A Few Common Reminders of the Family Medical Leave Act (FMLA)

Sue Bartos 2016The Family Medical Leave Act (FMLA) allows an eligible employee to take an unpaid, job-protected leave for a specified family and medical reason with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave.  A few of the common points of FMLA that may be forgotten by the employer are outlined below.

Can the employer have communications with the employee while they are on FMLA?

Yes. Under the FMLA regulations, interference with an employee’s leave includes not only refusing to authorize the leave, but also discouraging an employee from using that leave.  Asking or requiring an employee to work while on leave can cross the line to interference.  There is no bright line test to what is permissible or not.  The Courts have classified simple matters, such as an occasional phone call about a certain issue, an inquiry to close out a completed assignment, or an “unburdensome” request for materials to be permissible.  On the other hand, it will probably be impermissible to require an employee to substantially update a file or complete a task you were hoping they would have finished prior to leave.

To summarize, although the employer can communicate with the employee while he or she is on FMLA, it is recommended that the communication be for simple matters only.  Further, it is not recommended that the employer accept the employee’s offer to work while on leave.  Even if the employee voluntarily wants to work, he or she may later claim it was not voluntarily and an interference charge can be filed.

If the medical certification is completed and returned is FMLA leave automatic? 

No.  A completed and returned medical certification issued by a health care provider does not mean leave is automatic.  The employer needs to approve leave only if the employee has a serious health condition that makes him/her unable to perform one or more of the essential functions of their job. The employee is under the obligation to provide clear and sufficient information to enable the employer to determine if leave is required.

If an employee provides a certification form that is vague, incomplete, or contradictory, the employer has the obligation to request more information prior to leave being granted.  Merely stating “I am sick” or “I am depressed” does not give the employer enough information to make the determination on leave.  Do not be fooled by a doctor’s note that states the employee is “sick” or “needs a few days off to get better.”  The doctor must provide medical facts to support the employee’s need for leave and why the employee is unable to perform the essential functions of their job.

Can the employer request a second opinion?   

Yes.  If the employer is contesting the existence of a serious medical condition, requiring the employee to obtain a second opinion can be required by the employer.  If the two opinions conflict, a third opinion can be obtained.  The third opinion will be final and binding.

Can the employer request recertification?

Yes.  If the leave is for a period of more than 30 days, recertification can be requested.  If the leave is for less than 30 days, recertification can be requested if circumstances described in the original certification have changed or there is reasonable concern of the need for the leave.  In the case of intermittent leave, the medical provider should be provided the pattern of absences to determine if they are consistent with the serious health condition.

Please consult with Sue Bartos and the employment and labor law team at CMDA for any further questions you may have regarding the application of the Family Medical Leave Act.

Suzanne P. Bartos focuses her practice on employment and labor law, insurance defense, municipal law, education law, and litigation.

She successfully defends civil rights, wrongful discharge, and discrimination claims in state and federal courts. She has defended municipal entities at both the grievance and arbitration level and has worked with a variety of administrative agencies and tribunals including the U.S. Equal Employment Opportunity Commission, Michigan Employment Security Commission, Michigan Wage and Hour Division, National Labor Relations Board, and the Internal Revenue Service. She has also achieved outstanding results for clients in premise liability, breach of contract, collections, warranty disputes, and consumer protection. Further, she is a trusted legal advisor to school districts and community colleges on a variety of educational and governance issues.

She may be reached at (734) 261-2400 or sbartos@cmda-law.com.

Cross Obtains Favorable Arbitration Award for Concert Promoter

 After a prolonged dispute, Matt Cross obtained an arbitration award for a valued client, a Detroit-based concert promoter.  The promoter paid the producer of the show a $40,000 deposit in five installments to perform its show in Detroit last year.  The producer pulled out last minute and refused to return the promoter’s deposit, citing the promoter’s failure to timely pay two of the five scheduled payments.  Mr. Cross convinced the arbitrator that the producer waived any breach on the part of the promoter and the arbitrator returned an award in favor of the promoter for the full deposit amount plus attorney’s fees and costs. 

