DOL Issues New Rules to Try to Beat the Clock

In a possible attempt to implement new rules before they can be rescinded by a Democratic Congress and administration, the Department of Labor recently finalized regulations regarding wage and hour issues and the Labor Secretary’s power to review administrative decisions.  These administrative moves are the result of a little-known but important statute aimed at curbing midnight rulemaking by outgoing administrations.  The Congressional Review Act (“CRA”) establishes special congressional procedures for disapproving a broad range of regulatory rules issued by federal agencies.  By joint resolution, Congress can approve or disapprove of a regulation, which then goes to the President to sign or veto.  If Congress adjourns its annual session less than 60 “legislative days” in the House of Representatives or 60 “session days” in the Senate after a rule is submitted to it, the rule is carried over to the next session of Congress and subject to possible disapproval during that session. While it is difficult to calculate the CRA deadline—particularly given COVID-19’s impact on Congress’ schedule—if the Trump administration fails to finalize the rules before the CRA deadline and Republicans lose control of the White House and Senate, a Democratic-controlled Congress could successfully rescind the rules under the CRA.

Below is a brief summary of DOL’s recent rulemaking:

Retail or Service Establishment Exemption

DOL eliminated two provisions from its regulations regarding the retail or service establishment exemption to the overtime requirements of the Fair Labor Standards Act (“FLSA”).  Section 7(i) of the FLSA provides an exemption from overtime compensation for certain employees in “retail or service establishments” paid primarily on the basis of commissions.  DOL has interpreted “retail or service establishment” as having a “retail concept,” meaning that the establishment typically sells goods or services to the general public, serves the everyday needs of the community, is at the very end of the stream of distribution, disposes its products and skills in small quantities, and does not take part in the manufacturing process.

The new rule—which was adopted without notice and comment—withdraws two provisions from DOL’s regulations which provided a framework for DOL and the courts to determine which establishments could or could not qualify for the exemption. The first listed dozens of examples of establishments that DOL viewed as lacking a “retail concept,” which made them ineligible to claim the exemption. The second regulation listed types of establishments that “may be recognized as retail” and thus were potentially eligible for the exemption.

As a result of DOL’s new rule, establishments in industries that had been on the “no retail concept” or “may be recognized as retail” lists can now assert that they have a “retail concept” and may qualify for the exemption if they meet DOL’s criteria for the exemption. DOL believes these changes will promote consistent application of this exemption and are better suited to account for developments in industries over time regarding whether they are retail or not.

Clarifications to Fluctuating Workweek Method

DOL clarified that employers using the fluctuating workweek method to compute overtime can make payments to employees in addition to a fixed salary. The fluctuating workweek method allows an employee whose hours fluctuate from week to week to be paid a fixed salary as straight time compensation, regardless of the number of hours worked. Under this method, overtime hours are paid at one-half times the regular rate. Previously, varying interpretations by DOL and the courts created uncertainty for employers regarding whether they could make supplemental payments, such as bonuses, to employees under the fluctuating workweek method.

The new rule provides that payment of any bonuses, premium payments, commissions, hazard pay, and additional pay of any kind is compatible with the fluctuating workweek method.  DOL clarified that any additional payments must be included when calculating the regular rate for the applicable workweek, unless the FLSA provides that such payments should be excluded from the calculation. This rule could expand the use of the fluctuating workweek method, especially now as employers consider variable work schedules and social distancing measures in response to COVID-19.

Secretarial Review of Review Panel Decisions

DOL finalized a rule giving the Secretary of Labor “discretionary secretarial review” over decisions from the Administrative Review Board (“ARB”)—which has authority to hear appeals from the decisions of DOL administrative law judges related to immigration, child labor, employment discrimination, federal construction/service contracts, and other issues—and the Board of Alien Labor Certification Appeals (“BALCA”)—which has authority over appeals from the decisions of the Employment and Training Administration’s adjudication of foreign labor certification applications. While those review panels had power to issue final agency decisions, there was no mechanism for the Secretary of Labor to review those decisions.

Under the new rule, the Secretary will have sole discretion to initiate review of cases where the Secretary’s involvement is “necessary and appropriate.” The Secretary will rely on the ARB and BALCA to assist in identifying cases where secretarial review may be warranted. DOL anticipates that secretarial review will typically be reserved for matters of “significant importance” and will not be used often.

The process for secretarial review will differ for the two boards. The Secretary will not exercise review over ARB cases until after a decision has been rendered, while the Secretary can assume jurisdiction over most BALCA cases even before a decision has been issued given the speed by which BALCA processes cases.

DOL’s recent moves are akin to the moves of the Obama administration to finalize rules towards the end of the administration.  Many of those efforts, including a rule upping the salary threshold for overtime and implementing standards for “persuader” activities in response to union organizing, were struck down by courts in Administrative Procedure Act challenges.  We will monitor the fate of these rules under the current administration.