Overtime Rule Hang-Up Requires Careful Communication About Pay Decisions

Scrupulously tailored messages can help avoid litigation

By Allen Smith, J.D. Dec 1, 2016
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If employers have announced employee raises or eligibility for overtime pay because of the Department of Labor's (DOL's) revised overtime rule, they may need to honor those commitments. Communications about the impact of a court's decision to temporarily block implementation of the overtime rule should honor any contracts created in prior messages about the rule.

The overtime rule was originally scheduled to take effect Dec. 1 and would have raised the exempt salary threshold from $23,660 to $47,476. Employers were left with the choice of raising the salary of employees within the range of the old and new thresholds to $47,476 or reclassifying them as nonexempt. But after a judge on Nov. 22 barred the rule from taking effect, employers aren't sure what to do

FLSA overtime rule resources
FLSA Overtime Rule Compliance

For more overtime compliance news, tips and tools, check out the SHRM resources provided below:

· FLSA Overtime Rule Resources Guide
· Overtime Rule Blocked: Now What?
· Compliance Checklist · Infographic

"Those employees and jobs reclassified or that were to be reclassified solely because of the increased salary level should go into one bucket," said Brett Bartlett, an attorney with Seyfarth Shaw in Atlanta. "Those subject to reclassification because they performed nonexempt duties should go into another. And those who have received or would have received raises should go into yet another."

Employees in the second category—reclassified because they perform nonexempt duties—should be classified as nonexempt, regardless of the court's decision.

For the other two groups, "businesses can make decisions based on costs and other factors," he said. Some organizations are making the changes that they planned, such as raising employees' salaries to $47,476 per year, out of concern that employees who have expected changes "might bring claims after learning the changes would not be made," Bartlett added. For example, employees might sue on the basis that previous communications created a contractual obligation, he noted.

Promised Pay Increases

"Employers should carefully consider all communications to employees, particularly promised pay increases that may have triggered employee reliance," said Kathleen Anderson, an attorney with Barnes & Thornburg in Fort Wayne, Ind.

"If annual increases can be given to those employees who were expecting an increase to at least $47,476 per year, then that should be communicated as well," said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and former acting administrator of the DOL's Wage and Hour Division.

"Those employees, though, may have to have the expectations as to future raises and bonuses managed in light of the bump just given," noted Robert Boonin, an attorney with Dykema in Detroit.

Wendy Stryker, an attorney with Frankfurt Kurnit Klein & Selz in New York City, said, "Employers should be prepared to deal with morale issues raised by employees who were relying on or expecting increased salaries in 2017 and may want to consider moving ahead with planned raises and instead make adjustments by planning for lower increases over time."

Communication Options

Businesses' first communication to employees about the court's overtime decision should accomplish the following, according to Bartlett:

  • Lay the foundation by explaining that the federal government planned to change the law on Dec. 1 in a way that would have had a material impact on the business's operations and profitability.
  • Reiterate the message that all of the employees whom the new rule would have impacted are of vital importance to the business and are valued tremendously, regardless of how the rule might have affected their status and pay.
  • Remind employees that the business takes its legal obligations very seriously and will at all times do its best to comply with the laws that govern how it pays employees, including the Fair Labor Standards Act (FLSA).
  • Explain that a federal judge has issued an order that calls into question how the law should be applied, but for now the order has stopped the new rule from going into effect on Dec. 1.
  • Confirm that the business will continue to vigilantly monitor the status of the rule to ensure that it can comply, but in the meantime it will comply with the law that is in effect at present.

"From there, the communication can be tailored to explain in general terms whether immediate action will be taken or whether employees should expect to hear further as things develop," he said.

Jim Swartz, an attorney with Polsinelli in Atlanta, recommended that if employers have not actually made changes in response to the overtime rule, they "can simply inform affected employees that the injunction has caused uncertainty in the law and the employer will re-evaluate whether changes should be made, and if so, when."

Mark Terman, an attorney with Drinker Biddle in Los Angeles, said there should be three basic steps to crafting employers' communications:

  • Designate HR to inform and answer questions of employees and managers.
  • Develop the written communications that describe what is happening, why it is happening, what it means to affected employees and who to contact with questions.
  • Develop consistent talking points to be used by HR and managers.

 [SHRM members-only toolkit: Calculating Overtime Pay in the United States]

Back-and-Forth Changes

But "if employers decide to undo already-implemented changes, they should emphasize the advantages of the original compensation method," Swartz said. "For example, they should emphasize the flexibility that exempt status affords and the benefits that come with exempt status. Of course, an employer's messaging will depend on the number of impacted employees and the company's internal assessment of employees' reaction to the back-and-forth changes."

"Employers should proceed with extreme caution if they reverse any pay increases already implemented," Robinson said. "Such action may be poorly received or viewed, especially this time of year, as [acting like] a 'Scrooge,' and face state law complications in many states." State laws may require pay notices if there are any changes in compensation.

An employer should remind its employees that it "will reconsider any changes once there is a clearer picture," Robinson noted.

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