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FEDERAL CONTRACTS PERSPECTIVE

Federal Acquisition Developments, Guidance, and Opinions


December 2016
Vol. XVII, No. 12
[pdf version]

CONTENTS


Federal Court Blocks Rule Extending Overtime Pay to 4.2 Million White-Collar Employees
FAC 2005-92 Requires Greenhouse Gas Emissions Reporting
Two More Proposed FAR Changes
DOD Issues Three Final Rules in November



Federal Court Blocks Rule Extending
Overtime Pay to 4.2 Million White-Collar Employees

For the second time in two months, the District Court for the Eastern District of Texas has put the brakes on an Obama administration rule that addresses labor issues: in October it was a Department of Labor (DOL) "guidance" that imposed new reporting requirements regarding labor law violations (see the November 2016 Federal Contracts Perspective article “Executive Order 13673, Fair Pay and Safe Workplaces, Put on Hold by Court); in November it was a DOL-imposed expansion of overtime pay for approximately 4.2 million executive, administrative, professional, outside sales, and computer employees. Those most affected by this rule would have been in the restaurant, retail, and hotel industries, and nonprofit organizations.

The Fair Labor Standards Act (FLSA) was passed in 1938 to guarantee a minimum wage and limit the number of hours an employee could work without additional compensation. Most workers covered under the FLSA must receive overtime pay of at least 1.5 times their regular pay rate for hours worked in excess of 40 hours per week. However, the FLSA excludes certain white collar employees from minimum wage and overtime pay protections on the grounds that these employees earn salaries well above the minimum wage and enjoy other privileges (such as above-average fringe benefits, greater job security, and better opportunities for advancement) that set them apart from workers entitled to overtime pay. In 2004, this exclusion applied to all white collar employees who made in excess of $455 a week ($23,660 annually).

On March 13, 2014, President Obama issued a memorandum to the Secretary of Labor directing him to modernize and streamline the existing overtime regulations for executive, administrative, and professional employees. “Regulations regarding exemptions from the Act’s overtime requirement, particularly for executive, administrative, and professional employees (often referred to as “white collar” exemptions) have not kept up with our modern economy. Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to the minimum wage. Therefore, I hereby direct you to propose revisions to modernize and streamline the existing overtime regulations. In doing so, you shall consider how the regulations could be revised to update existing protections consistent with the intent of the Act; address the changing nature of the workplace; and simplify the regulations to make them easier for both workers and businesses to understand and apply.” (See the April 2014 Federal Contracts Perspective article “Labor Directed to Propose Changes to Overtime Regulations.”)

In response to the president’s direction, the DOL issued a 161-page rule that amended Title 29 of the Code of Federal Regulations (CFR), Part 541 (29 CFR part 541), Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Computer and Outside Sales Employees, to increase the salary level for exemption from $455 a week to $913 a week ($47,476 annually), and to establish an automatic updating mechanism that adjusts the minimum salary level every three years – the first automatic increase is scheduled for January 1, 2020. The rule was to go into effect December 1, 2016, and the increase in the exemption level was estimated to make 4.2 million white collar employees eligible for overtime pay.

In September, 22 states filed an “emergency motion for preliminary injunction” with the District Court for the Eastern District of Texas seeking to prevent the DOL from implementing and enforcing the overtime rule (State of Nevada, et al v. United States Department of Labor, et al, Civil Action No. 4:16-CV-00731). The states argued that “the FLSA’s overtime requirements violate the Constitution by regulating the states and coercing them to adopt wage policy choices that adversely affect the states’ priorities, budgets, and services...as one example, the state of Kansas must evaluate whether its agencies should increase the salaries of their employees to the new minimum salary level or allow these employees to become non-exempt and eligible for overtime...as a result, agencies with budget constraints, such as [those] in Kansas, have relatively few options to comply with the final rule – all of which have a detrimental effect on government services that benefit the public.”

On November 22, Judge Amos Mazzant issued the preliminary injunction on a nationwide basis prohibiting the implementation and enforcement of the DOL rule. In making his ruling, Judge Mazzant found that paragraph (a)(1) of Title 29 of the U.S. Code, Section 213, Exemptions [to the FLSA] (29 USC 213), exempts “any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools), or in the capacity of outside salesman…” He concluded that “nothing in the exemption indicates that Congress intended the department [DOL] to define and delimit with respect to a minimum salary level...The final rule states that ‘white collar employees subject to a salary level test earning less than $913 per week will not qualify for the [executive, administrative, and professional] exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities.’ With the final rule, the department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test [that is, whether or not an employee performs executive, administrative, or professional duties]. Consequently, the final rule...is unlawful. The department’s role is to carry out Congress’s intent. If Congress intended the salary requirement to supplant the duties test, then Congress, and not the department, should make that change.”

DOL issued a statement that it “strongly disagrees with the decision by the court,” and has filed a notice to appeal the preliminary injunction to the U.S. Circuit Court of Appeals for the Fifth Circuit. However, with the new Donald Trump administration taking office on January 20, 2017, the DOL could drop the appeal. In an August interview with Circa (http://circa.com), president-elect Donald Trump said, “Rolling back the overtime regulation is just one example of the many regulations that need to be addressed to do that. We would love to see a delay or a carve-out of sorts for our small business owners.”

For more background on the DOL overtime rule, see the August 2015 Federal Contracts Perspective article “Labor Proposes Revising Overtime Pay Rules.”



FAC 2005-92 Requires Greenhouse Gas Emissions Reporting

Federal Acquisition Circular (FAC) 2005-92 contains two final rules that amend the Federal Acquisition Regulation (FAR), the most important being the establishment of a representation for offerors to indicate if and where they publicly disclose greenhouse gas emissions and greenhouse gas reduction goals or targets. The other rule deletes the terms “telegram,” “telegraph,” and related terminology to obsolete technologies that are no longer in use, and replaces these terms with references to electronic communications.



Two More Proposed FAR Changes

The FAR Council published two proposed FAR rule changes during November, one that would encourage exchanges with industry, the other to clarify the guidance for sole-source 8(a) contract awards exceeding $22,000,000.



DOD Issues Three Final Rules in November

The Department of Defense (DOD) continued cleaning its regulatory house in anticipation of the new administration in January. It issued one final rule, finalized one interim rule, and finalized one proposed rule. In addition, DOD issued two proposed rule and one class deviation.





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