Matt Cross is an attorney in our Traverse City office where he focuses his practice on business law, insurance defense, law enforcement defense and litigation, and municipal law. He may be reached at (231) 922-1888 or mcross@cmda-law.com.

New Tools for Asset Protection and Estate Planning

Gerry Davis 2016Individuals in Michigan seeking to protect assets from creditors no longer have to transfer their assets to Delaware, Nevada or Alaska.  Effective February 5, 2017, the Qualified Dispositions in Trust Act, Domestic Asset Protection Trusts, Public Act 330 of 2016, will allow the owner of trust assets to retain and protect his or her assets from creditors, while still retaining the power to direct investment decisions, the power to veto distribution from the trust (including to himself), the power to receive income, and the right to remove and replace a trustee.  The owner may also retain a special Power of Appointment to direct how the assets will be distributed upon the owner’s death.

While the owner retains some powers and interest, this is still a discretionary trust, so the owner must give up control over his assets to an independent trustee whom the owner does not control.

This is especially useful for people with large estates that can be targets of lawsuits such as doctors, business owners, those with a high public profiles, entertainers, developers and business investors.

However, pursuant to the Uniform Fraudulent Transfer Act, if a transfer is deemed fraudulent it can be set aside, including transfers to a Domestic Asset Protection Trust.  In law, if the disposition was made with actual intent to hinder, delay, or defraud any creditor of the debtor, that transfer can be set aside and the assets therefore reached by creditors.  In addition, the assets in the trust are not protected in a divorce action, if the assets were transferred to the trust 30 or fewer days before the marriage.

There are certain requirements that must be satisfied for the protections to be enforceable, including a two-year waiting period from the date the assets are transferred to the trust, and as stated, the trustee must be an independent third party who has total control over the distributions, such as a bank with trust powers or a trust company.

Therefore, it is important that the trust be set up early before liability attaches.  For example, once a tenant defaults on a lease and a claim of personal liability attaches as guarantor, the trust would already have to be in place, or it will likely be deemed a fraudulent transfer.  Thus, the trust must be created prior to any creditor claims being filed against the assets or the creator of the trust, particularly in view of the minimum two-year waiting period required between the time the trust is created and the protections under the trust are asserted, as from a judgment, court order or even a claim of a creditor capable of being reduced to a judgment against the creator of the trust.

With this valuable new tool, debtors and potential debtors, such as tenants under leases, or purchasers of major equipment or real estate, risk having their entire estate wiped out from circumstances they cannot control and are now afforded protection at least to the extent that the assets are subject to a validly created Domestic Asset Protection Trust.

As two-thirds of the states do not offer this type of protection, Michigan will likely be a haven to protect assets from creditors’ seizure.

Gerald C. Davis is a partner in our Livonia office where he concentrates his practice on corporate and business law, leveraged buy-outs, company reorganization and refinancing, analyzing investments for joint ventures, intellectual property, and drafting loan agreements. He may be reached at (734) 261-2400 or gdavis@cmda-law.com.

An Important Lesson for Condominium Developers

brandan-hallaq-profile-photoOn December 15, 2016, the Michigan Court of Appeals issued an unpublished opinion in the matter of Woodland Estates, LLC v. City of Sterling Heights and County of Macomb. The Woodland Estates case should be taken as a warning to developers. This case illustrates the importance of obtaining legal advice from an attorney throughout all stages of the development process. The Developer in this case may have been able to recoup a substantial sum of money from the Government if it had asserted its rights in a timely fashion. Real estate developers must take considerable care to ensure that they act diligently in pursuing their rights as time is of the essence.

BACKGROUND

Woodland Estates, LLC (the “Developer”) filed a lawsuit against the City of Sterling Heights and the County of Macomb (the “Government”) regarding a Condominium Project located in Sterling Heights, MI. The case centered on the Developer’s allegation that it was entitled to monetary compensation from the Government based on an inverse condemnation theory. Inverse condemnation is a term used to describe a situation in which the government takes private property but fails to pay the compensation required by the Fifth Amendment of the Constitution. As a result, the property owner typically has to sue to obtain the required just compensation.

