• Department of Labor's Proposed "Cleanup" Rules
  • August 20, 2008
  • Law Firm: Baker & Hostetler LLP - Cleveland Office
  • On July 28, 2008, the Department of Labor issued proposed revisions to regulations under the Fair Labor Standards Act of 1938 (FLSA) and the Portal-to-Portal Act of 1947 (Portal Act). The purpose of the proposed revisions is to clean up regulations that have become out-of-date in light of subsequent legislation and court decisions. The Department has determined that the proposed changes will not result in any additional compliance costs and will simply enhance the Department's enforcement of, and the public's understanding of, compliance obligations under the FLSA by replacing the outdated regulations with updates that better reflect current law.

    The Department has requested comments on all issues related to these proposed rules. Comments must be received on or before September 11, 2008.

    Minimum Wage References

    The current FLSA regulations refer to outdated minimum wage requirements in several places. The proposed rule would change the regulations so that they refer to the “statutory minimum wage” rather than a specific dollar amount which changes more often than the regulations are updated.

    Use of Employer-Provided Vehicles for Commuting

    The proposed rule would incorporate the “Employee Commuting Flexibility Act of 1996” which provides that in order for travel time the employee spends commuting in an employer-provided vehicle to be non-compensable, the use of the vehicle must be “conducted under an agreement between the employer and the employee or the employee's representative.” The Department believes that since this proposal only clarifies that compensability of such travel time should be subject to an agreement but does not restrict the type of agreement the parties may reach, it will not impose a significant burden on the public or labor market.

    Fluctuating Workweek

    The current regulations allow an employer to use the fluctuating workweek method to compute half-time overtime compensation if the employee works fluctuating hours from week to week and receives a fixed salary as “straight-time compensation” for whatever hours the employee works in that week. The employee's regular rate must be determined separately each week based on the amount of hours actually worked in a week.

    The proposed rule would clarify the position that bona fide bonus or premium payments do not invalidate the fluctuating workweek method of compensation, but that such payments must be included in the calculation of the regular rate unless they are explicitly excluded by FLSA sections 7(e)(1)-(8). The purpose of this change is to eliminate any disincentive for employers to pay additional bona fide bonus or premium payments.

    Stock Options Excluded From the Computation of the Regular Rate

    The proposed rule incorporates the amendments made by the Worker Economic Opportunity Act (2000) to clarify that “any value of income derived from employer-provided grants or rights provided pursuant to a stock option, stock appreciation right, or bona fide employee stock purchase program” is not to be counted toward the employer's minimum wage requirement or counted as part of the regular rate of pay for overtime computation purposes.

    Compensatory Time Off for Public Sector Employees

    After the Supreme Court's 1985 decision in Garcia v. San Antonio Metropolitan Transit Authority that the FLSA applies to employees of state and local governments, Congress added section 7(o) to the FLSA to permit public agencies to grant employees compensatory time off in lieu of cash overtime compensation. The section provides that an employee shall be able to use such time “within a reasonable period after making the request if the use of the compensatory time does not unduly disrupt the operations of the public agency.” Appellate courts have uniformly interpreted the statutory language to mean that once an employee makes a request for compensatory time, the employer has a reasonable period to allow him to use the time; the employer does not have to grant the time off for the date specifically requested.

    To make the regulations consistent with the appellate court rulings, the proposed rule, §553.25(c), would add a sentence stating that section 7(o)(5)(B) does not require a public agency to allow the use of compensatory time on the day specifically requested, but only requires that the agency permit the use of time within a reasonable period after the employee makes the request, unless the use would unduly disrupt the agency's operations.

    The Department does recognize that this change may have “some slight impacts” because as a result some employees may choose not to accrue compensatory time off. The Department also pointed to the possibility of public sector employees negotiating with their employers to develop plans with more flexibility as to compensatory time usage and stated that this has likely already occurred in some jobs as a result of the court decisions.

    Employees Engaged in Fire Protection Activities

    In 1999, Congress added section (y) to section 3 of the FLSA to define “an employee in fire protection activities” as:

    An employee, including a firefighter, paramedic, emergency medical technician, rescue worker, ambulance personnel, or hazardous material worker, who—(1) is trained in fire suppression, has the legal authority and responsibility to engage in fire suppression, and is employed by a fire department of a municipality, county, fire district, or State; and (2) is engaged in the prevention, control, and extinguishment of fires or response to emergency situations where life, property, or the environment is at risk.

    These employees may be covered by the partial overtime exemption allowed by §7(k) or the overtime exemption for public agencies with fewer than five employees in fire protection services under §13(b)(20).

    The proposed rule brings 29 C.F.R. 553.210 into compliance with the FLSA amendment. It deletes the “integral part” test of §553.210(a) because it is unnecessary now that the statutory standard defines when rescue and ambulance personnel qualify as “employees in fire protection activities.” It also deletes sections §553.215(b) and (c) as unnecessary due to the clear statutory requirement of employment by a fire department. In addition, it also substitutes “employee in fire protection activities” wherever the term “firefighter” appeared.

