Undoing Obama

One of the priorities of the Obama administration was modifying the contours of the employer-employee relationship by expanding the scope of legally mandated employer obligations. The Affordable Care Act employer mandate was one example of this, of course.

Outside of the ACA the president was unable to make any legislative changes. Instead, the Department of Labor and the Equal Employment Opportunity Commission became the conduits for implementing the president’s policies.

Senior Labor official Phyllis Borzi addressed this explicitly in a widely reported 2014 speech:

“Back in the day, when people wanted to make changes, they passed legislation, but what we’ve done with the new DOL regulations is we’ve shifted from the way that social change and legal change and financial change is accomplished through congressional action to two different avenues for making changes: the main one being regulation and the second one being litigation.”

There are two primary problems with forcing change through government agencies. First, the Constitution entrusts Congress with the authority to make laws. Theoretically, executive branch agencies have the constitutional authority only to implement policies that Congress puts into place. Second, agency actions done by one administration can all too easily be undone by the next.

This summer, the Trump administration’s Labor Department and EEOC, aided by the courts, are proving the point. They have taken significant steps to begin to dismantle the Obama employment regulatory regime.

Independent Contractor & Joint Employer Rules

In July 2015, the Labor Department published controversial guidance purporting to clarify the rules about who may be treated as an independent contractor instead of an employee. The clarification was widely interpreted as dramatically limiting the scope of who may be classified as an independent contractor.

Labor issued an administrative interpretation six months later (which purportedly has more regulatory heft than a guidance) to clarify what constitutes “joint employer” status. This interpretation increased the liability of bigger businesses by making them jointly liable for the violations of their business partners (and in some cases, by making them solely liable because the partner businesses were not large enough to be directly subject to the requirements).

Then on June 7, 2017, the new Secretary of Labor, Alexander Acosta, unilaterally withdrew both sets of guidance.

Overtime Rules

On May 23, 2016, Labor issued a final rule that would have doubled the minimum salary required to qualify for a “white collar” exemption under the Fair Labor Standards Act, to $47,476 from $23,660 for full-time employees. This would have dramatically reduced the number of employees exempt from overtime pay requirements under the act.

This rule was scheduled to take effect in December 2016. The month before, however, a federal district court judge in Texas issued a preliminary injunction delaying implementation. On Aug. 31 of this year, the court overturned the rule, saying the Labor Department had exceeded its legislative authority. The judge noted that Labor had turned the overtime eligibility test into a question about salary rather than an examination of the duties or tasks employees perform.

A month before the judge’s ruling, Labor issued a request for comments, seeking input on how the rule should be revised. That request is the first step for President Trump to maintain his campaign promise to roll back the Obama administration’s overtime rule. And the Labor Department plans to use the comments it receives to inform the development of a new overtime proposed rule. Any subsequent revision to the overtime regulations will have a significant impact on businesses of all shapes and sizes, including the insurance industry.

EEOC Reporting Requirements

For years, employers with more than 100 employees have been required to file an annual report informing the EEOC of the number of employees they have along with aggregate data on their breakdown by gender and race across different job categories. But late last year, the EEOC expanded employer job reporting obligations, effective Jan. 1, 2017, with the first 2017 reports due March 31, 2018.

The expanded reporting requirements would have added aggregate salary information by job category, and salary would have been broken down by pay band within each job category. To give you a sense of the scope of the expansion, the old reports required the reporting of 180 data fields; the expanded reports would have included more than 2,000 data fields.

The clear goal was to enable the EEOC to better assess potential Equal Pay Act violations. On Aug. 29, however, the EEOC announced it was delaying implementation of the Obama-era rule indefinitely.

Although the reporting requirements have been eliminated—at least for now—pay differentials continue to receive critical attention. For example, the Institute for Women’s Policy Research reported women made on average 80 cents for every $1 a man earned in 2015. The American Association of University Women found as women age, the pay gap increases. Women ages 20 to 24 earn 92% of what men earn, but by the time they reach 45 they earn about 79%.

You and your clients may want to consider having Equal Pay Act audits done to evaluate your compensation structures under the applicable rules. Even though the EEOC will not at the moment be positioned to directly assess your liability (at least through EEO-1 reports), litigation exposure remains. Now is the time to ensure you are compliant.

More changes, including further delay and likely modification or withdrawal of Labor’s Fiduciary Rule, are on the horizon. Not quite what President Obama had envisioned, I am sure.

Sinder is The Council’s chief legal officer and Steptoe & Johnson partner. [email protected]
Rigamonti is associate counsel in Steptoe’s GAPP Group. [email protected]