In 2003 the Developer purchased a five-acre parcel of property in Sterling Heights upon which the Condominium Project was to be developed. When the Developer attempted to obtain permission from the Government to develop the property, the Government informed the Developer that a portion of the property (a 92-foot wide tract of land across the property) could not be developed because the Government anticipated that land would be used in a future expansion of 18 mile road. This left the Developer with a five-acre parcel of property upon which only 3.88 acres could be developed for the Condominium Project (the remaining 1.12 acres was left undeveloped and reserved for the Government’s eventual expansion of the road).

The Master Deed of the Condominium Project was recorded on February 6, 2006. The legal description of the property contained in the Master Deed included the 3.88 acres of land that could be developed as well as the 1.12 acres of land that could not be developed. One month later, the Developer recorded a Consent to Submission of Real Property to Condominium Project which essentially stated that the Developer was giving consent for the entire property to be governed by the Master Deed. The Consent to Submission also contained the same legal description of the property including both the 3.88 acres that could be developed and the 1.12 acres that could not be developed. The Developer filed the lawsuit against the Government on December 30, 2014 claiming that the Government was required to compensate the Developer under an inverse condemnation theory.

THE COURT’S DECISION

The Trial Court originally granted the Government’s request for dismissal on the basis that the six-year statute of limitations for pursuing an inverse condemnation claim had run. The Developer then appealed and the Court of Appeals affirmed the Trial Court’s decision. The Appellate Court ruled on the following arguments brought forth by the Developer:

Whether the application of a statute of limitations defense to an inverse condemnation claim is constitutional; and

If a statute of limitations defense is constitutional, as applied to an inverse condemnation claim, whether the appropriate limitations period should be six years or fifteen years.

The Court first ruled on the constitutional issue and stated that the Michigan Supreme Court as well as the United States Supreme Court have both held it constitutionally permissible to apply a statute of limitations to a constitutional claim. The Court cited the cases of Hart v. Detroit, 416 Mich 488, 503; 331 NW2d 438 (1982); United States v. Dickinson, 331 US 745, 747; 67 S Ct 1382; 91 L Ed 1789 (1947); and Block v. North Dakota ex rel Bd of Univ & Sch Lands, 461 US 273, 292; 103 S Ct 1811; 75 L Ed 2d 840 (1983) as authority.

Moving next to the question of whether the appropriate limitations period was six years or fifteen years, the Court stated

… the proper statute of limitations for an inverse condemnation claim is either six years pursuant to MCL 600.5813 and Hart, 416 Mich at 503, where the plaintiff does not maintain an interest in the property, or 15 years pursuant to MCL 600.5801(4) and Difronzo, 166 Mich App at 153-154, where the plaintiff does maintain an ownership interest.

The Court went on to explain that under the Michigan Condominium Act, condominium projects are made up of only two things: condominium units and common elements. Based on the language contained in the Master Deed and the Michigan Condominium Act, the Court held that the 1.12 acres of land reserved for the Government was classified as “general common element” land in the Condominium Project. Accordingly, that land is owned equally among the co-owners of the Condominium Project pursuant to the Master Deed.

The Court further stated that since the Developer was not a co-owner (since it did not own any units in the Condominium Project) it did not have any ownership interest in the property at issue. Therefore, the Court held that the appropriate statute of limitations period was six years. Because the Developer filed the Consent to Submission in March of 2006, the statute of limitations ran in March of 2012 and the Trial Court correctly dismissed the Developer’s lawsuit against the Government.

CONCLUSION

As previously mentioned, the Woodland Estates case should be taken as a warning to developers. Because the Developer did not obtain adequate and timely legal advice at the time it acquired the property, the Developer lost a significant amount of money. In fact, the amount of compensation owed by the Government to the Developer would be easy to calculate since the Condominium Project was initially intended to contain 17 or 18 units as opposed to the 11 that were developed and sold as a result of the inability to build on the 1.12 acres reserved for the Government. Accordingly, experienced real estate attorneys should be consulted from the beginning of the process through the end.

Brandan Hallaq is an attorney in our Livonia office where he focuses his practice in the areas of business and real estate law. He may be reached at (734) 261-2400 or bhallaq@cmda-law.com.

