Tuesday, September 5, 2017

Department of Labor Overtime Rules Struck Down – What’s the Impact on Ag?

Overview

The Fair Labor Standards Act of 1938 (FLSA) (29 U.S.C. §§201, et seq.) as originally enacted, was intended to alleviate some of the more harmful effects of the Great Depression.  In particular, the Act was intended to raise the wages and shorten the working hours of the nation's workers.  Since 1938, the FLSA has been amended frequently and extensively.  While the FLSA is very complex, not all of it is pertinent to agriculture and agricultural processing.

One aspect of the FLSA that does apply to agriculture are the wage requirements of the law, both in terms of the minimum wage that must be paid to ag employment and overtime wages.  With respect to overtime wages, the Department of Labor (DOL) proposed a significant expansion of overtime eligibility effective December 1, 2016.  A court enjoined nationwide enforcement of the expanded rules before they took effect, and just recently the court invalidated the rules.

As a result of the DOL rules being invalidated, what is the future of the DOL’s attempt to increase compensation to covered workers?  What’s the impact on agricultural businesses and their employees?

Wage Requirements 

Minimum wage.  The FLSA requires that agricultural employers who use 500 “man-days” or more of “agricultural labor” in any calendar quarter of a particular year must pay the agricultural minimum wage to certain agricultural employees in the following calendar year.  Man-days are those days during which an employee performs any agricultural labor for not less than one hour.  The man-days of all agricultural employees count in the 500 man-days test, except those generated by members of an incorporated employer's immediate family.  29 U.S.C. § 203(e)(3).  Five hundred man-days is roughly equivalent to seven workers working five and one-half days per week for thirteen weeks (5.5 x 7 x 13 = 501 man-days). Under the FLSA, “agriculture” is defined to include “among other things (1) the cultivation and tillage of the soil, dairying, the production, cultivation, growing and harvesting of any agricultural or horticultural commodities; (2) the raising of livestock, bees, fur-bearing animals, or poultry; and (3) any practices (including any forestry or lumbering operations) performed by a farmer or on a farm as an incident to or in conjunction with such farming operations, including preparation for market, delivery to storage or to market or to carriers for transportation to market.”  29 U.S.C. § 203(f). For related entities, where not all of the entities involve an agricultural trade or business, the question is whether the business operations are so intertwined that they constitute a single agricultural enterprise exempt from the overtime rules.  See, e.g., Ares v. Manuel Diaz Farms, Inc., 318 F.3d 1054 (11th Cir. 2003).

The minimum wage must be paid to all agricultural employees except: (1) members of the employer's immediate family, unless the farm is incorporated; (2) local hand-harvest, piece-rate workers who come to the farm from their permanent residences each day, but only if such workers were employed less than 13 weeks in agriculture in the preceding year; (3) children, age 16 and under, whose parents are migrant workers, and who are employed as hand-harvest piece-rate workers on the same farm as their parents, provided that they receive the same piece-rate as other workers; and (4) employees engaged in range production of livestock. 29 U.S.C. § 213(a)(6).  A higher monthly wage rate applies to a “ranch hand” who does not work in a remote location and works regular hours.  See, e.g., Mencia v. Allred, 808 F.3d 463 (10th Cir. 2015).  Where the agricultural  minimum  wage  must  be  paid  to   piece-rate employees, the rate of pay for piece-rate work must be sufficient to allow a worker reasonably to generate that rate of hourly income. When the minimum wage must be paid, the FLSA allows the employer to include, as part of the compensation paid, the reasonable cost of meals, housing and other perquisites actually provided, if they are customarily furnished by the employer to the employees. Also, the costs of employee travel, visa cost and immigration costs that are incurred for the employer’s benefit cannot be shifted to the employee if that would result in the employee’s net gain from the employment being less than the FLSA minimum wage.  See, e.g., Arriaga v. Florida Pacific Farms, L.L.C., 305 F.3d 1228 (11th Cir. 2002).

Overtime.  The FLSA requires payment of an enhanced rate of at least one and one-half times an employee’s regular rate for work over 40 hours in a week.  However, an exemption denies persons employed in agriculture the benefit of mandatory overtime payment. 29 U.S.C. § 213(b)(12). The agricultural exemption is broad, defining “agriculture” to include “farming in all its branches [including] the raising of livestock, bees, fur-bearing animals, or poultry,…and the production, cultivation, growing, and harvesting of...horticultural commodities and any practices performed by a farmer or on a farm as an incident to or in conjunction with farming operations.”  The 500 man-days test is irrelevant in this context. In addition, there are specific FLSA hour exemptions for certain employment that is not within the FLSA definition of agriculture.

