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July 20, 2015 Labor /Human Resources Committee Update

Contact: Frank Kerbein

I am writing to provide an update on several recent federal and state-level actions impacting the employer/employee relationship. As always, please feel free to contact me to discuss, or provide us with your input.

New Independent Contractor Guidance 

On Wednesday, July 15th, The U.S. Department of Labor issued guidance aimed at curbing the misclassification of employees as independent contractors. The guidance is clear that the Wage and Hours Division believes that most workers qualify as employees under the Fair Labor Standards Act - broadly interpreting the statute's expansive definition of “employment.” The full text of Administrator’s Interpretation No. 2015-1 can be found here.

The head of the Department’s Wage and Hour Division, David Weil, issued a 15-page “administrator's interpretation” pointing out that employees improperly labeled as independent contractors may miss out on things like minimum wage and overtime pay, and added that correct classification has “critical implications” for the legal protections workers receive, particularly low-wage workers.

This interpretation, combined with the new proposed rules regarding the salary levels of exempt employees (see below) are part of the Obama administrations initiative to broadly expand employee protections through regulation.

Under the FLSA, the key question is whether a worker is genuinely in business for himself (independent contractor) or is economically dependent on the employer (an employee). The guidance then goes on to discuss six “economic realities factors” that guide the classification assessment.

“In sum, most workers are employees under the FLSA’s broad definitions,” the guidance said. "The very broad definition of employment under the FLSA as 'to suffer or permit to work' and the act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor."

The factors, which include the nature and degree of the employer's control and whether the work performed is integral to the business, shouldn't be “analyzed mechanically or in a vacuum” and no one factor should get too much weight, the agency said, adding that the factors should serve as a road map for determining economic dependence or independence.

Remember, NYS has its own Joint Enforcement Task Force on Employee Misclassification that has been very active in conducting audits - and collecting fines, penalties and lost wages. The most recent report of the task force can be found here. The new, broader interpretation of the definition of “employment” is sure to come into play as the NYS Task Force looks at the issue of misclassification.  

USDOL Issues New Proposed Overtime Regulations 

On July 6th, The U.S. Department of Labor released its highly anticipated proposed rule on the Fair Labor Standards Act white-collar overtime exemptions along with a fact sheet summarizing the proposed rule. The proposed rule more than doubles the salary requirement to qualify for the executive, administrative, professional, and computer employee exemptions from the current level of $455 per week to an amount that is expected to be $970 per week by the first quarter of 2016, and increases the salary threshold to qualify for the “highly compensated employee” exemption to $122,148. The proposed rule does not include any proposed revisions to the outside sales exemption. 

The proposed rule also includes a procedure to automatically raise the minimum salary levels to qualify for the white-collar exemptions from year to year without further rulemaking. The USDOL estimates that nearly five million employees who are currently classified as exempt will immediately become eligible for overtime pay if the proposed rule is adopted as the final rule.

In addition, although there was some speculation that the duties requirements would also be revised to make the exemptions more restrictive, the USDOL’s proposed rule does not include any revisions to the duties requirements to qualify for any of the white-collar exemptions.  However, the department stated in its Notice of Proposed Rulemaking that it is nevertheless seeking comments on whether the duties tests are working as intended to screen out employees who are not bona fide executive, administrative, or professional employees.  So, there is still a possibility that the duties requirements could be revised based on comments received by the USDOL about the proposed rule. Comments can be made until September 4th. Instructions as to how to make comments can be found here.  The Business Council will be submitting comments on this proposal, and we welcome your input and feedback. 

Employers should immediately begin to assess which employees who are currently classified as exempt will become non-exempt if the proposed rule is adopted as the final rule.

Unpaid Interns 

On July 2nd, the US Second Circuit Court of Appeals held that, in many instances, unpaid interns may not necessarily be employees covered by the Fair Labor Standards Act (FLSA) and New York State Labor Law. In both cases (Glatt v. Fox Searchlight Pictures and Wang v. The Hearst Corporation), the plaintiffs argued that they were entitled to wage payments under the FLSA and NYS labor law. 

The Court rejected the six-point test promulgated by the US Department of Labor in favor a more nuanced seven-factor test to determine the “primary beneficiary” of the internship. Some of these factors include the extent to which the internship is tied to the intern’s formal education program; the extent to which the intern’s work complements, rather than displaces, the work of paid employee; and more. The complete opinion can be found The complete opinion can be found here.

Be sure to review the relationship you have with your interns to determine whether they are correctly accounted for under the FLSA.

New York City to “Ban the Box” 

The New York City Council passed, and Mayor de Blasio has signed, the Fair Chance Act. This act amends the City’s Human Rights Law to prohibit most employers in NYC from making any inquiries about an applicant’s pending arrest or criminal conviction record until after a conditional offer of employment has been made. This law will take effect October 27, 2015.

The Act applies to employers of four or more and outlines a process for consideration of criminal convictions. After a conditional offer of employment has been made, an employer may inquire about the applicant’s arrest or criminal conviction record, but may not take any adverse employment action based on the results of the inquiry unless the employer complies with the following requirements:

Employers should review their employment applications and remove any inquiries about an applicant’s arrest or conviction record. You should also review your employment policies to be sure that no background check is conducted until a conditional offer is made. And make sure you have trained interviewing supervisors and managers so they understand that questions during the interview regarding arrests and convictions are not allowed.

For questions or comments regarding any of this information, please contact Frank Kerbein, Director, Center for Human Resources on the HR Line: 800.332.2117 or at frank.kerbein@bcnys.org.