Defining and Delimiting the Exemptions for Executive, Administrative,

[Federal Register: April 23, 2004 (Volume 69, Number 79)]
[Rules and Regulations]
[Page 22121-22170]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ap04-18]

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Part II
Department of Labor
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Wage and Hour Division
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29 CFR Part 541
Defining and Delimiting the Exemptions for Executive, Administrative,
Professional, Outside Sales and Computer Employees; Final Rule
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Part 541
RIN 1215-AA14

Defining and Delimiting the Exemptions for Executive,
Administrative, Professional, Outside Sales and Computer Employees
AGENCY: Wage and Hour Division, Employment Standards Administration,
Labor.
ACTION: Final rule.
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SUMMARY: This document provides the text of final regulations under the
Fair Labor Standards Act implementing the exemption from minimum wage
and overtime pay for executive, administrative, professional, outside
sales and computer employees. These exemptions are often referred to as
the ``white collar'' exemptions. To be considered exempt, employees
must meet certain minimum tests related to their primary job duties
and, in most cases, must be paid on a salary basis at not less than
minimum amounts as specified in pertinent sections of these
regulations.
EFFECTIVE DATE: These rules are effective on August 23, 2004.
FOR FURTHER INFORMATION CONTACT: Richard M. Brennan, Senior Regulatory
Officer, Wage and Hour Division, Employment Standards Administration,
U.S. Department of Labor, Room S-3506, 200 Constitution Avenue, NW.,
Washington, DC 20210. Telephone: (202) 693-0745 (this is not a toll-
free number). For an electronic copy of this rule, go to DOL/ESA's Web
site ( http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.dol.gov/esa ), select ``Federal Register'' under ``Laws
and Regulations,'' and then ``Final Rules.'' Copies of this rule may be
obtained in alternative formats (Large Print, Braille, Audio Tape or
Disc), upon request, by calling (202) 693-0023 (not a toll-free
number). TTY/TDD callers may dial toll-free 1-877-889-5627 to obtain
information or request materials in alternative formats.
Questions of interpretation and/or enforcement of regulations
issued by this agency or referenced in this notice may be directed to
the nearest Wage and Hour Division District Office. Locate the nearest
office by calling our toll-free help line at 1-866-4USWAGE (1-866-487-
9243) between 8 a.m. and 5 p.m., in your local time zone, or log onto
the Wage and Hour Division's Web site for a nationwide listing of Wage
and Hour District and Area Offices at: http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.dol.gov/esa/contacts/whd/america2.htm.
SUPPLEMENTARY INFORMATION:
I. Summary of Major Changes and Economic Impact
The minimum wage and overtime pay requirements of the Fair Labor
Standards Act (FLSA) are among the nation's most important worker
protections. These protections have been severely eroded, however,
because the Department of Labor has not updated the regulations
defining and delimiting the exemptions for ``white collar'' executive,
administrative and professional employees. By way of this rulemaking,
the Department seeks to restore the overtime protections intended by
the FLSA.
Under section 13(a)(1) of the FLSA and its implementing
regulations, employees cannot be classified as exempt from the minimum
wage and overtime requirements unless they are guaranteed a minimum
weekly salary and perform certain required job duties. The minimum
salary level was last updated in 1975, almost 30 years ago, and is only
$155 per week. The job duty requirements in the regulations have not
been changed since 1949--almost 55 years ago.
Revisions to both the salary tests and the duties tests are
necessary to restore the overtime protections intended by the FLSA
which have eroded over the decades. In addition, workplace changes over
the decades and federal case law developments are not reflected in the
current regulations. Under the existing regulations, an employee
earning only $8,060 per year may be classified as an ``executive'' and
denied overtime pay. By comparison, a minimum wage employee earns about
$10,700 per year. The existing duties tests are so confusing, complex
and outdated that often employment lawyers, and even Wage and Hour
Division investigators, have difficulty determining whether employees
qualify for the exemption. The existing regulations are very difficult
for the average worker or small business owner to understand. The
regulations discuss jobs like key punch operators, legmen, straw bosses
and gang leaders that no longer exist, while providing little guidance
for jobs of the 21st Century.
Confusing, complex and outdated regulations allow unscrupulous
employers to avoid their overtime obligations and can serve as a trap
for the unwary but well-intentioned employer. In addition, more and
more, employees must resort to lengthy court battles to receive their
overtime pay. In the Department's view, this situation cannot be
allowed to continue. Allowing more time to pass without updating the
regulations contravenes the Department's statutory duty to ``define and
delimit'' the section 13(a)(1) exemptions ``from time to time.''
Accordingly, on March 31, 2003, the Department published a Notice
of Proposed Rulemaking (68 FR 15560) suggesting changes to the Part 541
regulations, including the largest increase of the salary levels in the
65-year history of the FLSA. The proposed changes to the duties tests
were designed to ensure that employees could understand their rights,
employers could understand their legal obligations, and the Department
could vigorously enforce the law.
During a 90-day comment period, the Department received 75,280
comments from a wide variety of employees, employers, trade and
professional associations, small business owners, labor unions,
government entities, law firms and others. In addition, the
Department's proposal prompted vigorous public policy debate in
Congress and the media. The public commentary revealed significant
misunderstandings regarding the scope of the ``white collar''
exemptions, but also provided many helpful suggestions for improving
the proposed regulations.
After carefully considering all of the relevant comments, and as
detailed in this preamble, the Department has made numerous changes
from the proposed rule to the final rule, including the following:
Scope of the Exemptions New section 541.3(a) states that exemptions do
not apply to manual laborers or other ``blue collar'' workers who
perform work involving repetitive operations with their hands, physical
skill and energy. Thus, for example, non-management production-line
employees and non-management employees in maintenance, construction and
similar occupations such as carpenters, electricians, mechanics,
plumbers, iron workers, craftsmen, operating engineers, longshoremen,
construction workers and laborers have always been, and will continue
to be, entitled to overtime pay.
New section 541.3(b) states that the exemptions
do not apply to police officers, fire fighters, paramedics, emergency
medical technicians and similar public safety employees who perform
work such as preventing, controlling or extinguishing fires of any
type; rescuing fire, crime or accident victims; preventing or detecting
crimes; conducting investigations or inspections
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for violations of law; performing surveillance; interviewing witnesses;
interrogating and fingerprinting suspects; preparing investigative
reports; and similar work.
New section 541.4 clarifies that the FLSA
provides minimum standards that may be exceeded, but cannot be waived
or reduced. Employers must comply with State laws providing additional
worker protections (a higher minimum wage, for example), and the Act
does not preclude employers from entering into collective bargaining
agreements providing wages higher than the statutory minimum, a shorter
workweek than the statutory maximum, or a higher overtime premium
(double time, for example).
Salary
The final rule nearly triples the current $155
per week minimum salary level required for exemption to $455 per week--
a $30 per week increase over the proposal and a $300 per week increase
over the existing regulations.
The ``highly compensated'' test in the final
rule applies only to employees who earn at least $100,000 per year, a
$35,000 increase over the proposal.
The ``highly compensated'' test in the final
rule applies only to employees who receive at least $455 per week on a
salary basis.
The final regulation adds a new requirement that
exempt highly compensated employees also must ``customarily and
regularly'' perform exempt duties.
Executive
The final rule deletes the special rules for
exemption applicable to ``sole charge'' executives.
The final rule adds the requirement that
employees who own at least a bona fide 20-percent equity interest in an
enterprise are exempt only if they are ``actively engaged in its
management.''
The final rule retains the ``long'' duties test
requirement that an exempt executive must have authority to ``hire or
fire'' other employees or must make recommendations as to the ``hiring,
firing, advancement, promotion or any other change of status'' which
are ``given particular weight,'' but provides a new definition of
``particular weight.''
Administrative
The final rule eliminates the proposed
``position of responsibility'' test for the administrative exemption.
The final rule eliminates the proposed ``high
level of skill or training'' standard under the administrative
exemption.
The final rule retains the existing requirement (deleted in the proposed regulations) that exempt administrative
employees must exercise discretion and independent judgment.
Professional
The final section 541.301(e)(2) states that
licensed practical nurses and other similar health care employees do
not qualify as exempt professionals. The final rule retains the
provisions of the existing regulations regarding registered nurses.
As intended in the proposal, the final rule does
not make any changes to the educational requirements for the
professional exemption. Further, the Department never intended to allow
the professional exemption for any employee based on veterans' status.
The final rule has been modified to avoid any such misinterpretations.
The references to training in the armed forces, attending a technical
school and attending a community college have been removed from final
section 541.301(d).
The final rule defines ``work requiring advanced
knowledge,'' one of the three essential elements of the professional
primary duties test, as ``work which is predominantly intellectual in
character, and which includes work requiring the consistent exercise of
discretion and judgment.''
As a result of these changes, made in response to public
commentary, the final Part 541 regulations strengthen overtime
protections for millions of low-wage and middle-class workers, while
reducing litigation costs for employers. Both employees and employers
benefit from the final rules. Employees will be better able to
understand their rights to overtime pay, and employees who know their
rights are better able to complain if they are not being paid
correctly. Employers will be able to more readily determine their legal
obligations and comply with the law. The Department's Wage and Hour
Division will be better able to vigorously enforce the law.
The economic analysis found in section VI of this preamble
concludes that the final rule guarantees overtime protection for all
workers earning less than the $455 per week ($23,660 annually), the new
minimum salary level required for exemption. Because of the increased
salary level, overtime protection will be strengthened for more than
6.7 million salaried workers who earn between the current minimum
salary level of $155 per week ($8,060 annually) and the new minimum
salary level of $455 per week ($23,660 annually). These 6.7 million
salaried workers include:
1.3 million currently exempt white-collar
workers who will gain overtime protection;
2.6 million nonexempt salaried white-collar
workers who are at particular risk of being misclassified; and
2.8 million nonexempt workers in blue-collar
occupations whose overtime protection will be strengthened because
their protection, which is based on the duties tests under the current
rules, will be automatic under the final rules regardless of their job
duties.
The standard duties tests adopted in the final regulation are
equally or more protective than the short duties tests currently
applicable to workers who earn between $23,660 and $100,000 per year.
The final ``highly compensated'' test might result in 107,000 employees
who earn $100,000 or more per year losing overtime protection.
Because the rules have not been adjusted in decades, the final rule
does impose additional costs on employers, including up to $375 million
in additional annual payroll and $739 million in one-time
implementation costs. However, updating and clarifying the rule will
reduce Part 541 violations and are likely to save businesses at least
an additional $252.2 million every year that could be used to create
new jobs. The final rule is not likely to have a substantial impact on
small businesses, state and local governments, or any other geographic or industry sector.
II. Background
The FLSA generally requires covered employers to pay employees at
least the federal minimum wage for all hours worked, and overtime
premium pay of time-and-one-half the regular rate of pay for all hours
worked over 40 in a single workweek. However, the FLSA includes a
number of exemptions from the minimum wage and overtime requirements.
Section 13(a)(1) of the FLSA provides an exemption from both minimum
wage and overtime pay for ``any employee employed in a bona fide
executive, administrative, or professional capacity * * * or in the
capacity of outside salesman (as such terms are defined and delimited
from time to time by regulations of the Secretary, subject to the
provisions of the Administrative Procedure Act * * *).'' 29 U.S.C.
213(a)(1).
Congress has never defined the terms ``executive,''
``administrative,'' ``professional,'' or ``outside salesman.'' Although
section 13(a)(1) was included in the original FLSA enacted in 1938,
specific references to the exemptions in the legislative history are
scant. The legislative history indicates that the
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section 13(a)(1) exemptions were premised on the belief that the
workers exempted typically earned salaries well above the minimum wage,
and they were presumed to enjoy other compensatory privileges such as
above average fringe benefits and better opportunities for advancement,
setting them apart from the nonexempt workers entitled to overtime pay.
Further, the type of work they performed was difficult to standardize
to any time frame and could not be easily spread to other workers after
40 hours in a week, making compliance with the overtime provisions
difficult and generally precluding the potential job expansion intended
by the FLSA's time-and-a-half overtime premium. See Report of the
Minimum Wage Study Commission, Volume IV, pp. 236 and 240 (June 1981).
Pursuant to Congress' specific grant of rulemaking authority, the
Department of Labor has issued implementing regulations, at 29 CFR Part
541, defining the scope of the section 13(a)(1) exemptions. Because the
FLSA delegates to the Secretary of Labor the power to define and
delimit the specific terms of these exemptions through notice-and-
comment rulemaking, the regulations so issued have the binding effect
of law. See Batterton v. Francis, 432 U.S. 416, 425 n. 9 (1977).
The existing Part 541 regulations generally require each of three
tests to be met for the exemption to apply: (1) The employee must be
paid a predetermined and fixed salary that is not subject to reductions
because of variations in the quality or quantity of work performed (the
``salary basis test''); (2) the amount of salary paid must meet minimum
specified amounts (the ``salary level test''); and (3) the employee's
job duties must primarily involve executive, administrative or
professional duties as defined by the regulations (the ``duties
tests'').\1\
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\1\ A number of states arguably have more stringent exemption
standards than those provided by Federal law. The FLSA does not
preempt any such stricter State standards. If a State or local law
establishes a higher standard than the provisions of the FLSA, the
higher standard applies. See Section 18 of the FLSA, 29 U.S.C. Sec.
218.
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The major substantive provisions of the Part 541 regulations have
remained virtually unchanged for 50 years. The FLSA became law on June
25, 1938, and the first version of Part 541 was issued later that year
in October. 3 FR 2518 (Oct. 20, 1938). After receiving many comments on
the original regulations, the Wage and Hour Division issued revised
regulations in 1940. 5 FR 4077 (Oct. 15, 1940). See also, ``Executive, Administrative, Professional * * * Outside Salesman'' Redefined, Wage
and Hour Division, U.S. Department of Labor, Report and Recommendations
of the Presiding Officer (Harold Stein) at Hearings Preliminary to
Redefinition (Oct. 10, 1940) (``1940 Stein Report''). The Department
issued the last major revision of the duties test regulatory provisions
in 1949. 14 FR 7705 (Dec. 24, 1949). Also in 1949, an explanatory
bulletin interpreting some of the terms in the regulatory provisions
was published as Subpart B of Part 541. 14 FR 7730 (Dec. 28, 1949). See
also, Report and Recommendations on Proposed Revisions of Regulations,
Part 541, by Harry Weiss, Presiding Officer, Wage and Hour and Public
Contracts Divisions, U.S. Department of Labor (June 30, 1949) (``1949
Weiss Report''). In 1954, the Department issued the last major
revisions to the regulatory interpretations of the ``salary basis''
test. 19 FR 4405 (July 17, 1954). After the initial minimum salary
levels were set at $30 per week in 1938, the Department revised the
Part 541 regulations to increase the salary levels in 1940, 1949, 1958,
1963, 1970 and 1975. 5 FR 4077 (Oct. 15, 1940); 14 FR 7705 (Dec. 24,
1949); 23 FR 8962 (Nov. 18, 1958); 28 FR 9505 (Aug. 30, 1963); 35 FR
883 (Jan. 22, 1970); 40 FR 7092 (Feb. 15, 1975). See also, Report and
Recommendations on Proposed Revisions of Regulations, Part 541, under
the Fair Labor Standards Act, by Harry S. Kantor, Presiding Officer,
Wage and Hour and Public Contracts Divisions, U.S. Department of Labor
(March 3, 1958) (``1958 Kantor Report'').\2\
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\2\ Revisions to increase the salary rates in January 1981 were
stayed indefinitely. 46 FR 11972 (Feb. 12, 1981). The Department
also revised the regulations to accommodate statutory amendments to
the FLSA in 1961, 1967, 1973, and 1992. 26 FR 8635 (Sept. 15, 1961);
32 FR 7823 (May 30, 1967); 38 FR 11390 (May 7, 1973); 57 FR 37677
(Aug. 19, 1992); 57 FR 46744 (Oct. 9, 1992).
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The framework of the existing Part 541 regulation is based upon the
1940 Stein Report, the 1949 Weiss Report and the 1958 Kantor report,
which reflect the best evidence of the American workplace a half-
century ago. The existing regulation, therefore, reflects the structure
of the workplace, the type of jobs, the education level of the
workforce, and the workplace dynamics of an industrial economy that has
long been altered. As the workplace and structure of our economy has
evolved, so, too, must Part 541 be modernized to remain current and
relevant. This necessary adaptation forms the philosophical
underpinnings of this update and reflects the Department's efforts to
remain true to the intent of Congress, which mandated that the DOL
``from time to time'' define and delimit these exemptions and the
myriad terms contained therein.
The Department notes, however, that much of the reasoning of the
Stein, Weiss and Kantor reports remains as relevant as ever. This
preamble notes such instances, and articulates why the reasoning is
still sound. However, while the Department carefully has reviewed these
reports in undertaking this update, it is not bound by the reports. The
Department is responsible for updating regulations that, with each
passing decade of inattention, have become increasingly out of step
with the realities of the workplace. Indeed, under this rulemaking, the
Department is charged with utilizing record evidence submitted in 2003
* * * not in the 1940s or 1950s * * * in exercising its discretion to
update the terms of this Part.
Suggested changes to the Part 541 regulations have been the subject
of extensive public commentary for two decades, including public
comments responding to an Advance Notice of Proposed Rulemaking issued
by the Department in November 1985,\3\ a March 1995 oversight hearing
by the Subcommittee on Workforce Protections of the Committee on
Economic and Educational Opportunities, U.S. House of Representatives, a report issued by the General Accounting Office (GAO) in September
1999,\4\ and a May 2000 hearing before the Subcommittee on Workforce
Protections of the Committee on Education and the Workforce, U.S. House
of Representatives. In its 1999 report to Congress and at the May 2000
hearing, the GAO chronicled the background and history of the
exemptions, estimated the number of workers who might be included
within the scope of the exemptions, identified the major concerns of
employers and employees regarding the exemptions, and suggested
possible solutions to the issues of concern raised by the affected
interests. In general, the employers contacted by the GAO were
concerned that the regulatory tests are too complicated, confusing, and
outdated for the modern workplace, and create potential liability for
violations when errors in classification occur. Employers were
particularly concerned about potential liability for violations of the
complex ``salary basis'' test, and complained that the ``discretion and
independent judgment'' standard for administrative employees is
confusing and applied inconsistently by the Wage
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and Hour Division. They also noted the traditional limits of the
exemptions have blurred in the modern workplace. Employee
representatives contacted by the GAO, in contrast, were most concerned
that the use of the exemptions be limited to preserve existing overtime
work hour limits and the 40-hour standard workweek for as many
employees as possible. They believed the tests have become weakened as
applied today by judicial rulings and do not adequately restrict
employers' use of the exemptions. When combined with the low salary
test levels, the employee representatives felt that few protections
remain, particularly for low-income supervisory employees. The GAO
Report noted that the conflicting interests affected by these rules
have made consensus difficult and that, since the FLSA was enacted, the
interests of employers to expand the white collar exemptions have
competed with those of employees to limit use of the exemptions. To
resolve the issues presented, the GAO suggested that employers' desires
for clear and unambiguous regulatory standards must be balanced with
employees' desires for fair and equitable treatment in the workplace.
The GAO recommended that the Secretary of Labor comprehensively review
the regulations and restructure the exemptions to better accommodate
today's workplace and to anticipate future workplace trends.