Attorney Drafts Endorsement Agreement on Behalf of Client and NFL Player

lawrence-hunt-logoMatt Cross, an attorney in our Traverse City office, recently drafted an endorsement agreement on behalf of his client, Lawrence Hunt Fashion, Inc.  Lawrence Hunt named New York Giants wide receiver Sterling Shepard as an official brand ambassador of the Detroit-based company that is known for building dress shirts with performance fabric technology making the dress shirts breathable and sweat-wicking. Shepard joins Detroit Tigers catcher James McCann as a Lawrence Hunt brand ambassador.

Matt Cross is an attorney in our Traverse City office where he focuses his practice on business law, insurance defense, law enforcement defense and litigation, and municipal law. He may be reached at (231) 922-1888 or mcross@cmda-law.com.

The Sixth Circuit Court of Appeals Expands an Employer’s Defenses to a Claim of Discrimination

Gerry Davis 2016In the case of Richardson v Wal-Mart Stores, Inc., the United States Court of Appeals for the Sixth Circuit, which includes the state of Michigan, interpreted, clarified and enlarged the defendant employer’s defense to a claim of age discrimination under the Elliott-Larsen Civil Rights Act.

The Court of Appeals confirmed that the 62-year old plaintiff, Richardson, failed to offer either direct or indirect evidence that her job was terminated based on her age.  It has been her allegation that Walmart illegally terminated her job because of her age.  A former supervisor acknowledged her age, but the court recognized that the plaintiff could not establish her claim, because that supervisor was transferred to another store four months before Richardson was terminated, and that supervisor was not involved in the discharge decision.  Richardson further claimed the store manager who terminated her “exhibited a pervasive pattern of discriminatory conduct toward her,” and that this constituted direct evidence of discrimination.  While the store manager’s actions may have shown he probably did not like Richardson, none of the facts demonstrate discrimination based on age.  The Court of Appeals also recognized that Richardson failed to establish her claim based on circumstantial  evidence of discrimination because, even though she offered prima facie evidence enough to go to a jury for a fact adjudication, the defendant Walmart offered a legitimate non-discriminatory reason for her termination, alleging she engaged in unsafe work practices in violation of Walmart’s safety policies and her conduct brought her to the fourth and final steps of the company’s progressive disciplinary policy.

In accordance with law, the plaintiff argued that Walmart’s stated reasons were pretextual, that is, offered as a pretext for their real reason, which was discrimination.

Under case law and the theory of judicial precedence, where a court must follow the decisions of earlier courts regarding the same issue, a plaintiff must state enough facts to create legitimate questions of fact that support a basis of discrimination (prima facie evidence), and then it is for the trial court or a jury to decide if those assertions made by plaintiff are true.  When the plaintiff has offered evidence of discrimination, the burden of proof then shifts to the defendant to state a legitimate non-discriminatory reason justifying their actions.  If the defendant does that, the burden then shifts one more time, back to the plaintiff to prove that the defendant’s stated non-discriminatory reasons were a pretext (false reason) for the real reason, which was discrimination.

In the Richardson case, the court noted that other employees, even those younger than Richardson were disciplined and fired for similar reasons.  The Court of Appeals further stated that, even if the plaintiff could successfully dispute the disciplinary actions, “Walmart still would be entitled to summary judgment under the honest-belief rule, which prohibits a finding of pretext “if the employer can establish its reasonable reliance on the particularized facts that were before it at the time the decision was made.”  Therefore, Walmart did not have to be correct in its judgment, as long as it honestly believed the facts upon which it relied for termination were true, or the facts existed as they honestly believed them to be.

The honest-belief rule also provides that an employer is entitled to summary judgment on pretext, even if conclusion is later shown to be “mistaken, foolish, trivial or baseless.”

This is a published case, meaning it is intended to constitute legal precedent for future cases decided under similar fact scenarios.

Gerald C. Davis is a partner in our Livonia office where he concentrates his practice on corporate and business law, leveraged buy-outs, company reorganization and refinancing, analyzing investments for joint ventures, intellectual property, and drafting loan agreements. He may be reached at (734) 261-2400 or gdavis@cmda-law.com.

Physical Disabilities in a Virtual World

chris-mcintire-photoBusinesses and public entities who routinely utilize their website to conduct business should be aware that there has been a steady increase in the number of lawsuits filed by disabled customers who cannot access websites.  The complaints have ranged from websites that could not be navigated without a mouse, websites disabling or otherwise making it difficult for accessibility software on the site visitor’s own computer to make full use of the site, and websites that do not include options to assist a visitor who is disabled.

In 2010, Hilton Worldwide was the subject of a Department of Justice (DOJ) suit for multiple violations of the Americans with Disabilities Act (ADA).  One violation involved the reservation website, which did not allow visitors to book ADA accessible rooms online.  Hilton explained that their website design software limited the number of room options in their dropdown menu; therefore they did not include the ADA accessible options in the menu.  Ultimately, Hilton was forced to accept a wide ranging consent decree from the DOJ that included, for the first time, specific instructions regarding website accessibility.  As part of the DOJ consent decree, Hilton was ordered to comply with the Web Content Accessibility Guidelines (WCAG), which included making all options available for visitors who wanted to book a room.

In addition to Hilton Worldwide, AOL, Charles Schwab, Netflix, Target, eBay, Ticketmaster and Travelocity have all either been sued or worked with advocacy groups to avoid litigation.  In the Target class action suit, Target paid $6,000,000 and installed online screen reading software on their website.  This is the first time a federal court decreed that an online store must provide accessible website service to disabled persons (National Federation of the Blind v. Target Corporation, 452 F.Supp.2d 946. N.D. Cal. 2006).

Public entities also need to make sure their websites are not in violation of the ADA. Can a disabled visitor do everything online that any other visitor can do?  If you stream or post video/audio of public meetings is there an option to get close captioning?  Is there a way for a disabled visitor to get help if they are having problems, either in real time or within 24 hours?

The Department of Justice is working on cyber ADA guidance, which they hope to roll out in 2018.  Until then, businesses and public entities who routinely utilize their website to conduct business should follow the steps below to avoid a potential lawsuits filed by a disabled customer who cannot access their websites.

1.)  Make sure your IT department is in compliance with the Web Content Accessibility Guidelines, which can be located online.

2.)  Provide website visitors with options.  Can visitors navigate the website with just a keyboard?  Can forms be filled out without a mouse?  Do you use “Alt-text” to describe photos, allowing text-to-voice software to describe photos they cannot see, and making sure any downloadable PDF files can be accessed by the visitor using assistive technology?  Can visitors increase text size, either using a feature on their own browser or by clicking on a page link to enable a larger font?

3.)  Keep it simple.  Website developers may want to create a cutting-edge site, however all those bells and whistles can disrupt a visitor’s accessibility, especially if the visitor has assistive technology on their computer.

We may never get it perfect.  We just have to strive to “get it right.”  There will always be new technology, and as clients adapt to new technology, attorneys at CMDA are available to provide guidance to ensure businesses and public entities who routinely utilize their website to conduct business avoid lawsuits filed by disabled customers who cannot access websites.

Christopher A. McIntire, an attorney in our Riverside, California office focuses his practice on public entity, schools, employment, ADA compliance, mass tort and premises liability defense. He may be reached at (951) 276-4405 or cmcintire@cmda-law.com.

Occupational Safety and Health Act: New Rules for Injury and Illness Reporting

Gerry Davis 2016The workplace environment is governed by the Occupational Safety and Health Act (OSHA).  The United States Department of Labor’s Occupational Safety and Health Administration recently issued a final order that will require employers and many high-hazard industries to electronically submit injury and illness data to OSHA.  Such reporting is already required to be tracked, but the reporting aspect of such injury or illness is what is new.

The new rule prohibits, “employers from using drug testing or the threat of drug testing as a form of retaliation against employees who report injuries or illnesses.”  The new rule also “clarifies the existing implicit requirement that an employer’s procedure for reporting work-related injuries and illnesses must be reasonable and not deter or discourage employees from reporting,” additional to incorporating the existing prohibition on retaliation for reporting.  OSHA will then share the injury and illness data on its website as the organization believes such posting of injury and illness data will provide valuable information to employers, employees, employee representatives (unions) and researchers.

