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New Overtime Rules Loom as Court Upholds Commercial Driver Exemption

May 27, 2015
A Labor Department plan to revise overtime rules could cost businesses hundreds of millions of dollars, claims industry trade group.

The U.S. Department of Labor is getting ready to issue new overtime regulations that may substantially increase the salary limit for exempt employees under the federal wage and hour law. One profession that will not be affected is commercial drivers, even in some cases when they don’t drive in interstate operations, due to a recent court decision.

DOL plans to issue the new overtime regulations on June 18 that legal observers believe will have a major impact on employers throughout the United States. President Obama last year ordered the Labor Department to revise these regulations, which mandate time-and-a-half pay for employees working more than 40 hours a week unless they make more than a set salary amount per week or meet other exemption requirements.

The regulations also currently exempt two categories of employees from the overtime requirements: those defined as administrative and others defined as executives. To fall into either category requires meeting complicated sets of requirements.

When new rules come out, they are expected to substantially increase the current $455-per-week minimum salary amount from the now annual rate of $23,660 to possibly as much as $56,000 a year, which was urged by 26 Democrat Senators. Some advocates urge the threshold be raised as high as $69,000.

Employer groups have expressed concerns, including the National Retail Federation (NRF), which recently aired research showing the revised standard could be expected to “hollow out” low- and mid-level management positions in the restaurant and retail industries, and result in a shift toward the use of more hourly and part-time workers.

“This is a workplace regulation with massive hidden costs,” says David French, NRF’s senior vice president for government relations. “Any potential lift in take-home pay would be a mirage, but the consequences of this rule would be real, in terms of higher costs for businesses and less opportunity for employees to move up the career ladder from associate to manager.

“The plan to revise the overtime rules could cost businesses hundreds of millions of dollars while increasing inequality across the board,” French adds. “It would help very few workers while negatively impacting a large segment of our economy and workforce.”

The NRF study also found that an increase in the salary threshold would disproportionately affect retailers in rural states, which tend to have lower labor costs and fewer stores, with businesses and workers in Louisiana, Kentucky, Oregon, Oklahoma and Iowa the most likely to be negatively affected by the expected overtime change.

“One threshold for the whole country won’t work,” says Marc Freedman, executive director of labor law policy at the U.S. Chamber of Commerce, which has recommended that DOL apply geographically-specific thresholds to different parts of the U.S.

Motor Carrier Exemption Intact

Commercial drivers of trucks and buses were exempted from the Fair Labor Standards Act (FSLA) overtime requirements when Congress delegated their wage and hour regulation to the Department of Transportation. The intention was that under DOT, safety considerations should come first. That is why these drivers must adhere to DOT’s hours-of-service and log-keeping regulations instead of other federal wage laws.

The exemption typically applies to drivers of large vehicles (as well as driver’s helpers, loaders, or mechanics) who work for employers providing bus passenger, and for-hire and private trucking services that cross state borders.

It has been generally assumed that this exemption applies solely to those drivers who operate in interstate commerce. However, the Third Circuit U.S. Court of Appeals in a May 12 decision determined that drivers who “rarely or never crossed state lines” are covered by the motor carrier exemption to the FLSA because they worked in safety-affecting jobs and reasonably could have been expected to drive interstate routes.

In a case involving a group of Pennsylvania-based charter bus drivers, the Third Circuit held that although the bus company’s interstate operations accounted for only 1% to 10% of its transit revenue, the company dispatcher had the discretion to assign interstate routes to any driver, and a driver could be disciplined for refusing that assignment. As a result, the company retained its discretion to assign drivers to drive either interstate or intrastate routes at any time.

In addition, the bus company trains all of its drivers on as many different routes as possible. It also adheres to federal regulations regarding its entire driver force, and insists that drivers maintain their DOT commercial driver license qualifications that would allow them to drive in interstate operations.

“Employers applying the Motor Carrier Act exemption therefore should be aware that the precise amount of time devoted to interstate transport may not be the sole factor determining the applicability of the exemption,” notes attorney Michael D. Thompson of the law firm of Epstein Becker Green. “Rather, employers should also consider whether an employee performs work that affects the safety of transportation operations that reasonably can be expected to cross state lines.”

Abad Lopez and Noah A. Finkel, attorneys with the law firm of Seyfarth Shaw LLP, put it a bit more succinctly: “The court made abundantly clear that the character of the duties—if such duties require interstate travel—are far more relevant than the amount of time an employee may spend actually performing those duties.”

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