    Tip Credits

    Section 3(m) of the FLSA governs tipped employees and the tip credits that their employers may claim. The 1974 amendment to the FLSA provided that employers may not take a tip credit unless (1) the employee has been informed of the use of the tip credit and (2) all tips received by the employee are retained by the employee, except for those placed in a bona fide tip pooling plan. The 1974 amendments also required that tipped employees receive at least minimum wage and that their employers must make up the difference if their combination of base wage and tips does not reach minimum wage. Here, an employer is permitted to take advantage of the “tip credit” in order to offset a portion of its minimum wage obligation. The 1974 amendments also prohibited agreements between the tipped employee and the employer in which the employer was only obligated to pay the cash wage when their tips were less than minimum wage or agreements where the employee had to turn over his tips to the employer who then used them to pay the minimum wage. These sorts of agreements were prohibited and the employer's only options were to either: (1) take a credit against the employee's tips of up to the statutory differential or (2) pay the entire statutory minimum wage directly.

    The proposed rule would update the regulations to be in conformity with the 1974 amendments, the legislative history, subsequent court decisions, and the Department's interpretations. The rule would eliminate references to employee agreements that provide that tips are the property of the employer or that employees must turn over their tips. The proposal also updates §531.54 to clarify that there is no maximum tip pool contribution percentage, but that the employer must inform each employee of the required contribution and such contributions to the pool cannot bring the employee's wages below minimum wage. The proposed rule also deletes §531.7 which permitted employees to petition to the Wage and Hour Administrator for review, because the 1974 amendments eliminated this right to review.

    The 1977 amendments to the FLSA raised the threshold in the definition of “tipped employee” in section 3(t) from a worker who “customarily and regularly” receives more than $20 a month in tips to one who “customarily and regularly” receives more than $30 a month in tips. The proposed rule updates regulatory references to the threshold.

    Meal Credit Under Section 3(m)

    Under section 3(m) of the FLSA, a “wage” may include the reasonable cost of facilities furnished to the employee, which includes employer-provided meals. The current regulation at 29 C.F.R. 531.30 states that an employer may only take a credit when the employee's acceptance of the facility is “voluntary and uncoerced.” However, a number of courts have rejected this position, and the agency adopted an enforcement position in the 1980s that an employer may take a meal credit even if the employee does not voluntarily accept the meal. This enforcement policy is articulated in the Wage and Hour Field Operations Handbook section 30c09(b) which states that “WH no longer enforces the ‘voluntary' provision with respect to meals.”

    The proposed rule amends 29 C.F.R. 531.30 to reflect the court decisions and the agency's current enforcement policy regarding meals.

    Youth Opportunity Wage

    The proposed rule would add a new subpart G to 29 C.F.R. part 786 to provide that an employer may pay less than the minimum wage, though not less than $4.25 an hour, to employees who are under twenty years old for the first ninety days of their employment. The ninety-day limit is to be measured by consecutive calendar days, not by days that the employee actually works. The proposed addition also states that an employer cannot displace any other employee (either fully or partially) in order to hire employees at the reduced wage.

    Agricultural Workers on Water Storage/Irrigation Projects

    The proposed rule updates 29 C.F.R. part 780, Subpart E to incorporate a 1997 amendment to section 13(b)(12) of the FLSA, which provides an overtime exemption for agricultural employees and employees employed in connection with the operation or maintenance of certain waterways used for supply and storing of water for agricultural purposes. The proposed rule updates the regulations to be consistent with the amendment allowing the exemption from overtime pay to be applied to workers on projects where at least 90% of the water is used for agricultural purposes, rather than the previous requirement that the water be used exclusively for agricultural purposes.

    Service Advisors Working for Automobile Dealerships

    The current regulations at 29 C.F.R. 779.372(c)(4) state that an employee in the business of selling automobiles who is described as a service manager, service writer, service advisor, or service salesperson is not exempt under section 13(b)(10)(A). However, court decisions have uniformly held that service advisors are exempt under section 13(b)(10)(A) because they are “salesmen” who are primarily engaged in “servicing” automobiles. As a result of the court decisions, the Wage and Hour Division has adopted an enforcement policy since 1987 of granting the overtime exemption for such employees.

    Employment Status of Volunteers at Private Nonprofit Food Banks

    The proposed rule amends 29 C.F.R. part 786 to clarify that the term “employee” does not include individuals volunteering solely for humanitarian purposes at private nonprofit food banks and who receive groceries from those food banks given in recognition of such individual's needs and not in exchange for the individual's services.

    Boat Salespersons

    The proposed rule in 29 C.F.R. 779.372(a) clarifies that salespersons primarily engaged in selling trailers, boats, or aircraft are exempt from overtime requirements, but the partsmen and mechanics for such vehicles are not covered by the exemption. This change is in line with the 1974 amendment to the FLSA.