Accordingly, employers must be aware of the new rule and comply with the reporting requirements.  Employers must review “post-accident drug and alcohol testing policies,” since they will be more strictly scrutinized by OSHA going forward.  Some employers administer a drug and alcohol test to anyone that may have been involved in an incident or event resulting in injury or illness to an employee.

Accordingly, any policy that automatically tests employees who suffered work-related injuries will be targeted by OSHA because such policies may be viewed as deterring employees from workplace injury reporting.  The testing must be limited to circumstances where the employee likely contributed to the reported injury or illness.  If, for example, a hi-lo driver in a plant injured a co-worker, it is appropriate that the driver of the hi-lo be examined for drug and alcohol while the co-worker that was injured by the hi-lo driver probably should not be similarly examined.  The policy for alcohol and drug testing must be designed to accurately identify the impairment caused by the drug or alcohol use.

The employers must also consider tests that only measure very recent drug use to determine if an employee was impaired by alcohol or drugs at the time of the accident by use of tests which visually show how much drugs or alcohol caused impairment at the time of the accident, rather than merely be designed to show how much drugs or alcohol are in the employee’s system.

Employers should consider avoidance of post-accident drug and alcohol testing in favor of implementing reasonable suspicion testing instead, or using random drug and alcohol testing programs to deter drug use before an accident actually occurs.  Employers will be required to file state and federal reports for drug testing, but may continue to test for drugs and alcohol.  However, the employer is reminded not to retaliate in any way against an employee who reports workplace injury or illness.  Retaliation can include change in workplace duties, status, compensation, hours of work and other conditions of employment.  Consequently, an employer should avoid a mandatory drug testing policy after report of injury, unless justified by the circumstances, behavior of the workers, and other facts.

The motivating reason for this change of policy is to provide employees with the ability to truthfully and completely report workplace injuries and illnesses without fear of retaliation.

Attorneys from CMDA are available to evaluate workplace policies to help assure compliance with this and other laws.  OSHA provides fines of up to $12,471 for serious violations of these rules.

Gerald C. Davis is a partner in our Livonia office where he concentrates his practice on corporate and business law, leveraged buy-outs, company reorganization and refinancing, analyzing investments for joint ventures, intellectual property, and drafting loan agreements. He may be reached at (734) 261-2400 or gdavis@cmda-law.com.

Changes in Overtime Rules for Michigan Employers

Chris Schultz 2016The Fair Labor Standards Act (FLSA) has changed the overtime rules for certain salaried workers, which will be applicable to Michigan employers.  The changes are to be implemented on December 1, 2016.  Michigan business owners need to start planning now in order to avoid scrambling in November. 

Many Michigan closely held businesses classify salaried employees as being exempt from the overtime rules as a means of controlling payroll costs.  An exempt employee is an employee who is, 1) paid a salary; 2) the salary is equal to the minimum amount (see discussion below); and 3) their job duties primarily involve executive, administrative or professional duties or outside sales. 

Number 2 above is what has been changed with the new FLSA overtime rules.  Prior to December salaried employees are exempt from paid overtime if their annual salaries are a minimum of $23,660.  Effective in December, the annual salary must be $47,476 or more or $913 per week.  

Michigan employers will be required to comply with these rules.  Michigan small businesses already have to comply with the Affordable Care Act, and increased state minimum wages, and this change could cost employers more.  For business planning purposes, the employer needs to review the pay and the hours worked by their exempt employees.  After this analysis, if there are exempt salaried employees who are not paid the minimum annual salary, the employer can, 1) increase the salary of its exempt employees to the new level; 2) reclassify exempt employees to hourly employees and then restrict their overtime hours and overtime pay; or 3) start counting and controlling the hours exempt salaried exempt employees work.

Note that these change do not impact hourly employees who will still be paid 1.5 hourly rate for hours worked in excess of 40 hours in any single week. 

Christopher G. Schultz is a partner in our Livonia office where he concentrates his practice on representing businesses in many areas of the law. Additionally, he assists clients with estate and elder law planning. He may be reached at (734) 261-2400 or cschultz@cmda-law.com.