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\3\ 50 FR 47696 (Nov. 11, 1985).
\4\ Fair Labor Standards Act: White Collar Exemptions in the
Modern Work Place, GAO/HEHS-99-164, September 30, 1999 (GAO Report).
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Responding to the extensive public commentary, on March 31, 2003,
the Department published proposed revisions to these regulations in the
Federal Register inviting public comments for 90 days (see 68 FR 15560;
March 31, 2003). In response to the proposed rule, the Department
received a total of 75,280 comments during the official comment period.
The Department received comments from a wide variety of individuals,
employees, employers, trade and professional associations, labor
unions, governmental entities, Members of Congress, law firms, and
others.
Most of the comments received were form letters submitted by e-mail
or facsimile. Form letters expressing general support of the proposal
were received, for example, from members of the Society for Human
Resource Management and from individuals who identified themselves as
being in agreement with the HR Policy Association or the National
Funeral Directors Association. More than 90 percent of the comments
were form letters generated by organizations affiliated with the
American Federation of Labor and Congress of Industrial Organizations
(AFL-CIO) expressing general opposition to the proposal. These largely identical submissions raise concerns that the proposal would, for
example, ``diminish the application of overtime pay and seriously erode
the 40 hour workweek'' and lead to ``[c]utting overtime pay'' which
``would really hurt America's working families.'' The form letters,
however, do not address any particular aspect of the changes being
proposed to the existing regulations. Indeed, some letters and emails
appear to be from individuals who clearly perform non-exempt duties and
are not covered by the Part 541 exemptions.
Approximately 600 of the comments include substantive analysis of
the proposed revisions. Virtually all of these 600 comments favor some
change to the existing regulations. Among the commenters there are a
wide variety of views on the merits of particular sections of the
proposed regulations. Acknowledging that there are strong views on the
issues presented in this rulemaking, the Department has carefully
considered all of the comments and the arguments made for and against
the proposed changes.
The major comments received on the proposed regulatory changes are
summarized below, together with a discussion of the changes that have
been made in the final regulatory text in response to the comments
received. In addition to the more substantive comments discussed below,
the Department received some editorial suggestions, some of which have
been adopted and some of which have not. A number of other minor
editorial changes have been made to better organize or structure the
regulatory text. Finally, a number of comments were received on issues
that go beyond the scope or authority of these regulations (such as
eliminating all exemptions from overtime, lowering the overtime
threshold to fewer hours worked per week or per day, banning all
mandatory overtime, and basing overtime on a two-week/80-hour limit),
which the Department will not address in the discussion that follows.
III. Authority of the Secretary of Labor
Section 13(a)(1) of the FLSA provides exemptions from the minimum
wage and overtime requirements for employees ``employed in a bona fide
executive, administrative, or professional capacity or in the capacity
of outside salesman * * *.'' 29 U.S.C. 213(a)(1). Congress included
these exemptions in the original enactment of the FLSA in 1938, but the
statute contains no definitions, guidance or instructions as to their
meaning.
Rather than define the section 13(a)(1) exemptions in the statute,
Congress granted the Secretary of Labor broad authority to ``define and
delimit'' these terms ``from time to time by regulations.'' Id. A
unanimous Supreme Court reaffirmed the broad nature of this delegation
in Auer v. Robbins, 519 U.S. 452, 456 (1997), stating that the ``FLSA
grants the Secretary broad authority to `defin[e] and delimi[t]' the
scope of the exemption for executive, administrative and professionals
employees.'' See also Addison v. Holly Hill Fruit Products, Inc., 322
U.S. 607, 613 n.6 (1944) (authority given to define and delimit the
terms ``bona fide executive, administrative, professional''); Spradling
v. City of Tulsa, Oklahoma, 95 F.3d 1492, 1495 (10th Cir. 1996) (the
Department ``is responsible for determining the operative definitions
of these terms through interpretive regulations''), cert. denied, 519
U.S. 1149 (1997); Dalheim v. KDFW-TV, 918 F.2d 1220, 1224 (5th Cir.
1990) (the FLSA ``empowers the Secretary of Labor'' to define by
regulation the terms executive, administrative, and professional).
Several commenters, including the AFL-CIO, claim that the proposal
exceeds the authority of the Secretary and will not be entitled to
judicial deference. They assert that the proposal improperly broadens
the exemptions, fails to safeguard employees from being misclassified,
and is not consistent with Congressional intent. As an initial matter,
the Supreme Court's decision in Auer confirmed the Secretary's ``broad
authority'' to define and delimit these exemptions. 519 U.S. at 456.
Moreover, as this preamble establishes, the final rule will simplify, clarify and better organize the regulations defining and delimiting the
exemptions for administrative, executive and professional employees.
Rather than broadening the exemptions, the final rule will enhance
understanding of the boundaries and demarcations of the exemptions
Congress created. The final rule will protect more employees from being
misclassified and reduce the likelihood of litigation over employee
classifications because both employees and employers will be better
able to understand and follow the regulations.
Other commenters contend that the proposal violates the rule of
interpretation articulated in Arnold v. Ben Kanowsky, Inc., 361 U.S.
388, 392 (1960), that FLSA exemptions are to be ``narrowly construed.''
However, in Auer v. Robbins, 519 U.S. at 462-63, the Supreme Court
addressed the difference between the ``narrowly construed'' rule of
judicial interpretation and the broad
[[Page 22126]]
authority possessed by the Secretary to promulgate these regulations:
Petitioners also suggest that the Secretary's approach contravenes
the rule that FLSA exemptions are to be ``narrowly construed against
* * * employers'' and are to be withheld except as to persons
``plainly and unmistakably within their terms and spirit.'' Arnold
v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S. Ct. 453, 456, 4 L.
Ed. 2d 393 (1960). But that is a rule governing judicial
interpretation of statutes and regulations, not a limitation on the
Secretary's power to resolve ambiguities in his own regulations. A
rule requiring the Secretary to construe his own regulations
narrowly would make little sense, since he is free to write the
regulations as broadly as he wishes, subject only to the limits
imposed by the statute.
Thus, the commenters' contentions are unfounded because the ``narrowly
construed'' standard does not govern or limit the Secretary's broad
rulemaking authority.
IV. Summary of Major Comments
Effective Date
There were very few comments concerning the effective date of the
regulations. The National Association of Convenience Stores (NACS)
recommends that the rules become effective 180 days after they are
published, but in no event before the passage of 90 days. NACS asserts
that ``employers will need considerable time to make and implement
important business decisions about how to arrange their affairs in
light of the revisions,'' and that a ``relatively long period is
certainly justified.'' The Department has set an effective date that is
120 days after the date of publication of these final regulations. The
Department believes that a period of 120 days will provide employers
ample time to make any changes necessary to ensure compliance with the
final regulations. Moreover, a 120-day effective date exceeds the 30-
day minimum required under the Administrative Procedure Act, 5 U.S.C.
553(d), and the 60 days mandated for a ``major rule'' under the
Congressional Review Act, 5 U.S.C. 801(a)(3)(A).
The law firm of Morgan Lewis & Bockius and the Information
Technology Industry Council request that the Department establish a
``short-term `amnesty' program'' that would exist for two years after
the regulations'' effective date. The program, the commenters suggest,
would either allow or require employees seeking unpaid overtime wages
based on a misclassification occurring prior to the effective date of
the final regulations to submit their claims to the Department for
resolution. Under the program, the Department would request that the
employer conduct a self-audit of past compliance concerning the
positions at issue and would supervise payments of up to two years of
back wages, excluding liquidated damages. The statute of limitations
would be tolled during this administrative procedure. If the employer
refused to perform a self-audit, or did not pay the back wages due, the employee could then bring a lawsuit. The commenters cite FLSA section
16(b) as the source of the Department's authority to implement such a
program. Section 16(b) provides aggrieved employees a private right of
action that terminates upon the Department's filing a lawsuit for back
wages for such employees under section 17. Nothing in section 16(b) or
in any other section of the statute authorizes the Department to create
the proposed amnesty program.
Structure and Organization
The existing Part 541 contains two subparts. Current Subpart A
provides the regulatory tests that define each category of the
exemption (executive, administrative, professional, and outside sales).
Current Subpart B provides interpretations of the terms used in the
exemptions. Subpart B was first issued as an explanatory bulletin in
1949 (effective in January 1950) to provide guidance to the public on
how the Wage and Hour Division interpreted and applied the exemption
criteria when enforcing the FLSA.
The Department proposed to eliminate this distinction between the
``regulations'' in Subpart A and the ``interpretations'' in Subpart B.
The proposed rule also reorganized the subparts according to each
category of exemption, eliminated outdated and uninformative examples,
updated definitions of key terms and phrases, and consolidated
provisions relevant to several or all of the exemption categories into
unified, common sections to eliminate unnecessary repetition (e.g., a
number of sections pertaining to salary issues were proposed to be
consolidated into a new Subpart G, Salary Requirements, discussed
below). The proposed rule also streamlined, reorganized, and updated
the regulations in other ways. The proposed regulations utilized
objective, plain language in an attempt to make the regulations more
understandable to employees and employee representatives, small
business owners and human resource professionals. This proposed
restructuring of Part 541 was intended to consolidate and streamline
the regulatory text, reduce unnecessary duplication and redundancies,
make the regulations easier to understand and decipher when applying
them to particular factual situations, and eliminate the confusion
regarding the appropriate level of deference to be given to the
provisions in each subpart.
The proposed regulations also streamlined the existing regulations
by adopting a single standard duties test for each exemption category,
rather than the existing ``long'' and ``short'' duties tests structure.