Thus, an agricultural worker is not entitled to be paid overtime wages, but they must be paid for hours that they work.  There are also certain workers that are exempt from being paid for hours worked that exceed 40 hours in a week.  Included in this category are those “executive” workers whose primary duties are supervisory and the worker supervises 2 or more employees.  Also included are workers that fall in the “administrative” category who provide non-manual work related to the management of the business.  Also exempt are those workers defined as “professional” whose job is education-based and requires advanced knowledge.  Many larger farming and ranching operations have employees that will fit in at least one of these three categories.

DOL Proposal

For ag employees that are exempt from the overtime wage payment rate because they occupy an “executive” position, they must be paid a minimum amount of wages per week.  Until December 1, 2016, the minimum amount was $455/week ($23,660 annually).  Under the DOL proposal, however, the minimum weekly amount was to increase to $913 ($47,476 annually).  Thus, an exempt “executive” employee that is paid a weekly wage exceeding $913 is not entitled to be paid for any hours worked exceeding 40 in a week.  But, if the $913 weekly amount was not met, then the employee would generally be entitled to overtime pay for the hours exceeding 40 in a week.  Thus, the proposal would require farm businesses to track hours for those employees it historically has not tracked hours for – executive employees such as managers and those performing administrative tasks.  But, remember, if the employee is an agricultural worker performing agricultural work, the employee need not be paid for the hours in excess of 40 in a week at the overtime rate.  The proposal also imposes harsh penalties for noncompliance.

Nationwide injunction. Before the new rules went into effect, many states and private businesses sued to block them.  The various lawsuits were consolidated into a single case, and in November of 2016, the court issued a temporary nationwide injunction blocking enforcement of the overtime regulations.  Nevada v. United States Department of Labor, 218 F. Supp. 3d 520 (E.D. Tex. 2016). 

Summary judgment ruling.  On Aug. 31, 2017, the court entered summary judgment for the plaintiffs in the case thereby invalidating the regulations.  Nevada v. United States Department of Labor, No. 4:16-cv-731, 2017 U.S. Dist. LEXIS 140522 (E.D. Tex. Aug. 31, 2017).  In its ruling, the court focused on the congressional intent behind the overtime exemptions for “white-collar” workers as well as the authority of the DOL to define and implement those exemptions.  The court determined that the Congress clearly intended to exempt overtime wages for work that involved “bona fide executive, administrative, or professional capacity duties.”  Consequently, the DOL did not have regulatory authority to use a “salary-level test that will effectively eliminate the duties test” that the Congress clearly established.  The court also concluded that the DOL did not have any authority to categorically exclude workers who perform exempt duties based on salary level alone, which is what the court said that the DOL rules did.  The court noted that the rules more than doubled the required salary threshold and, as a result, “would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.”  The court went on to state that the overtime rules make “overtime status depend predominantly on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”  The court noted that his was contrary to the clear intent of the Congress and, as a result, the rules were invalid. 

The Future of the FLSA Overtime Rules

The DOL overtime rules were a product of the Obama Administration.  With the Trump Administration now in place, a question is raised as to what the future holds with respect to the overtime rules of the FLSA.  Will the DOL appeal the trial court’s ruling?  That’s doubtful in my view.  The current DOL Secretary has stated that the Obama Administration exceeded its FLSA authority in developing the (now invalidated) rules.  But, that doesn’t necessarily mean that the waters are calm on the issue.  While the court’s injunction order was being appealed, the Trump Administration’s DOL did defend the DOL’s authority to include a salary test in the overtime regulations.  They simply believed that the Obama Administration’s DOL had set the thresholds too high. 

In addition, the DOL put out a request for information (RFI) on July 21 noting that it would be opening a 60-day comment period on the white-collar exemptions. https://s3.amazonaws.com/public-inspection.federalregister.gov/2017-15666.pdf  That comment period began on July 26 and continues through September 24.  One of the issues that the DOL solicited comment on was whether the present threshold of $23,660 (annually) needed changed, perhaps by indexing it to inflation.  The DOL was also asking comment on whether salary thresholds should be tied to the size of a business, and whether the salary threshold should be tied to where a business is located, and the type of industry the business is involved in.  In addition, the DOL sought input from commentators on whether the overtime rule had a negative impact on small businesses, and whether the sole focus of the overtime rules should be on job duties of an employee (the current approach) in lieu of a salary threshold.

Conclusion

The court’s ruling invalidating the overtime rules is an important victory for many agricultural (and other) businesses.  It alleviates an increased burden to maintain records for employees in executive positions (e.g., managers and administrators), and the associated penalties for non-compliance.  However, the future of the FLSA overtime rules is not clear at the present time.  It remains to be seen the course that the Trump Administration’s DOL and, perhaps, the Congress, will take.

This issue and many other key issues in agricultural law and taxation are addressed in my treatise in my textbook on agricultural law, Principles of Agricultural Law, just out with its 41st Release.  You can find out more information about the book here:  http://washburnlaw.edu/practicalexperience/agriculturallaw/waltr/principlesofagriculturallaw/index.html

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