U.S. Department of Labor Releases Final Overtime Rules

Gerry Davis 2016The Department of Labor recently released the final rules regarding the payment of overtime to employees, governed by the Fair Labor Standards Act (FLSA).  While the new rules were to go into effect in June of 2015, a large number of modifications changed the original draft, and the final rules are now made effective December 1, 2016.  This will allow employers the opportunity to anticipate the broad changes that will go into effect.

Under the current rules, employees earning $23,360 or less must be paid overtime at a rate of time and a half for work in excess of 40 hours per week.  The new rules effectively double the annual salary to $47,476 or $913 per week, below which level each employee must be paid time and a half for hours worked in excess of 40 hours per week.  This applies to full-time salaried workers.

Up to 10% of the Standard Salary Level can be satisfied through non-discretionary bonuses, incentives or commissions paid at least quarterly.  Thus, an employee earning less, but paid a non-discretionary bonus, incentive or commission on a quarterly basis of up to 10% of their salary, will not be required to automatically receive overtime compensation if the total wages plus 10% of those wages exceed $47,476 per year.

The new regulations also redefine “Highly Compensated Employees” and increases the level to $134,004 in total compensation, such that any employee earning above that level will be deemed “highly compensated,” and hence not subject to the overtime requirement.

Both the Standard Salary Level ($47,476) and the Highly Compensated Employees level ($134,004) will be automatically updated every three years to achieve a 40th percentile and 90th percentile, respectively, in setting the Standard Salary Level and Highly Compensated Employees level to account for inflation.  The first automatic adjustment will occur in January of 2020.

The FLSA further allows exemptions from overtime eligibility for certain categories, assuming the employees meet the above-recited Standard Salary Level, where the employee customarily and regularly performs at least one of the duties listed for the executive, administrative or professional exemptions which follow:

  • Executive – the employee’s primary duty must be to manage the business enterprise or a recognized department or subdivision of the enterprise, and the employee must regularly and customarily direct the work of at least two or more other full-time employees or their equivalents; and the employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to hiring, firing, advancement, promotion or other change of status of other employees must be given particular weight.
  • Administrative – the employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of importance.
  • Professional – the employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work predominantly intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment in the field of science or learning, and the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
  • Creative Professional Employee – the employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
  • Computer Employee – employee is employed as a computer systems analyst, programmer, software engineer or similar skill-set, performing the following duties if the primary duty consists of the application of systems analyst techniques and procedures, including consulting with users to determine hardware, software or systems functional specifications, the design, development, documentation, analysis, creation, testing or modification of computer systems or programs related to systems design specifications or related to a specific user or to machine operating systems, or a combination of these duties, which require the same skill-set.
  • Outside Sales – employee’s primary duty must be making sales or obtaining orders or contracts for services or the use of facilities for which a consideration (money) will be paid by the customer, and the employee must be customarily and regularly engaged away from the employer’s place of business.

If the employee does not qualify as a “Highly Compensated Employee,” then the employee’s duties must meet all of the requirements in the aforesaid subcategories as Executive, Administrative, Professional, Computer Employee or Outside Sales.

There are a variety of strategies that the employer can engage for compliance, such as:

  • Converting salaried employees to hourly
  • Reducing the number of hours each employee works
  • Increasing base salary for employees who perform exempt duties and are currently paid below the Standard Salary Level
  • Reclassifying employees as non-exempt and pay overtime as required
  • Reclassifying employees as non-exempt and reduce hourly rate to maintain total annual compensation
  • Reviewing all incentive, bonus and commission programs to determine if any financial increases can be offset by decreases elsewhere in a rewards program
  • Reviewing the structure of the workforce and work processes

No single test or strategy will solve every employment issue or consideration, therefore a variety of strategies may be required.

As the new rules more closely approximate actual compensation in the marketplace, there will be more employees subject to the requirement of overtime compensation and the employer must take greater heed to assure compliance with the FLSA imposed by the Department of Labor and avoid the penalties and sanctions which noncompliance may generate.

Gerald C. Davis is a partner in our Livonia office where he concentrates his practice on corporate and business law, leveraged buy-outs, company reorganization and refinancing, analyzing investments for joint ventures, intellectual property, and drafting loan agreements. He may be reached at (734) 261-2400 or gdavis@cmda-law.com.