Because of the outdated salary levels, the ``long'' duties tests have,
as a practical matter, become effectively dormant. As the American
Payroll Association states, the ``long'' duties tests have ``become
`inoperative' because of the extremely low minimum salary test ($155
per week) and federal courts' refusal to apply the percentage
restrictions on nonexempt work in the modern workplace.'' The U.S.
Chamber of Commerce similarly notes that the ``elements unique to the
long test have largely been dormant for some time due to the
compensation levels.'' The U.S. House of Representatives' Committee on
Education and the Workforce also comments that the ``long'' duties
tests have ``become rarely, if ever, used.'' The Fisher & Phillips law
firm notes that ``the `long' test has played little role in the
executive exemption's application for many years.'' Similarly, the
American Bakers Association notes that the ``long'' duties tests
``lack[] current relevance.'' Finally, the National Association of
Federal Wage Hour Consultants states that the ``long'' duties tests are
``seldom used today in the business community.'' Faced with this
reality, the Department decided that elimination of most of the
``long'' duties tests requirements is warranted, especially since the
relatively small number of employees currently earning from $155 to
$250 per week, and thus tested for exemption under the ``long'' duties
tests, will gain stronger protections under the increased minimum salary level which, under the final rule, guarantees overtime
protection for all employees earning less than $455 per week ($23,660
annually). Further, as explained in the preamble to the proposed rule,
the former tests are complicated and require employers to time-test
managers for the duties they perform, hour-by-hour in a typical
workweek. Reintroducing these effectively dormant requirements now
would add new complexity and burdens to the exemption tests that do not
currently apply. For example, employers are not generally required to
maintain any records of daily or weekly hours worked by exempt
employees (see 29 CFR 516.3), nor are they required to
[[Page 22127]]
perform a moment-by-moment examination of an exempt employee's specific
duties to establish that an exemption is available. Yet reactivating
the former strict percentage limitations on nonexempt work in the
existing ``long'' duties tests could impose significant new monitoring
requirements (and, indirectly, new recordkeeping burdens) and require
employers to conduct a detailed analysis of the substance of each
particular employee's daily and weekly tasks in order to determine if
an exemption applied. When employers, employees, as well as Wage and
Hour Division investigators applied the ``long'' test exemption
criteria in the past, distinguishing which specific activities were
inherently a part of an employee's exempt work proved to be a
subjective and difficult evaluative task that prompted contentious
disputes. Moreover, making such finite determinations would become even
more difficult in light of developments in case law that hold that an
exempt employee's managerial duties can be carried out at the same time
the employee performs nonexempt manual tasks. See, e.g., Jones v.
Virginia Oil Co., 2003 WL 21699882, at *4 (4th Cir. 2003) (assistant
manager who spent 75 to 80 percent of her time performing basic line-
worker tasks held exempt because she ``could simultaneously perform
many of her management tasks''); Donovan v. Burger King Corp., 672 F.2d
221, 226 (1st Cir. 1982) (``an employee can manage while performing
other work,'' and ``this other work does not negate the conclusion that
his primary duty is management''). Accordingly, given these
developments, the Department believed that the percentage limitations
on particular duties formerly applied under the ``long'' tests were not
useful criteria that should be reintroduced for defining the ``white
collar'' exemptions in today's workplace, and that employees who would
have been tested under the ``long'' tests are better protected by the
final rule's guarantee of overtime protection to all employees earning
less than $455 per week.
Most comments addressing the structure and organization of the
proposed rule generally favor the proposed restructuring, indicating
the consolidation of the former regulations and interpretations into a
unified set of rules and other proposed changes provide needed
simplification and more clarity to a complex regulation. The weight of
comments support replacing the former ``long'' and ``short'' test
structure with the proposed standard tests and deleting the former
``long'' test percentage limits on performing nonexempt duties.\5\ For
example, the U.S. Chamber of Commerce comments that it was their
members' experience that the percentage limitations have been difficult
to apply and have been of little utility. The Associated Prevailing
Wage Contractors states that the percentage requirements created
additional and needless recordkeeping requirements. The National Small
Business Association comments that a move away from a percentage basis
test will alleviate the burden on small business owners.
---------------------------------------------------------------------------
\5\ See, e.g., Comments of American Bakers Association; American
Corporate Counsel Association; American Hotel and Lodging
Association; American Insurance Association; American Nursery and
Landscape Association; American Payroll Association; American Network of Community Options and Resources (ANCOR); Associated
Builders and Contractors; Associated Prevailing Wage Contractors;
Colley & McCoy Company; Contract Services Association of America;
Financial Services Roundtable; Grocery Manufacturers of America;
National Association of Chain Drug Stores; National Association of
Manufacturers; National Council of Agricultural Employers; National
Grocers Association; National Newspaper Association; National
Restaurant Association; National Small Business Association; New
Jersey Restaurant Association; Pennsylvania Credit Union
Association; Public Sector FLSA Coalition; Society for Human
Resource Management; State of Oklahoma Office of Personnel
Management; Tennessee Valley Authority; the U.S. Chamber of
Commerce; and Virginia Department of Human Resource Management.
---------------------------------------------------------------------------
However, some commenters oppose these changes, asserting that they
weakened the requirements for exemption, would allow manipulation of
job titles to evade paying overtime to lower-level employees, would
open the floodgates to misclassification of employees, and lead to more
lawsuits. Some commenters state that the proposed language is too
simple for this complex subject or that the proposed language continues
to be vague in some areas, making it susceptible to differing
interpretations and a continuation of an overly complex subject under
the law. Other dissenting comments point to a loss of judicial and
opinion letter interpretative precedent that would occur by changing
the duties tests as the Department proposed.\6\
---------------------------------------------------------------------------
\6\ See, e.g., Comments of 9-5 National Association of Working
Women; AFL-CIO; American Federation of State, County and Municipal
Employees; American Federation of Teachers; Building and
Construction Trades Department, AFL-CIO; Communication Workers of
America; International Association of Fire Fighters; International
Association of Machinists and Aerospace Workers; International
Federation of Professional & Technical Engineers; National
Employment Law Project; New York State Public Employees Federation;
United Food and Commercial Workers Union; Weinberg, Roger and
Rosenfeld; and World at Work.
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The Department has carefully considered these arguments, and
continues to believe that reducing the inherent complexity of the
exemption criteria by replacing the subjective and effectively dormant
``long'' test requirements is an essential goal to be pursued in this
rulemaking. Streamlining and simplification of the applicable standards
is critical to ensuring correct interpretations and proper application
of the exemptions in the workplace today. It serves no productive
interest if a complicated regulatory structure implementing a statutory
directive means that few people can arrive at a correct conclusion, or
that many people arrive at different conclusions, when trying to apply
the standards to widely varying and diverse employment settings. The
extensive public comments on the difficulties experienced under the
existing regulatory standards amply demonstrate the need for change, in
the Department's view. The comments suggesting there is no need to
change the current regulatory ``long'' and ``short'' test structure are
not persuasive when contrasted with the described difficulties under
the existing regulatory standards, as confirmed by many other
commenters. The Department also does not agree with the comments
suggesting that elimination of the ``long'' test percentage limitations
on nonexempt work, which are rarely applied today, and retention of the
primary duty approach as currently interpreted by federal courts, will
somehow increase litigation or decrease the protections currently
afforded to employees. Rather, we believe that employees are more
clearly protected by the final rule, which guarantees overtime protection to all employees earning less than $455 per week, than by
the existing rule which contains confusing and differing requirements
for employees earning between $155 and $455 per week. Moreover, as
explained in more detail in Subpart B of the preamble, the Department's
final ``standard'' duties test for the executive exemption incorporates
the ``authority to hire or fire'' requirement from the existing long
test.
A number of commenters suggest that the 20-percent limitation on
nonexempt work is mandated by the FLSA itself because, when amending
the FLSA in 1961 to cover retail and service establishments, Congress
added in section 13(a)(1) that ``an employee of a retail or service
establishment shall not be excluded from the definition of employee
employed in a bona fide executive or administrative capacity because of
the number of hours in his workweek which he devotes to activities
[[Page 22128]]
not directly or closely related to the performance of executive or
administrative activities, if less than 40 per centum of his hours
worked in the workweek are devoted to such activities.''
The Department does not believe that eliminating the 20-percent
rule from the new standard test contravenes Congress' intent. By adding
the 40-percent language in 1961, Congress intended that the 20-percent
limitation in the ``long'' tests would not be used to prohibit
employers from applying the exemption to retail and service employees,
even if they spent more than 20 percent of their time in nonexempt
work. Thus, this statutory language is a limitation on the Department's
authority to define certain employees as nonexempt--not a Congressional
declaration that the Department can never reconsider the 20-percent
limitation. Congress could have imposed the 20-percent rule on all
employees in 1961, but it did not. In fact, the primary duty approach
of the final regulations was first adopted by the Department as part of
the ``short'' tests in 1949. When Congress amended the FLSA in 1961,
the primary duty tests were in effect and did not contain mandatory
percentage limitations on nonexempt work. See 29 CFR 541.103 (50
percent is ``rule of thumb''); Jones, 2003 WL 21699882, at *3 (the 50-
percent ``rule of thumb'' is not dispositive). Congress did not act to
abrogate the primary duty tests, and the Department believes that the
``short'' duties tests are in no way inconsistent with section 13(a)(1)
of the Act.
In reaching its regulatory decisions, the Department is mindful of
its obligations under the delegated statutory authority applicable in
this situation, and other laws and Executive Orders that apply to the
regulatory process, to define and delimit the ``white collar''
exemption criteria in ways that reduce unnecessary burdens (e.g., the
Paperwork Reduction Act, the Regulatory Flexibility Act, the Unfunded
Mandates Reform Act, and Executive Orders 12866, 13272, and 13132).
