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Risk in Context

DOL's Overtime Rule Delayed, Risks Remain

Posted by Kelly Thoerig December 01, 2016

Employers around the country were left wondering how to proceed after a US District Court prevented a new US Department of Labor (DOL) overtime rule from taking effect this week. As you assess how to respond to the ruling, try to take a consistent approach toward employees and evaluate your insurance protection.

The DOL rule sought to update the salary and compensation levels needed for so-called “white collar” workers (executive, administrative, and professional employees) to be “exempt” and, therefore, not entitled to overtime pay. The Obama administration had said the revision to the Fair Labor Standards Act (FLSA) would extend overtime protections to 4.2 million Americans not currently eligible under federal law and to boost wages for workers by $12 billion over the next 10 years.

However, the nationwide injunction from the US District Court for the Eastern District of Texas prohibited the implementation and enforcement of the proposed rules, which had been scheduled to take effect December 1. Plaintiffs in the case argued that raising the exemption salary threshold would present an undue hardship.

Although the DOL today filed a notice of appeal, the court’s ruling creates uncertainty. Employers should keep in mind that:

  • The duties test for the white-collar exemption is unaffected and remains intact.
  • The federal injunction does not impact state law, which can be more employee-friendly than the FLSA.
  • The DOL’s Wage and Hour Division is likely to continue its aggressive pursuit of FLSA violations. Industry experts foresee an increase in state investigatory activity to compensate for any decrease at the federal level. 

How Should You Respond?

Many employers already made changes to accommodate the expected rule, while others planned to introduce changes soon. Steps to consider in light of the court decision include:

  • Assess your own situation, including steps already taken and the potential downside in altering course.
  • Take a cautious, measured approach with consistent messaging for employees. For example, taking away proposed salary increases or electing not to reclassify certain employees may provide fodder for employment practices liability claims.

Wage-and-Hour Protection

The number of wage-and-hour lawsuits has risen dramatically over the past several years and remains a consistent threat. These include allegations from employees that employers failed to pay overtime, did not provide adequate meal and rest breaks, or misclassified employees as exempt or as independent contractors.

In times of uncertainty, the protection afforded by wage and hour liability insurance is critical and can help transfer employee classification risks and provide coverage for defense costs, settlements, and judgments. As insurance rates for the coverage steadily decrease, work with your insurance advisor to ensure you are protected.

Kelly Thoerig

Managing Director, Employment Practices Liability Coverage Leader