Risk & Compliance

How Much Should Workers Know?

A Department of Labor proposal to educate employees on their rights could open up companies' classification decisions to scrutiny by workers and th...
Sarah JohnsonMay 21, 2010

Companies may have to reveal more about their decisions regarding why some workers are given more rights than others under a proposal the Department of Labor is considering.

The proposed regulation is just one of many circulating in Washington that aim to get a handle on how companies classify their workers and whether they are wrongly excluding some employees from benefits they should be receiving. Experts say it would prompt companies to reexamine their policies, conduct self-audits, and provide additional analysis and documentation on how they categorize individual workers for tax and human-resources purposes.

Labor’s proposal has not yet been revealed, but it will likely require companies to record their analysis for exempting employees from the Fair Labor Standards Act (FLSA) and share that data with those workers. Currently, this sharing of information is not a common practice at companies, according to labor-law attorneys who represent employers.

“To force employers to provide information to employees as to why they were classified exempt or nonexempt could be administratively very difficult,” says Betsy Johnson of law firm EpsteinBeckerGreen. “It could also have an impact on morale and productivity.”

Johnson predicts companies will push back on the potential regulation. In the meantime, as the DoL prepares its proposal for a public-comment period in August, companies could request a meeting with the Office of Management and Budget to voice their concerns.

The move is part of the DoL’s overall effort to better educate workers of their rights under existing laws. In the little information it has provided so far on the potential new rule (through an update of its 2010 agenda), the department says it intends to expand companies’ current recordkeeping requirements “to foster more openness and transparency in demonstrating employers’ compliance with applicable requirements to workers.” Labor deputy secretary Seth Harris predicts that if the proposed regulation is passed as is, the agency will be making a “sizable number of enforcement” actions for violations of minimum-wage and overtime rules.

Defense attorneys further predict that, at least in the short term, such regulations could raise companies’ litigation risk by leading to an increase in complaints from employees who believe they have not received their due rights, such as overtime pay. (Workers deemed exempt from the FLSA, including executives and most salaried employees, are not given extra pay for working more than 40 hours per week.)

“If employers have to provide analysis of the classification of an employee, that would waive attorney-client privilege, and they’ll be giving out internal company documents that could later be used against them,” says Howard Radzely, a partner at Morgan, Lewis & Bockius LLP and a former deputy secretary of the DoL. Companies tend to analyze employees’ status through internal or outside counsel, he notes.

For the most part, an employee’s FLSA status is fairly obvious. But sometimes it becomes a gray area when, for instance, an hourly worker’s job evolves over time without prompting a company to reconsider whether his or her status should change. Midlevel roles typically raise more classification questions than executive and rank-and-file positions do, say experts.

In addition, companies have to deal with varying state regulations, which can also confuse matters as to whether a worker should be deemed a full-time employee or an independent contractor. In fact, employees doing similar work at different locations for the same company could differ in their classification status — a factor that could complicate employee relations if the DoL regulation passes. As it is, employees tend to know their own status but are not aware of where their colleagues stand.

How companies will react to the DoL’s proposal when the details are revealed remains to be seen. Some may view the change as just a minor new blip. “Most employers have a culture of compliance,” notes Amy Moor Gaylord, a partner at Franczek Radelet. “They don’t want to open themselves up to liability simply to avoid paying overtime.”

She advises employers to look at how they label workers on an individual basis to make sure they are in compliance: “You can’t just look at a job description; you have to examine what every person does.”

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