Under currently applicable guidelines, implementation of regulatory
standards should, to the maximum extent possible within the limits of
controlling statutory authority and intent, strike an appropriate
balance and be compatible with existing recordkeeping and other prudent
business practices, not unduly disruptive of them. Regulatory standards
should also strive to apply plain, coherent, and unambiguous
terminology that is easily understandable to everyone affected by the
rules. Consequently, the Department has decided to adopt the proposed
restructuring of the regulations into separate subparts containing
standard tests under each category of the exemption, which do not
include the former ``long'' test requirements that require calculating
the 20-percent (or 40-percent in retail or service establishments)
limits on the amount of time devoted to nonexempt tasks.
Subpart A, General Regulations
Proposed Subpart A included several general, introductory
provisions scattered throughout the existing regulations. Proposed section 541.0 combined an introductory statement from existing section
541.99 and information currently located at section 541.5b regarding
the application of the equal pay provisions in section 6(d) of the FLSA
to employees exempt from the minimum wage and overtime provisions of
the FLSA under section 13(a)(1). Proposed section 541.0 also provided
new language to reflect legislative changes to the FLSA regarding
computer employees and information regarding the new organizational
structure of the proposed regulations. Proposed section 541.1 provided
definitions of ``Act'' and ``Administrator'' from their current
location in section 541.0. Finally, proposed section 541.2 provided a
general statement that job titles alone are insufficient to establish
the exempt status of an employee. This fundamental concept, equally
applicable to all the exemption categories, currently appears in
section 541.201(b) of the existing regulations regarding administrative
employees.
The Department received few comments on these general regulations.
Thus, Subpart A is adopted as proposed, except for the addition of a
new section 541.3 entitled ``Scope of the section 13(a)(1) exemptions''
and a new section 541.4 entitled ``Other laws and collective bargaining
agreements.'' The Department adds these new sections in response to
public commentary which evidenced general confusion, especially among
employees, regarding the scope of the exemptions and the impact of
these regulations on state laws and collective bargaining agreements.
The subsection 541.3(a) clarifies that the section 13(a)(1)
exemptions and the Part 541 regulations do not apply to manual laborers
or other ``blue collar'' workers who ``perform work involving
repetitive operations with their hands, physical skill and energy.''
Such employees ``gain the skills and knowledge required for performance
of their routine manual and physical work through apprenticeships and
on-the-job training, not through the prolonged course of specialized
intellectual instruction required of exempt learned professional
employees such as medical doctors, architects and archeologists. Thus,
for example, non-management production-line employees and non-
management employees in maintenance, construction and similar
occupations such as carpenters, electricians, mechanics, plumbers, iron
workers, craftsmen, operating engineers, longshoremen, construction
workers and laborers are entitled to minimum wage and overtime premium
pay under the Fair Labor Standards Act, and are not exempt under the
regulations in this part no matter how highly paid they might be.''
The new Sec. 541.3(a) responds to comments revealing a fundamental
misunderstanding of the scope and application of the Part 541
regulations among employees and employee representatives. To ensure
employees understand their rights, the new subsection 541.3(a) clearly
states that manual laborers and other ``blue collar'' workers cannot
qualify for exemption under section 13(a)(1) of the FLSA. The
description of a ``blue collar'' worker as an employee performing
``work involving repetitive operations with their hands, physical skill
and energy'' was derived from a standard dictionary definition of the
word ``manual.'' See, e.g., Adam v. United States, 26 Cl. Ct. 782, 792-
93 (1992) (``dictionary definition of `manual' is, `requiring or using
physical skill and energy' ''). The illustrative list of such ``blue
collar'' occupations included in this subsection is the same language
included in the proposed and final section 541.601 on highly
compensated employees.
Section 541.3(b)(1) provides that the section 13(a)(1) exemptions
and these regulations also do not apply to ``police officers,
detectives, deputy sheriffs, state troopers, highway patrol officers,
investigators, inspectors, correctional officers, parole or probation
officers, park rangers, fire fighters, paramedics, emergency medical
technicians, ambulance personnel, rescue workers, hazardous materials workers and similar employees, regardless of rank or pay level, who
perform work such as preventing, controlling or extinguishing fires of
any type; rescuing fire, crime or accident victims; preventing or
detecting crimes; conducting investigations or inspections for
violations of law; performing surveillance; pursuing, restraining and
apprehending suspects; detaining or supervising suspected and convicted
criminals, including those on probation
[[Page 22129]]
or parole; interviewing witnesses; interrogating and fingerprinting
suspects; preparing investigative reports; or similar work.'' Final
subsection 541.3(b)(2) provides that such employees do not qualify as
exempt executive employees because their primary duty is not management
of the enterprise in which the employee is employed or a customarily
recognized department or subdivision thereof as required under section
541.100. Thus, for example, ``a police officer or fire fighter whose
primary duty is to investigate crimes or fight fires is not exempt
under section 13(a)(1) of the Act merely because the police officer or
fire fighter also directs the work of other employees in the conduct of
an investigation or fighting a fire.'' Final subsection 541.3(b)(3)
provides that such employees do not qualify as exempt administrative
employees because their primary duty is not the performance of work
directly related to the management or general business operations of
the employer or the employer's customers as required under section
541.200. Final subsection 541.3(b)(4) provides that such employees do
not qualify as exempt learned professionals because their primary duty
is not the performance of work requiring knowledge of an advanced type
in a field of science or learning customarily acquired by a prolonged
course of specialized intellectual instruction or the performance of
work requiring invention, imagination, originality or talent in a
recognized field of artistic or creative endeavor as required under
section 541.300. Final subsection 541.3(b)(4) also states that
``although some police officers, fire fighters, paramedics, emergency
medical technicians and similar employees have college degrees, a
specialized academic degree is not a standard prerequisite for
employment in such occupations.''
This new subsection 541.3(b) responds to commenters, most notably
the Fraternal Order of Police, expressing concerns about the impact of
the proposed regulations on police officers, fire fighters, paramedics,
emergency medical technicians (EMTs) and other first responders. The
current regulations do not explicitly address the exempt status of
police officers, fire fighters, paramedics or EMTs. This silence in the
current regulations has resulted in significant federal court
litigation to determine whether such employees meet the requirements
for exemption as executive, administrative or professional employees.
Most of the courts facing this issue have held that police
officers, fire fighters, paramedics and EMTs and similar employees are
not exempt because they usually cannot meet the requirements for
exemption as executive or administrative employees. In Department of
Labor v. City of Sapulpa, Oklahoma, 30 F.3d 1285, 1288 (10th Cir.
1994), for example, the court held that fire department captains were
not exempt executives because they were not in charge of most fire
scenes; had no authority to call additional personnel to a fire scene;
did not set work schedules; participated in all the routine manual
station duties such as sweeping and mopping floors, washing dishes and
cleaning bathrooms; and did not earn much more than the employees they
allegedly supervised. In Reich v. State of New York, 3 F.3d 581, 585-87
(2nd Cir. 1993), cert. denied, 510 U.S. 1163 (1994), the court granted
overtime pay to police investigators whose duties included
investigating crime scenes, gathering evidence, interviewing witnesses,
interrogating and fingerprinting suspects, making arrests, conducting
surveillance, obtaining search warrants, and testifying in court. The court held that such police officers are not exempt administrative
employees because their primary duty is conducting investigations, not
administering the affairs of the department itself. See also Bratt v.
County of Los Angeles, 912 F.2d 1066, 1068-70 (9th Cir. 1990)
(probation officers who conduct investigations and make recommendations
to the court regarding sentencing are not exempt administrative
employees), cert. denied, 498 U.S. 1086 (1991); Mulverhill v. State of
New York, 1994 WL 263594 (N.D.N.Y. 1994) (investigators of
environmental crimes who carry firearms, patrol a sector of the state
and conduct covert surveillance, and rangers who prevent and suppress
forest fires, are not exempt administrative employees).
Similarly, federal courts have held that police officers,
paramedics, EMTs, and similar employees are not exempt professionals
because they do not perform work in a ``field of science or learning''
requiring knowledge ``customarily acquired by a prolonged course of
specialized intellectual instruction'' as required under the current
and final section 541.301 of the regulations. The paramedic plaintiffs
in Vela v. City of Houston, 276 F.3d 659, 674-676 (5th Cir. 2001), for
example, were required to complete 880 hours of classroom training,
clinical experience and a field internship. The EMT plaintiffs were
required to complete 200 hours of classroom training, clinical
experience and a field internship. The court held that the paramedics
and EMTs were not exempt professionals because they were not required
to have a college degree. See also Dybach v. State of Florida
Department of Corrections, 942 F.2d 1562, 1564-65 (11th Cir. 1991)
(probation officer held not exempt professional because the required
college degree could be in any field--`` `nuclear physics, or * * *
corrections, or * * * physical education or basket weaving'''--not in a
specialized field); Fraternal Order of Police, Lodge 3 v. Baltimore
City Police Department, 1996 WL 1187049 (D. Md. 1996) (police sergeants
and lieutenants held not exempt professionals, even though some
possessed college degrees, because college degrees were not required
for the positions); Quirk v. Baltimore County, Maryland, 895 F. Supp.
773, 784-86 (D. Md. 1995) (certified paramedics required to have a high
school education and less than a year of specialized training are not
exempt professionals).
The Department has no intention of departing from this established
case law. Rather, for the first time, the Department intends to make
clear in these revisions to the Part 541 regulations that such police
officers, fire fighters, paramedics, EMTs and other first responders
are entitled to overtime pay. Police sergeants, for example, are
entitled to overtime pay even if they direct the work of other police
officers because their primary duty is not management or directly
related to management or general business operations; neither do they
work in a field of science or learning where a specialized academic
degree is a standard prerequisite for employment.\7\
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\7\ In addition to the case law and comments cited above, when
drafting this new section, the Department also looked to the
definitions of ``fire protection activities'' and ``law enforcement
activities'' contained in Sections 3(y) and 7(k) of the FLSA, and
their implementing regulations at 29 CFR 553.210 and 553.211, which
allow public agencies to pay overtime to fire and law enforcement
employees based on a 7 to 28 day period, rather than the 40-hour
workweek. These sections do not govern exempt status under section
13(a)(1) and, thus, are illustrative but not determinative of duties
performed by nonexempt fire and law enforcement employees. See 29
CFR 553.216.
