The overtime rule is one of the more highly anticipated and contentious regulations to come out from the United States Department of Labor (DOL) in some time, and it is now expected to be released by July of this year. Once released, employers will likely have about 60 days to comply.
Between now and then, the DOL’s Wage and Hour Division is reviewing the nearly 300,000 comments that it received on its proposed rule. The tremendous outpouring of comments is reflective of the potential impact that the rule could have in its proposed form. At stake is an update of the Fair Labor Standards Act (FLSA) that would more than double the minimum salary for the overtime exemption from $23,660 to $50,440 per year. In addition, the salary threshold will be tied to an automatic escalator to keep pace with inflation for the first time.
The DOL is also considering whether to make changes to the duties tests for exempt employees. While it didn’t address those changes in the proposed rules, it did ask for comments on whether the tests should be changed. This is all part of President Obama’s agenda – one strongly supported by labor unions – to raise wages by making more people eligible for overtime pay.
Bottom line implications for employers will be significant, not only from a dollar perspective but also with regard to personal liability. As the government has continued to crack down on violations relative to the FLSA, employers that don’t comply with various rules, including the overtime rule, face increased risk of personal liability and criminal responsibility, including jail time. While the regulations have not changed in this regard, the government’s willingness to enforce the regulations has.
In our own backyard in Akron in 2015, for example, an owner of a restaurant and his wife were sentenced to jail for hiring undocumented workers, paying them in cash, paying them less than minimum wage, failing to pay overtime, and excluding them from payroll to avoid detection. The owner was ultimately sentenced to 33 months in federal prison and had to pay $100,000.
Farther east in New York City, the owner of several Papa John’s franchises was sentenced to serve 60 days in jail last year for creating fictitious employees in an attempt to hide the overtime and for failing to pay his workers minimum wage and overtime. In addition to jail time, the owner agreed to pay $230,000 in restitution to the workers. In another case, the attorney general’s office secured a judgement of nearly $3 million against two other Papa John’s franchisees.
Yet another restaurant owner in New York pleaded guilty to charges of failing to pay minimum wage and overtime to employees who sometimes worked in excess of 70 hours a week. She will pay $47,000 for unpaid wages to six former employees. She and her corporation are scheduled to be sentenced in March 2016.
Equally noteworthy is that personal liability can extend beyond the owners and go farther down the management chain. In 2013 the Eleventh Circuit Court of Appeals (covering Georgia, Florida and Alabama) held that any individual with control over an employer’s financial affairs who could potentially cause an employer to violate FLSA regulations may be liable. The court even found that two minority shareholders had sufficient control over the company’s financial affairs to be personally liable even though they were not present at the company more than a few days or weeks each month. There was another court case several years ago in Texas where an owner, plant manager and office manager were all convicted on felony charges related to FLSA violations and had to serve time. These cases however, are often complicated by, or arise in conjunction with, immigration and other legal issues.
Without a doubt, FLSA regulations should not be taken lightly, especially in cases where multiple employees routinely work more than the standard 40-hour work week. Given the DOL’s current strategy to seek enforcement of even unintentional violations against businesses and their owners and managers, employers need to stay abreast of all DOL changes, including the anticipated overtime rule changes later this year. Employers should consult with legal counsel experienced in labor and employment issues to ensure they comply in order to avoid financial penalties and/or criminal charges.