA leave

– penalties imposed in good faith for infractions of safety rules of major significance may be in any amount

• Additional compensation beyond salary permitted

Safe Harbor/Window Of Correction

• Only an “actual practice” of making improper deductions will lead to the loss of exemption. Factors to be considered: – the number of improper deductions, particularly in relation to the number

of occurrences of the event which led to the deduction;

– the span of time during which deductions were made;

– the number and location of affected employees;

– the number and location of responsible managers; and

– whether the employer has a “clearly communicated policy” permitting or prohibiting improper deductions

• An actual practice of deductions will result in the loss of “salary basis” and, therefore, the exempt status, of salaried exempt employees in the same job classification as the affected employees and working for the same responsible manager(s) for the workweek(s) of the improper deductions

Safe Harbor/Window Of Correction (continued)

– Isolated or inadvertent deductions may be cured by the reimbursement of the improper deductions

• Any employer will not lose the exemption for any employees subject to improper deductions, if:– it has a “clearly communicated” policy that prohibits improper pay

deductions

– the policy includes a complaint mechanism,

– the employer reimburses employees for improper deductions and makes a good faith commitment to comply with its policy in the future

unless– the employer continues to make improper deductions after receiving

complaints

• The best evidence of a “clearly communicated policy” is a written policy that was distributed to employees prior to the improper pay deductions

The Executive Duties Test

• Primary duty must be management of an enterprise or a customarily recognized department or subdivision of the enterprise;

• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

The employee must have the authority to hire or fire other employees, or suggestions and recommendations from the employee about the hiring, firing, promotion or other status changes of subordinate employees must be given particular weight

The Administrative Duties Test

• Primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

• Primary duty must include the exercise of discretion and independent judgment with respect to matters of significance

There is less emphasis on the administrative/production dichotomy

The Professional Duties Test

• The Learned Professional exemption will still require– a primary duty of work requiring advanced knowledge;

– in a field of science and learning; and

– the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction

• The Creative Professional exemption has been expanded– a primary duty of performing work requiring invention,

imagination, originality or talent

– in a recognized field of artistic or creative endeavor

Computer Employees

• The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;

• The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

• The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

• A combination of the aforementioned duties, the performance of which requires the same level of skills

Will The Final Rule Survive Political And Legal Challenges?

• On September 9, 2004 the House of Representatives approved a DOL funding bill that included an amendment limiting funds for the enforcement of the new overtime rules.

22 Republicans backed a Democratic amendment that would prevent funding of much of the DOL’s enforcement of the changes to the FLSA’s white collar exemptions.

Will The Final Rule Survive Political And Legal Challenges? (continued)

How will this Proposed Amendment affect the enforcement of the new regulations? A Congressional Research Service memoranda

released on September 10, 2004, states that the DOL would be obligated to reinstate the old white-collar exemptions to the FLSA should the amendment become law. Memoranda primarily relied on Associated Builders &

Contractors, Inc. v. Herman, 976 F. Supp. 1 (D.D.C. 1997) to argue that the DOL could use a “good cause” exception to the usual notice and comment period to reinstate the old regulations without relying on traditional administrative procedures.

Will The Final Rule Survive Political And Legal Challenges? (continued)

In response to the memoranda, the DOL’s position is that (1) the amendment only restricts the use of funds to “implement and administer” the rule, so the DOL would not be able to bring enforcement actions or investigate complaints and (2) the language of the new regulations could still be relied on by the courts.

What’s An Employer To Do?

• Identify all currently exempt employees who earn less than $455 per week Either reclassify them as nonexempt or raise their salary to at least $455 per week

• Clearly communicate a policy prohibiting improper deductions from the predetermined compensation of exempt, salaried employees. Include a complaint mechanism for employees

• Review new regulations and existing pay docking policies and practices to identify and complete necessary revisions in policies and practices

• Review any written existing disciplinary policies concerning workplace conduct for possible revision to permit full-day suspensions of all employees for violations of workplace conduct rules. Any such policies must be in writing and published to employees at the time of or before implementation

• Review your Family and Medical Leave Act policies for possible revision to permit partial-day docking of salaried, exempt employees during unpaid FMLA absences

What’s An Employer To Do? (continued)

• Consider policies that permit additional compensation of salaried, exempt employees for work beyond scheduled hours

• Identify any current nonexempt employees who receive guaranteed compensation (including nondiscretionary bonuses) of at least $100,000 and assess whether they would qualify for exemption under the new “Highly Compensated Employee” provision

• Review the job duties of all current exempt Executive employees to assess whether they have the necessary hire/fire authority (or their recommendations are given particular weight). Either reclassify Executive employees who do not have this authority or change their duties to grant them this authority

• Review the duties of any current nonexempt employees who may qualify for the Administrative exemption based on new examples of exempt administrative work; e.g., insurance claims adjusters, financial services employees, team leaders of special projects

What’s An Employer To Do? (continued)

• Review the duties of any current nonexempt employees who may qualify for the Professional exemption based on new examples of exempt learned professional occupations; e.g., archeologists, chefs, specialized paralegals, and certified athletic trainers

• Review current exempt Professional employees who you may not have reclassified in anticipation of relaxed educational requirements that did not materialize in the new regulations

• Retain documentation of your internal efforts to comply with the new regulations

Have the new regulations changed the test for examining whether employees in the publishing industry are exempt from the FLSA?

NO. “The final regulations do not materially change the duties test for the creative professional exemption, which is the most common exemption under which journalists and reporters are tested.” See U.S. Dept’ of Labor Fact Sheet 17 Q: Journalists/Reporters and the Part 541 – Exemptions under the Fair Labor Standards Act, available at http://www.dol.gov/esa/regs/compliance/whd/fairplay/fs17q_journalists.htm.

The creative professional exemption applies if the employee’s primary duty is work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor (e.g. writing), as opposed to routine mental, manual, mechanical or physical work. See id.

Have the new regulations changed the test for examining whether employees in the publishing industry are exempt from the FLSA? (continued)

No “across the board” exemption for journalists – determinations must be made on a case-by-case basis

The less creativity and control involved in a journalist’s efforts, and the more control exercised by an employer, the

less likely journalists are to be considered exempt.

Employees of newspapers, magazines, television and other media are not exempt creative professionals if:

their work product is subject to substantial control by employer;

they only collect, organize and record information that is routine or already public;

they do not contribute a unique interpretation or analysis to a news product.

Examples:reporters who rewrite press releasesreporters who write standard recounts of public

information by gathering facts on routine community events

Employees of newspapers, magazines, television and other media maybe exempt creative professionals if primary duty is:

to perform on the air in radio, television or other electronic media;

to conduct investigative interviews; to analyze or interpret public events; to write editorial, opinion columns or other

commentary; to act as a narrator or commentator.

CASE LAW In Sherwood v. The Washington Post, 871 F.Supp. 1471, 1473 (D.D.C.

1994), the court held that a reporter, whose primary duty was to gather news and present it to readers in a clear, fair, and balanced fashion, was required to use “invention, imagination, and talent” and qualified as an artistic professional employee because among other reasons, “working at the Washington Post is a prestigious, competitive job among journalists.”

In contrast, Reich v. Newspapers of New England, 44 F.3d 1060, 1075

(1st Cir. 1995), noted that only a minority of reporters qualify as exempt professionals. The court held that newsroom employees consisting of staff writers, reporters, editors and photographers of a local newspaper who spend most of their time on “general assignment” writing “hard news” were not exempt professionals. They were quasi-professionals who were not exempt from the requirements of the FLSA.

CASE LAW (continued) Courts in the following cases have found employees

exempt from the FLSA: Freeman v. National Broadcasting Co., Inc., 80 F.3d 78 (2nd

Cir. 1996). The court found that a television news writer/editor, producer and field producer were all exempt from the FLSA as artistic professionals. In its opinion, the court noted that the dizzying technological advances and the sophisticated demands of the news consumer have resulted in changes to the news industry which make several employees exempt under the FLSA. See id. at 95. The court, however, acknowledged that “[i]n present day news reporting, a fundamental difference exists between journalists who work at major news organizations and small town news reports.” Id.

CASE LAW (continued)

Shaw v. Prentice Hall Computer Publ’g, Inc., 151 F.3d 640 (7th Cir. 1998). The court held that a production editor for a publishing company fell within the FLSA’s administrative exemption. The court found that the employee was the only person responsible for managing book projects through editing process, and such work was a major assignment relating to the company’s business operations. The Court found that it did not matter that the employee’s superior was also responsible for the employee’s book projects.

CASE LAW (continued) In Dalheim v. KDFW-TV, 918 F.2d 1220 (5th Cir. 1990), the court held

that general assignment reporters, news producers, directors, and assignment editors were not exempt from the overtime requirements of the FLSA. The court found that: general assignment reporters’- day-to-day work was in large part dictated

by management, and their stories produced were neither analytic, interpretative or original, such that their work did not primarily depend on invention, imagination or talent;

news producers - performed their work within the well-defined framework of management policies and editorial convention and to the extent they exercised discretion it was governed more by skill and experience than by originality and creativity. The nature of the producers’ work was the application of techniques, procedures, repetitious experience, specific standards for formatting of newscasts. In addition the producers were subject to on-the-job supervision and they did not engage in administrative tasks.

CASE LAW (continued)

Courts have distinguished between metropolitan and small town newspapers when determining whether reporters, editors, and photographers are exempt from the FLSA. “[T]he determination of whether a reporter is a professional does

not depend on the title that a paper gives a reporter. Rather, it instead depends upon the specific characteristics of a given reporters’ job. There is a difference in duties between reporters writing for the Washington Post and those who write for a local weekly newspaper. It would defeat the purpose of the exemption to lump them into the same category merely because their employers call them professionals.” Reich v. Gateway Press, Inc., 13 F.3d 685, 699 n.17 (3rd Cir. 1994).

SMALL MARKET EXEMPTION - 29 U.S.C. § 213 (b)(9) Announcers, News Editors or Chief Engineers of certain small

markets (population of less than 100,000) may be exempt if:primarily employed as an announcer (reads news, introduces programs,

presents commercials, gives station identification), news editor (gathers, edits and rewrites news, selects and prepares news items for broadcast) or chief engineer (supervises the operations, maintenance and repair of all electronic equipment in the studio)

must generally perform duties for more than 50% of the hours worked in a workweek; and

employed by a radio or television station; and

must be located in a small market population of less than 100,000; and city or town is not within a “standard metropolitan statistical area” that

has a population of more than 100,000.

Wage & Hour Challenges Concerning Work At Home

• What hours were worked.

• How to keep track of hours.

• Employ is defined as suffered or permitted to work.

• Knew or should have known employee was working.

Wage & Hour Challenges Concerning Work At Home (continued)

• Pre-liminary and post-liminary work.

• When does the day start and stop.

• Logging onto and off computers.

• Meal and rest breaks.

THE SKY IS NOT FALLING!

The New FLSA White-Collar Exemption Regulations and The

Publishing/Media Industry

Christopher A. Parlo