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Finally, such police officers, fire fighters, paramedics, EMTs and
other public safety employees also cannot qualify as exempt under the highly compensated test in final section 541.601. As discussed below,
final section 541.601(b) provides that the highly compensated test
``applies only to employees whose primary duty includes performing
office or non-manual work.'' Federal courts have recognized that
[[Page 22130]]
such public safety employees do not perform ``office or non-manual''
work. Adam v. United States, 26 Cl. Ct. at 792-93, for example,
involved border patrol agents who spent a significant amount of time in
the field, wore ``uniforms and black work boots,'' and used ``a
handgun, a baton, night-vision goggles, and binoculars.'' Their work
required ``frequent and recurring walking and running over rough
terrain, stooping, bending, crawling in restricted areas such as
culverts, climbing fences and freight car ladders, and protecting one's
self and others from physical attacks.'' Their work also involved
``high speed pursuits, boarding moving trains and vessels, and physical
threat while detaining and arresting illegal aliens, smugglers, and
other criminal elements.'' The court held that these border patrol
agents are not exempt from the FLSA overtime requirements, stating that
the ``level of physical effort required in the environment described
plainly cannot be characterized as `office or other predominately
nonmanual work.' A dictionary definition of `manual' is, `requiring or
using physical skill and energy.' * * * Non-manual work, therefore,
would not call for significant use of physical skill or energy.
Certainly, the agents' job duties do not fit that definition.'' See
also, Roney v. United States, 790 F. Supp. 23, 25 (D.D.C. 1992) (Deputy
U.S. Marshal entitled to overtime pay where position requires ``
`physical strength and stamina to perform such activities as long
periods of surveillance, pursuing and restraining suspects, carrying
heavy equipment' '' and the employee `` `may be subject to physical
attack, including the use of lethal weapons' '') (citation omitted).
Federal courts have found high-level police and fire officials to
be exempt executive or administrative employees only if, in addition to
satisfying the other pertinent requirements, such as directing the work
of two or more other full time employees as required for the executive
exemption, their primary duty is performing managerial tasks such as
evaluating personnel performance; enforcing and imposing penalties for
violations of the rules and regulations; making recommendations as to
hiring, promotion, discipline or termination; coordinating and
implementing training programs; maintaining company payroll and
personnel records; handling community complaints, including determining
whether to refer such complaints to internal affairs for further
investigation; preparing budgets and controlling expenditures; ensuring
operational readiness through supervision and inspection of personnel,
equipment and quarters; deciding how and where to allocate personnel;
managing the distribution of equipment; maintaining inventory of
property and supplies; and directing operations at crime, fire or
accident scenes, including deciding whether additional personnel or
equipment is needed. See, e.g., West v. Anne Arundel County, Maryland,
137 F.3d 752 (4th Cir.) (EMT captains and lieutenants), cert. denied,
525 U.S. 1048 (1998); Smith v. City of Jackson, Mississippi, 954 F.2d
296 (5th Cir. 1992) (fire chiefs); Masters v. City of Huntington, 800
F. Supp. 363 (S.D.W. Va. 1992) (fire deputy chiefs and captains);
Simmons v. City of Fort Worth, Texas, 805 F. Supp. 419 (N.D. Tex. 1992)
(fire deputy and district chiefs); Keller v. City of Columbus, Indiana,
778 F. Supp. 1480 (S.D. Ind. 1991) (fire captains and lieutenants).
Another important fact considered in at least one case is that exempt
police and fire executives generally are not dispatched to calls, but
rather have discretion to determine whether and where their assistance
is needed. See, e.g., Anderson v. City of Cleveland, Tennessee, 90 F.
Supp.2d 906, 909 (E.D. Tenn. 2000) (police lieutenants ``monitor the radio in order to keep tabs on their men and determine where their
assistance is needed'').\8\
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\8\ Some police officers, fire fighters, paramedics and EMTs
treated as exempt executives under the current regulations may be
entitled to overtime under the final rule because of the additional
requirement in the standard duties test that an exempt executive
must have the authority to ``hire or fire'' other employees or make
recommendations given particular weight on hiring, firing,
advancement, promotion or other change of status.
---------------------------------------------------------------------------
A new section 541.4 highlights that the FLSA establishes a minimum
standard that may be exceeded, but cannot be waived or reduced. See
Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 706 (1945). Section 18
of the FLSA states that employers must comply ``with any Federal or
State law or municipal ordinance establishing a minimum wage higher
than the minimum * * * or a maximum workweek lower than the maximum
workweek established under the Act.'' 29 U.S.C. 218. Similarly,
employers, on their own initiative or in collective bargaining
negotiations with a labor union, are not precluded by the FLSA from
providing a wage higher than the statutory minimum, a shorter workweek
than provided by the FLSA, or a higher overtime premium (double time,
for example) than provided by the FLSA. See, e.g., Barrentine v.
Arkansas-Best Freight System, Inc., 450 U.S. 728, 739 (1981) (``In
contrast to the Labor Management Relations Act, which was designed to
minimize industrial strife and to improve working conditions by
encouraging employees to promote their interests collectively, the FLSA
was designed to give specific minimum protections to individual workers
and to ensure that each employee covered by the Act would receive `[a]
fair day's pay for a fair day's work' and would be protected from `the
evil of overwork as well as underpay.' '') (citation omitted); NLRB v.
R & H Coal Co., 992 F.2d 46 (4th Cir. 1993) (purpose of FLSA is to
guarantee minimum level of compensation to workers, regardless of
outcome of bargaining process; by contrast, purpose of National Labor
Relations Act is to facilitate collective bargaining process and ensure
that its outcome is enforced). Thus, the new section 541.4 states:
``The Fair Labor Standards Act provides minimum standards that may be
exceeded, but cannot be waived or reduced. Employers must comply, for
example, with any Federal, State or municipal laws, regulations or
ordinances establishing a higher minimum wage or lower maximum workweek
than those established under the Act. Similarly, employers, on their
own initiative or under a collective bargaining agreement with a labor
union, are not precluded by the Act from providing a wage higher than
the statutory minimum, a shorter workweek than the statutory maximum,
or a higher overtime premium (double time, for example) than provided
by the Act. While collective bargaining agreements cannot waive or
reduce the Act's protections, nothing in the Act or the regulations in
this part relieves employers from their contractual obligations under
collective bargaining agreements.''
Subpart B, Executive Employees
Section 541.100 General Rule for Executive Employees
The Department's proposal streamlined the existing regulations by
adopting a single standard duties test in proposed section 541.100. The
proposed standard duties test provided that an exempt executive
employee must: have a primary duty of managing the enterprise in which
the employee is employed or of a customarily recognized department or
subdivision thereof; customarily and regularly direct the work of two
or more other employees; and have the authority to hire or fire other
employees or have particular weight given to suggestions and
recommendations as to the hiring, firing, advancement, promotion or any
other change of status of other [[Page 22131]]
employees. This standard test, consisting of the current short test
requirements plus a third objective requirement taken from the long
test, was more protective than the existing ``short'' duties test
applied to employees earning $250 or more per week ($13,000 annually).
The Department has retained this standard test for the final rule
but has made minor changes to section 541.100(a)(2). Subsection
541.100(a)(2) has been modified now to read ``whose primary duty is
management of the enterprise in which the employee is employed or of a
customarily recognized department or subdivision thereof.'' This change
was made in response to several commenters, such as the AFL-CIO, who
felt that the change from ``whose'' primary duty as written in the
existing regulations to ``a'' primary duty as written in the proposal
weakened this prong of the test by allowing for more than one primary
duty and not requiring that the most important duty be management. As
the Department did not intend any substantive change to the concept
that an employee can only have one primary duty, the final rule uses
the introductory phrasing from the existing regulations.
Several commenters state that the phrases ``change in status'' and
``particular weight'' contained in both the existing regulations and
proposed 541.100(a)(4) are vague and should be defined. The Department
has added a definition of ``particular weight'' based on case law,
which now appears in section 541.105, as discussed below. Although the
Department has not added a definition of ``change of status'' to the
final regulation, the Department intends that this phrase be given the
same meaning as that given by the Supreme Court in defining the term
``tangible employment action'' for purposes of Title VII liability. In
Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, 761-62 (1998),
the Supreme Court defined ``tangible employment action'' as ``a
significant change in employment status, such as hiring, firing,
failing to promote, reassignment with significantly different
responsibilities, or a decision causing a significant change in
benefits.'' The Department believes that this discussion provides the
necessary guidance to reflect the types of employment actions a
supervisor would have to make recommendations regarding, other than
hiring, firing or promoting, to meet this prong of the executive test.
Because the Department intends to follow the Supreme Court's
disjunctive definition of ``tangible employment action'' in Ellerth, we
also reject comments from the AFL-CIO and others requesting that
proposed subsection 541.100(a)(4) be changed to requiring ``hiring or
firing and advancement, promotion or any other change of status.'' An
employee who provides guidance on any one of the specified changes in
employment status may meet the section 541.100(a)(4) requirement.
The New York State Public Employees Federation suggests that the
Department should provide a definition of the phrase ``authority to
hire or fire'' which would require that a significant part of the
employee's responsibility must involve either hiring or firing. The
Department believes that these terms are straightforward and should be
interpreted in accordance with their customary definition, i.e., to
engage or disengage an individual for employment. Therefore, the
Department has determined that such a definition need not be
incorporated into the final regulation.
