5 minute read | February.01.2017
On January 20, 2017, shortly after Donald Trump became the 45th President of the United States, his Chief of Staff, Reince Priebus, issued an Executive Memorandum mandating a 60-day freeze on published federal regulations that have yet to take effect to allow Trump’s appointees time to review the regulations. Although such action is fairly standard during a change of administration, the impact could be significant if certain regulations set to take effect in 2017 are delayed or ultimately replaced. Regulations potentially affected by the 60-day freeze include the Department of Labor’s (“DOL”) overtime and fiduciary rules, and the Equal Employment Opportunity Commission’s (“EEOC”) EEO-1 pay reporting requirements.
DOL Overtime Rule
In May 2016, the DOL announced significant changes to the overtime rules under the Fair Labor Standards Act (“FLSA”). As we’ve previously blogged about here, the overtime rules mandated that, beginning December 1, 2016, the salary requirement for exempt employees would increase by nearly double – from $23,660 to $47,476 per year. Under these new rules, employees who earn less than $47,476 would no longer meet the overtime exemption from the FLSA, and would be entitled to overtime compensation for all hours worked over 40 in a workweek.
The new overtime rules made headlines late last year when a federal district court in Texas issued a preliminary injunction enjoining its implementation. The decision was issued on November 22, 2016, just days before the new rules were set to take effect.
Between the ongoing litigation over the legality of the overtime rules and the recent 60-day regulatory freeze, the future of the overtime rules remains uncertain. Other than publicly advocating a small-business exemption, Trump has remained non-committal about the overtime rules and has not signaled whether he will ask the Department of Justice (“DOJ”) to drop its defense of the matter. Notably, the DOJ has sought a stay in the ligation while the new administration reconsiders its position. As a practical matter, this places employers in a difficult position. Many employers already implemented changes to comply with the new overtime rules in anticipation of the December 1, 2016 effective date, by increasing salaries, reducing workforces, cutting benefits, and changing employees’ schedules. In addition, the language in the Executive Memorandum could also muddy the waters. The Executive Memorandum provides for postponing, for 60 days, published regulations that “have not taken effect.” Employee advocates have argued that, as the effective date for the overtime regulations was December 1, 2016, the Executive Memorandum does not apply. This hyper-technical reading would likely be rejected by a court. And, the argument has no practical effect as the rule is enjoined.
DOL Fiduciary Rule
The Executive Memorandum, however, will not stop the fiduciary rule train. It became effective on June 7, 2016. The fiduciary rule, which is scheduled to be phased in starting April 10, 2017 through January 1, 2018, expands the definition of “investment advice fiduciary” under ERISA to include persons who provide investment advice or recommendations for a fee or other compensation with respect to retirement accounts. Under the new rule, investment advice includes recommendations regarding the advisability of buying or selling securities or other investment property and recommendations as to the management of securities or other investment property.
Being a fiduciary requires financial professionals to put their clients’ best interests above their own. As a result, financial professionals who earn commissions are required, under the new rule, to provide clients with a Best Interest Contract Exemption disclosing potential conflicts of interest, fees or charges to be paid by the investor, and compensation the fiduciary expects to receive in connection with recommended investments. The impact of the new rule on the financial services industry is significant due to the potential for lost commissions and the additional expense of complying with the heightened fiduciary standard.
Financial professionals are left to hoping that the new administration will roll back the rule. However, barring extraordinary action by Congress, there may be little that Trump can do on his own as the rule was promulgated through notice and comment rulemaking. Further, rolling back the rule does not appear to be a high priority. Trump has not taken a position publicly on the fiduciary rule. However, he generally supports broad roll backs of regulations and, Anthony Scaramucci, one of his key advisors, has publicly promised to repeal the fiduciary rule. Those in the financial services industry who have already taken steps to comply with the new rules in anticipation of the April 10, 2017 implementation date should continue their efforts until they receive a clear signal from the administration or Congress.
EEOC Revised EEO-1 Form
On September 29, 2016, the EEOC announced approval of a revised EEO-1 form to collect pay data from employers with 100 or more employees beginning with the 2017 report to be submitted by March 31, 2018. It is unclear what effect, if any, the 60-day regulatory freeze will have on the pay reporting requirements because, technically, the information collection procedures for the form did not have an effective date. However, as Trump has already appointed a new EEOC Chair, Victoria Lipnic, signs point to a rollback.
The revised EEO-1 form requires certain employers to submit summary pay data, including the total number of full and part-time employees employed during the year in each of twelve pay bands listed for each job category on the EEO-1. Pay data is based on employees’ W-2 forms. The revised EEO-1 form does not require employers to report individual pay or salaries. Additionally, employers required to submit an EEO-1 form must report the number of hours worked during the year by employees in each pay band. According to the EEOC, the purpose of collecting pay data from employers is to allow the EEOC to better assess allegations of pay discrimination, but many fear that providing pay data without context will fuel costly, meritless class action lawsuits.
Many predict that the future of the EEOC’s pay reporting rule is vulnerable under the Trump administration, while others believe that Ivanka Trump’s statements in support of equal pay may not indicate a complete pullback of the pay equity focus. Regardless of whether the 60-day freeze affects the pay reporting requirements, the issue of pay equity will be at the forefront of legal issues facing employers in 2017. This blog will continue to provide updates as new developments occur.