Retail Observer

June 2019

The Retail Observer is an industry leading magazine for INDEPENDENT RETAILERS in Major Appliances, Consumer Electronics and Home Furnishings

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JUNE 2019 RETAILOBSERVER.COM 33 from the DOL (now reporting to a new president) that it intended to revisit the rule. The Notice of Proposed Rulemaking, issued March 7, is the first indication of how the DOL intends to revamp the rule. One of the district court's concerns about the 2016 rule was the drastic increase in the salary test. The test had been set at $23,660 annually since the rule was last updated in 2004. By increasing the test to a threshold of $47,476, the 2016 rule would have prevented several million employees from being exempted. The 2016 rule increased the threshold so drastically that it appeared to the district court that the rule was no longer using the salary test as it was originally intended: as a simple screening device to eliminate obviously non-exempt employees from being covered by the exemption. Instead, it carved deeply into the group of employees that had duties sufficient to satisfy the exemptions, and eliminated a substantial number of them based solely upon their pay. In the district court's view, this was inconsistent with the language of the FLSA itself, which defined the white-collar exemptions solely in terms of duties, not salary. The proposed 2019 rule sets a more conservative salary threshold. Rather than setting the salary threshold at 40% of the national average earnings for full-time salaried workers, the department returns to the methodology used in 2004, setting the wage at 20% of the average earnings for full-time workers in the lowest-wage region of the country (the South) and the lowest-wage sector (retail). This resulted in a proposed salary threshold of $679 per week ($ 35,308 annually). This is a relief for retailers, because basing the salary threshold on the higher wage standards prevalent in other industries could have resulted in the salary test being set at a level that retailers could not meet. The DOL's proposal is also notable because it attempts to set ground rules for future increases in the salary threshold. The department considered whether it should include some form of automatic indexing. The 2016 rule proposed by the Obama DOL would have required an automatic reset of the salary threshold every three years using a predefined formula. In the 2019 rule, the DOL proposes to scrap that approach in favor of an actual review by the department every four years, followed by a rulemaking process that would allow interested parties to voice their opinions. The DOL believes this approach will give it more flexibility to deal with unforeseen economic conditions, while producing more regular and less disruptive updates to the salary threshold. OTHER IMPORTANT UPDATES: • A boost to the compensation required to meet the "highly- compensated employee" exception to the white-collar exemption duties tests, such that the threshold will move from $100,000 to $147,414 (of which at least $679 per week must be paid on a salary basis). • A provision that retains the feature in the 2016 rule that would have allowed employers to satisfy up to 10% of the applicable salary threshold through payment of nondiscretionary bonuses or incentive compensation, provided they are paid annually or more frequently. The proposal makes clear that the DOL intends to leave the duties tests for the exemptions unchanged. This is a mixed bag. While it means that employers will not have to adjust to a new duties test for the executive exemption, the existing duties test has not done a great job of protecting employers from collective- action litigation. Some will see this as a missed opportunity. The DOL has opened up this proposal for a formal period of public comment. Those comments will be considered, and any necessary revisions will be incorporated into a Final Rule. Visit to obtain the Notice of Proposed Rulemaking and instructions on submitting comments, The Notice of Proposed Rulemaking suggests that the DOL is targeting a January 2020 date for the Final Rule to go into effect. If the DOL issues the rule in its current form, employers will have to re-examine their exemption decisions. If the rule passes, retailers will have to either raise managers' salaries above $ 35,308 to maintain their exempt status, or convert them to non-exempt hourly employees and start paying them overtime. Attorney Kevin Johnson is a founder of Tampa-based employment law firm Johnson Jackson LLC. 813-580-8400; email: RO

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