HOW THE NEW FAIR LABOR STANDARDS ACT AFFECTS YOU Amy Scott, Esq. Von Hays, Esq. Kirkpatrick & Lockhart LLP 2828 N. Harwood, Suite 2800 Dallas, TX (214) – phone (214) – fax

2 INTRODUCTION TO THE FAIR LABOR STANDARDS ACT (FLSA) n The FLSA was enacted to afford workers basic wage & hour protections. Specifically, the FLSA establishes standards regarding minimum wage, equal pay for equal work, child labor, record keeping obligations and overtime pay.

3 FLSA COVERAGE n Coverage — Basically all employees of enterprise — Individual employees who work in interstate commerce n Employees — Individuals suffered or permitted to work — Independent contractors are not employees — Trainees/interns are not employees — Patient workers (mentally ill or retarded) — Volunteers

4 OVERTIME COMPENSATION  The FLSA requires employers to pay overtime compensation to all non-exempt employees.  Overtime pay is calculated at 1.5 times the regular rate for every hour worked in excess of 40 during the work week  Payment of overtime is mandatory; it cannot be waived by employee or employer

5 Time-and-One-Half n The overtime standard is time-and-one- half (subject to certain exceptions when employees are paid salaries, commissions, fees) n Anything less is insufficient to satisfy FLSA requirements n Anything more (double-time, triple-time and other forms of premium pay) are creatures of contract and are not required by the FLSA

6 40 Hour Standard  No overtime is owed until an employee works 40 hours in the work week  All subsequent hours must be paid at time-and-one- half  FLSA does not require payment of overtime for hours worked in excess of 8 in a day, or hours worked on weekends or holidays, or hours worked outside of the normal work schedule  FLSA does not have a maximum hours provision

7 Exceptions to the Overtime Rules White Collar Exemptions  Wage and Hour Rules Protect “Non-Exempt” Employees Only.  Exempt Employees Under the FLSA. 1.White Collar Exemptions (a) “Executive” employees (b) “Administrative” employees (c) “Professional” employees 2.Computer Professionals 3.Outside Sales Representatives 4. Commissioned Sales Persons  The new FLSA regulations that take affect on 8/23/04 will alter dramatically the way in which these White Collar exemptions are applied.

8 Overview of New Regulations as they Pertain to White Collar Exemptions Executive Exemption Test n To qualify for the executive employee exemption, the following criteria must be satisfied: (1)The employee must be compensated on a salary basis at a rate not less than $455 per week; (2)The employee’s primary function must be managing an enterprise, a subdivision of the enterprise, or a recognized department; (3)The employee must regularly and customarily direct the work of at least two or more full time employees; (4)The employee must have the authority to hire or fire, or the employee’s suggestions as to personnel decisions like hiring and firing should be relied upon with some level of regularity.

9 (1) The employee must be compensated on a salary basis at a rate not less than $455 per week; (2) The employee’s primary duty must constitute work requiring advanced knowledge (intellectual in character) that is in a field of science or learning; (3) The advanced knowledge must be customarily acquired by a prolonged course of specialized instruction; and (4)The employee must execute his/her duties with sufficient independent judgment and discretion. Learned Professional Exemption Test

10 (1) The employee must be compensated on a salary basis at a rate not less than $455 per week; (2) The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; (3) The employee executes his/her primary duties with sufficient independent judgment and discretion with respect to matters of significance. Administrative Exemption Test

11 What effect, if any will these changes have on paralegals? Historically, paralegals have been classified as non- exempt and therefore, entitled to overtime pay.  The regulations have not specifically carved out an exemption for paralegals.  The DOL has issued opinion letters stating paralegals do not satisfy the administrative exemption because they are performing basic tasks or “production-oriented work” and are not exercising sufficient independent judgment and discretion. DOL Opinion Letter April 13, 1995, Wage & Hour Manual.

12 Other DOL opinion letters have stated paralegals do not satisfy the Learned Professional Exemption because a “prolonged course of study” is not a prerequisite to enter the field. DOL Opinion Letter, Wage & Hour Manual, February 19,  A prolonged course of study is defined in the DOL Field Operations Handbook as at least a baccalaureate degree or is equivalent. What effect, if any will these changes have on paralegals? (cont)

13 With the introduction of the new regulations and the opportunity for public comment, many paralegal associations submitted testimony urging the DOL to make paralegals exempt under the new regulations. The New Regulations and the Opportunity For Change - Paralegals’ push for Professional Exemption Status

14 Paralegals as Learned Professionals Paralegal groups advocating Professional exempt status pointed to the fact that many paralegals have strong educational backgrounds and expertise. n Paralegal Advanced Competency Exam (PACE) n Although not a pre-requisite to enter the field, paralegals who desire to take the exam must meet the following educational requirements — Associate Degree from accredited school and 6 years substantive experience; or — Bachelors Degree and 3 years substantial experience; or — Bachelors and 2 years substantial experience, completion of paralegal program and no felonies.