Several commenters from the public sector, such as the Metropolitan
Transportation Authority, the New York State Police, and the Public
Sector FLSA Coalition, indicate that the requirement in the proposal
that an employee have the authority to hire or fire will cause many
exempt employees to lose exempt status since employees in the public
sector do not have authority to make such decisions. According to the
Metropolitan Transportation Authority, ``the authority to hire or fire
(or to have his recommendation to change an employee's employment
status given strong consideration) only exists at the highest levels in public employment'' because of such factors as ``unionization within
the state and local public sector and statutory constraints, such as
civil service laws, which have been developed to protect employees in
the public sector from various factors, including the political
process, favoritism or for other reasons.'' The Society for Human
Resource Management (SHRM) similarly states that this requirement would
be ``particularly troublesome'' for public entities governed by civil
service rules that dictate the use of a board to make hiring or firing
decisions. SHRM recommends that this requirement be deleted or that the
Department define the term ``particular weight'' in the regulations.
The Johnson County Government also asks for clarification of the term
``particular weight.'' The Department has evaluated these comments and,
as noted above, has included a definition of the term ``particular
weight'' in section 541.105. That definition clarifies that an
executive does not have to possess full authority to make the ultimate
decision regarding an employee's status, such as where a higher level
manager or a personnel board makes the final hiring, promotion or
termination decision. With this clarification, and with the
clarification that this rule encompasses other tangible employment
actions, we have determined that this requirement should not pose a
hardship since public sector supervisory employees provide
recommendations as to hiring, firing or other personnel decisions that
are given ``particular weight'' to the extent allowed under civil
service laws and thus may meet this requirement for exemption. As the
National School Board Association comments, although state law may vest
the school board with the exclusive authority to discharge an employee,
such an action is precipitated by a department supervisor who evaluates
the employee's performance and recommends the action, and the
superintendent's recommendation to the board is based on the department
supervisor's recommendations. In addition, such employees may also
qualify for exemption as administrative or professional employees.
A number of employer groups urge the Department to eliminate
proposed 541.100(a)(4) entirely. These commenters argue that this
requirement will cause many employees to lose their exempt executive
status because the ``hire or fire'' requirement is not contained in the
current short test and therefore has been effectively dormant for
practical purposes as a measure of exempt executive status. The
Department carefully reviewed these comments and believes that this
requirement may result in some currently exempt employees becoming
nonexempt; however, the number is too small to estimate quantitatively.
Subsection 541.100(a)(4) is an important and objective measure of
executive exempt status which is simple to understand and easy to
administer. As the 1940 Stein Report stated at page 12: ``[i]t is
difficult to see how anyone, whether high or low in the hierarchy of
management, can be considered as employed in a bona fide executive
capacity unless he is directly concerned either with the hiring or the
firing and other change of status of the employees under his
supervision, whether by direct action or by recommendation to those to
whom the hiring and firing functions are delegated.'' Although this new
requirement may exclude a few employees from the executive exemption,
the Department has determined that it will have a minimal impact on
employers. Most supervisors
[[Page 22132]]
and managers should at least have their suggestions and recommendations
as to the hiring, firing, advancement, promotion or any other change of
status of other employees be given particular weight. Further,
employees who cannot meet the ``hire or fire'' requirement in section
541.100(a)(4) may nonetheless qualify for exemption as administrative
or professional employees.
Section 541.101 Business Owner
Section 541.101 of the proposed rule provided that an employee ``who owns at least a 20-percent equity interest in the enterprise in
which the employee is employed, regardless of whether the business is a
corporate or other type of organization,'' is exempt as an executive
employee.
The Department made two modifications to the provision in the final
rule. First, we inserted the term ``bona fide'' before the phrase ``20-
percent equity interest.'' Second, we added a duties requirement that
the 20-percent business owner must be ``actively engaged in its
management.''
These changes were made to address commenter concerns that this
section could be subject to abuse. For example, the McInroy & Rigby law
firm argues that the exemption would be subject to ``great abuse.'' The
firm speculates that ``[s]mall business employers could grant employees
an illusory ownership interest and avoid having to even pay the minimum
wage to such employees. One would anticipate many sham transactions
conveying illusory ownership interests if the provision is adopted.''
Adding the modifier ``bona fide'' before the phrase ``20-percent equity
interest'' serves to emphasize that the employee's ownership stake in
the business must be genuine. The AFL-CIO argues that this section
``cannot stand'' because it would allow the exemption for employees who
perform no management duties: ``an individual may have a 20 percent
interest in an independent gas station, or a small food mart. In order
to break even, the business stays open through the night, and as the
minority owner that person keeps the operations going during those
hours. He makes no management decisions, supervises no one, and has no
authority over personnel, and could make less than the minimum wage.
Under the Department's proposal, this employee meets the test for the
bona fide executive.'' The Department agrees that such an employee
should not qualify for the exemption. Thus, we have added the duties
requirement that the 20-percent owner be actively engaged in
management. See 1949 Weiss Report at 42 (section is ``intended to
recognize the special status of an owner, or partial owner, of an
enterprise who is actively engaged in its management'') (emphasis
added).
The proposed rule contained no salary level or salary basis
requirements for the business owner. The Department requested comments
on whether the salary level and/or salary basis tests should be
included in the provision. 65 FR 15560, 15565 (March 31, 2003).
Commenters typically favor the exemption and agree with the Department
that the salary requirements are not necessary, given the likelihood
that an employee who owns a bona fide 20-percent equity interest in the
enterprise will share in its profits. Thus, this ownership interest is
an adequate substitute for the salary requirements. Additionally,
several commenters, for example, the Workplace Practices Group, note
that business owners at this level are able to receive compensation in
other ways and have sufficient control over the business to prevent
abuse. Thus, in the final rule, as in the proposal, the salary
requirements do not apply to a 20-percent equity owner. However,
requiring a ``bona fide'' ownership interest and that the 20-percent
owner be actively engaged in management will prevent abuses such as
that described by commenters and in Lavian v. Haghnazari, 884 F. Supp.
670, 678 (E.D.N.Y. 1995). In Lavian, an uncle invested more than
$70,000 in his nephew's pharmacy business in exchange for a promise of
49 percent stock ownership interest in the closely-held corporation.
After working at the pharmacy for two years without compensation, and
never receiving share certificates, the uncle sued. The court denied a
motion to dismiss an FLSA claim, noting that the court must accept as
true the uncle's allegations that his duties were ``clerical, and
lacking in actual supervisory and discretionary authority in relation
to the enterprise.'' Id., at 680. The final rule ensures that employees
with such limited job duties in a company would not meet the definition of ``actively engaged in its management.''
Section 541.102 Management (Proposed Sec. 541.103, ``Management of the
Enterprise'' and Proposed Sec. 541.102, ``Sole Charge Executive'')
The proposed regulations at section 541.102 provided a modified
test for the executive exemption for an employee who is in sole charge
of an independent establishment or a physically separated branch
establishment. Proposed section 541.103 defined the term ``management
of the enterprise.'' For the reasons discussed below, the final rule
deletes the ``sole charge'' provision and renumbers the remaining
sections of Subpart B.
Under proposed section 541.102, an employee in sole charge of an
independent or branch establishment would qualify for the executive
exemption if the employee (1) is compensated on a salary basis at a
rate of not less than $425 per week (or $360 per week, if employed in
American Samoa by employers other than the Federal Government),
exclusive of board, lodging or other facilities; (2) is the top and
only person in charge of the company activities at the location where
employed; and (3) has authority to make decisions regarding the day-to-
day operations of the establishment and to direct the work of any other
employees at the establishment or branch. Under the proposal, an
``independent establishment or physically separated branch
establishment'' was defined as ``an establishment that has a fixed
location and is geographically separated from other company property.''
The proposal permitted a leased department to qualify as a physically
separated branch establishment when the lessee operated under a
separate trade name, with its own separate employees and records, and
in other respects conducted its business independent of the lessor's
with regard to such matters as hiring and firing of employees, other
personnel policies, advertising, purchasing, pricing, credit
operations, insurance and taxes.
The final rule deletes this section in its entirety.
Commenters such as the AFL-CIO, the National Employment Law
Project, the National Employment Lawyers Association and the Goldstein,
Demchak, Baller, Borgen & Dardarian law firm object to this provision
as allowing the exemption for employees who perform mostly nonexempt
tasks (such as opening and closing up the location, ringing up cash
register sales, stocking shelves, answering phones, serving customers,
etc.) and few, if any, management functions. These commenters also
believe that, when no other employees worked at the establishment, the
provision would allow an employee to qualify for the exemption without
having supervisory responsibility for any other employees. The
International Association of Fire Fighters expresses strong concerns
that the sole charge provision would exempt a low-ranking officer in
charge of a fire station during a particular shift, even though a
higher ranking officer is in charge of the overall management of the
station. The Department agrees with these commenter concerns. In
addition,
[[Page 22133]]
the Department recognizes that, although not intended, section 541.102
as proposed could be construed as allowing the exemption for fairly
low-level employees with fewer management duties than those required
for ``highly compensated'' employees in final section 541.601.
Before deciding to eliminate this section entirely, the Department
considered comments of groups such as the U.S. Chamber of Commerce, the
National Retail Federation, the National Association of Convenience
Stores, the Fisher & Phillips law firm, the National Association of
Chain Drug Stores, the FLSA Reform Coalition, the Illinois Credit Union
League, the Food Marketing Institute, the National Grocers Association,
the International Mass Retail Association, the League of Minnesota
Cities and others that request changes to expand the ``sole charge''
provision. For example, these commenters suggest eliminating the salary level and salary basis requirements; including in the exemption all
employees who are in charge of an establishment at any time during the
day or week; allowing more than occasional visits by the sole charge
executive's superior; eliminating the requirement that the independent
establishment must be geographically separate from other company
property; and eliminating the requirements that a leased department
must operate under a separate trade name and be responsible for its own
insurance, advertising, taxes, purchasing, pricing and credit
operations. In the existing regulations, the ``sole charge'' rule is an
exception from the 20-percent restriction on nonexempt work in the
``long'' duties test. After considering all comments, and for the
reasons stated above, the Department concludes that this rule is not
appropriate as a stand-alone test for the executive exemption.
Proposed section 541.103, defining the term ``management of the
enterprise'' as used in subsection 541.100(a)(2), has been renumbered
as final section 541.102. The proposed definition of ``management''
included the following list of activities that would generally meet
this definition: ``interviewing, selecting, and training of employees;
setting and adjusting their rates of pay and hours of work; directing
the work of employees; maintaining production or sales records for use
in supervision or control; appraising employees' productivity and
efficiency; handling employee complaints and grievances; disciplining
employees; planning the work; determining the techniques to be used;
apportioning the work among the employees; determining the type of
materials, supplies, machinery or tools to be used or merchandise to be
bought, stocked and sold; controlling the flow and distribution of
materials or merchandise and supplies; and providing for the safety of
the employees or the property.''
In response to comments, the Department has amended section 541.102
to rename the section as ``management,'' add language to make clear
that the list is not exhaustive, and add the management functions of
``planning and controlling the budget'' and ``monitoring or
implementing legal compliance measures.''
Comments from the Fisher & Phillips law firm and the National
Association of Convenience Stores ask the Department to change the
phrase ``management of the enterprise'' to ``management,'' pointing out
that the current regulatory section is simply entitled ``management''
and the name ``management of the enterprise'' suggests that these
management duties apply to an entity broader than that required by
section 541.100. Because section 541.100(a)(2) requires that the
primary duty of the employee involve management of the ``enterprise or
of a customarily recognized department or subdivision thereof,'' the
Department has renamed the section ``management'' to avoid any
confusion.
The Department also received a number of comments, including from
the Fisher & Phillips law firm, the National Retail Federation, the
National Association of Federal Wage Hour Consultants, the National
Council of Chain Restaurants and the National Association of Chain Drug
Stores, asking the Department to make clear that the list was not
exhaustive and other types of functions could constitute ``management''
activities. The Department believes that such a change is consistent
with the current interpretive guidelines which make clear the factors
listed are just examples, and the final rule has been revised
accordingly.
Several commenters did ask that specific functions be added to the
list. The Morgan Lewis & Bockius law firm comments that the examples
used in this section were too focused on supervision and suggested that
this section should recognize management of processes, projects and
contracts in addition to employees. The Department agrees that
management activities are not limited to supervisory functions.
Accordingly, the final rule adds the management functions of ``planning and controlling the budget'' and ``monitoring or implementing legal
compliance measures.'' Further, the Department notes that management of
processes, projects or contracts are also appropriately considered
exempt administrative duties. The National Retail Federation asks that
the list be ``augmented to confirm that additional duties are exempt
when performed by retail employees in the course of managing: such as
walking the floor, interacting with customers to determine satisfaction
* * *, team building, conducting inspections, evaluating efficiency,
monitoring or implementing legal compliance measures, training * * *,
attending management meetings, planning meetings and developing meeting
materials, planning and conducting marketing activities * * *, and
investigating or otherwise addressing matters regarding personnel,
proficiency, productivity, staffing or management issues.'' The
National Council of Chain Restaurants suggests that ``handling customer
complaints'' is just as much a management function as handling employee
complaints and therefore should be added to the list of examples, along
with ``coaching employees in proper job performance techniques and
procedures.'' The Department believes that it is not appropriate to
further augment the list. Although many of these suggestions are
appropriate examples of ``management'' functions, some appear
duplicative of functions already included in the section and others,
such as ``handling customer complaints'' and ``conducting
inspections,'' are functions that could qualify as either management or
production type functions depending on the specific facts involved. A
case-by-case analysis would be more appropriate to determine whether
such functions meet the definition of ``management.'' Moreover, because
the Department has added language to make clear that the list is not
exhaustive, such functions could be considered management functions in
appropriate circumstances. For example, a customer service
representative may routinely handle customer complaints but not be
acting in a management capacity. In contrast, a manager in a restaurant
may be the person responsible for handling such complaints as the
individual responsible for the functioning of the operation and
therefore would be operating in a management capacity.
Finally, the management function listed as ``appraising their
productivity and efficiency'' has been augmented with the phrase from
the current regulations, ``for the purpose of recommending promotions
or other changes in their status.'' The AFL-CIO argues that the
elimination of this
[[Page 22134]]
phrase would allow the definition of management to include low-level
personnel functions. As the Department did not intend to change the
meaning of this phrase, this language has been added to the final rule.
Section 541.103 Department or Subdivision (Proposed Sec. 541.104)
Proposed section 541.104 stated that the phrase ``department or
subdivision'' is ``intended to distinguish between a mere collection of
employees assigned from time to time to a specific job or series of
jobs and a unit with permanent status and function.'' The section
defined ``department or subdivision'' as requiring ``a permanent status
and a continuing function.'' Proposed subsection 541.104(b) recognized
that ``when an enterprise has more than one establishment, the employee
in charge of each establishment may be considered in charge of a
recognized subdivision of the enterprise.'' Proposed subsection
541.104(c) stated that ``a recognized department or subdivision need
not be physically within the employer's establishment and may move from
place to place'' and provided that the ``mere fact that the employee
works in more than one location does not invalidate the exemption if
other factors show that the employee is actually in charge of a
recognized unit.'' Finally, proposed subsection 541.104(d) stated that
``continuity of the same subordinate personnel is not essential to the
existence of a recognized unit with a continuing function. An otherwise exempt employee will not lose the exemption merely because the employee
draws and supervises workers from a pool or supervises a team of
workers drawn from other recognized units, if other factors are present
that indicate that the employee is in charge of a recognized unit with
a continuing function.''
The only changes to proposed section 541.104 are to renumber the
section as 541.103 in the final rule, and to delete the sentence in
subsection (b) that ``[t]he employee also may qualify for the sole
charge exemption, if all of the requirements of Sec. 541.102 are
satisfied.'' This sentence is no longer necessary because of the
deletion of the ``sole charge'' exemption in proposed section 541.102.
No other changes have been made.
Several commenters request that the Department expand or clarify
the phrase ``department or subdivision.'' The Morgan Lewis & Bockius
law firm asks the Department to expand the phrase ``department or
subdivision'' to include ``grouping.'' The Public Sector FLSA Coalition
suggests that the phrase be broadened to account for a functional unit
which would provide for a more flexible or fluid organizational
philosophy. The National Council of Chain Restaurants asks for
confirmation of the Department's historic enforcement position that
``front of the house'' and ``back of the house'' are recognized
subdivisions. The U.S. Chamber of Commerce states that the phrase
``department or subdivision'' is outdated and the applicable units
should provide for project teams. Finally, the League of Minnesota
Cities questions whether a subdivision would include supervision of a
day shift.
The Department has decided not to expand the term ``department or
subdivision'' because the phrase has not caused confusion or excessive
litigation. Expanding the definition would unduly complicate this
requirement and likely lead to unnecessary litigation. Indeed, the
courts already have provided clarification of the phrase on a number of
occasions. For example, several courts have stated that a shift can
constitute a department or subdivision, which responds to the question
raised by the League of Minnesota Cities. See West v. Anne Arundel
County, Maryland, 137 F.3d 752, 763 (4th Cir. 1998); Joiner v. City of
Macon, 647 F. Supp. 718, 721-22 (M.D. Ga. 1986); Molina v. Sea Land
Services, Inc., 2 F. Supp. 2d 185, 188 (D.P.R. 1998). The Department
notes that the issue identified by the National Retail Federation as to
whether ``front of the house'' in a store constitutes a department or
subdivision was answered by at least one court in the affirmative. See
Debartolo v. Butera Finer Foods, 1995 WL 516990, at *4 (N.D. Ill.
1995). Finally, the Department observes that ``groupings'' or ``teams''
may constitute a department or subdivision under the existing
definition, but a case-by-case analysis is required. See Gorman v.
Continental Can Co., 1985 WL 5208, at *6 (N.D. Ill. 1985) (department
or subdivision can ``include small groups of employees working on a
related project within a larger department, such as a group leader of
four draftsmen in the gauge section of a much larger department''). The
Department believes these cases correctly define and delimit the term
``department or subdivision.''
Section 541.104 Two or More Other Employees (Proposed Sec. 541.105)
Proposed section 541.105 defined the term ``two or more other
employees'' to mean ``two full-time employees or their equivalent. One
full-time and two half-time employees, for example, are equivalent to
two full-time employees. Four half-time employees are also
equivalent.'' Proposed section 541.105(b) stated that the ``supervision
can be distributed among two, three or more employees, but each such
employee must customarily and regularly direct the work of two or more
other full-time employees or the equivalent. Thus, for example, a
department with five full-time nonexempt workers may have up to two exempt supervisors if each such supervisor customarily and regularly
directs the work of two of those workers.'' However, under proposed
subsections (c) and (d), an ``employee who merely assists the manager
of a particular department and supervises two or more employees only in
the actual manager's absence does not meet this requirement,'' and
``[h]ours worked by an employee cannot be credited more than once for
different executives.'' Thus, ``a shared responsibility for the
supervision of the same two employees in the same department does not
satisfy this requirement.''
Except for renumbering the section as 541.104, no other changes
were made.
In its proposal, the Department invited comments on whether the
supervision of ``two or more employees'' required for exemption should
be modified to include ``the customary or regular leadership, alone or
in combination with others, of two or more other employees.'' See 61 FR
15565 (March 31, 200