15 Proponents further pointed out many paralegals have advanced degrees (i.e., M.A.) or have specialized degrees in a particular area (i.e. engineering or medicine) and they use their specialized knowledge in the performance of their legal duties. Paralegals as Learned Professionals (cont)

16 Proponents also noted paralegals are able to provide client representation in certain forums; thereby, warranting a professional exemption. For example, paralegals may represent clients in OSHA, SSA and Veterans Administration hearings California permits paralegals to represent clients before workers compensation boards with client permission and under attorney supervision. Paralegals as Learned Professionals (cont)

17 The National Federation of Paralegal Associations, Inc. (NFPA) proffered testimony to the Wage & Hour Division regarding the changes to the FLSA regulations. In addition to detailing many arguments in favor of recognizing paralegals as Learned Professionals, the NFPA recommended the following changes to the proposed regulations. Paralegals as Learned Professionals (cont)

18 Administrative Exemption n The NFPA urged an increase in the minimum salary threshold to $650 per week. n In addition to the basic administrative exemption requirements, the NFPA suggested a person may meet the administrative exemption if they hold a position of responsibility with the employer and regularly exercise discretion and judgment, noting the discretion and judgment is not limited to independent judgment.

19 Professional Exemption  The NFPA again urged an increase in the minimum salary threshold to $650 per week.  The NFPA also suggested an individual would qualify for the Learned Professional Exemption if the following criteria is met: (1)An individual’s primary duty consists of performing office or non- manual work that: i.Requires knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, but which also may be required by alternative means such as an equivalent combination of intellectual instruction and/or work experience; or ii.Requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor

20 Professional Exemption (cont) (2)An individual customarily and regularly exercises discretion and judgment; (4)An individual performs work that is predominantly intellectual and varied in character, is not easily spread to other workers, and is of such character that the output produced or result accomplished cannot be standardized in relation to a 37.5 to 40- hour work week; and (5)Who does not devote more than 20 percent of time to activities that are not an essential part of and necessarily incident to exempt work.

21 Non-exempt with a few possible exceptions. Status of Paralegals as Professionals under the new regulations

22 The DOL has stated Paralegals generally do not qualify as exempt learned professionals because an advanced specialized academic degree is not a pre- requisite to enter the field. Status of Paralegals as Professionals under the new regulations

23  In reaching its decision, the DOL noted it received many comments from paralegals expressing concern over possible exempt status while others urged the DOL to declare paralegals as professionals.  Importantly, none of the commenters were able to state the educational requirement for paralegals was more than a 2-year associate degree. This does not satisfy the “prolonged course of study” duties requirement of the Professional Exemption. Status of Paralegals as Professionals under the new regulations

24 HOWEVER... The DOL has noted the learned professional exemption may be available to paralegals who have advanced specialized degrees and apply that knowledge in the performance of their duties. For example, a paralegal who is an engineer and offers advice on patent or product liability matters may qualify. This could open the doors also for paralegals with medical backgrounds who work in medical malpractice firms or personal injury firms. In-house paralegals likely will remain non-exempt, unless there is a specific area of expertise that is used often in connection with legal duties.

25 AND WHAT ABOUT THE DOL V. PAGE & ADDISION DECISION? n The DOL filed a federal suit against the law firm of Page & Addison for alleged FLSA violations in failing to pay their paralegals overtime pay. The law firm argued the paralegals were exempt administrators under the FLSA n On March 10, 1994, a Dallas jury agreed the paralegals were exempt because they exercised sufficient amounts of independent judgment and discretion necessary to qualify them for the administrative exemption

26 The DOL filed an appeal to the Fifth Circuit but later abandoned its appeal with prejudice on September 22, 1994 AND WHAT ABOUT THE DOL V. PAGE & ADDISION DECISION? (cont)

27 So is the Exemption Status of Paralegals Any More Clear? n The new regulations suggest paralegals MAY satisfy the learned professional exemption in limited circumstances. n Then there is the Page & Addison decision suggesting paralegals MAY satisfy the administrative exemption, but there is no written opinion or 5 th Circuit ruling.

28 So where do we go from here? Q & A: