Happy Labor Day! DOL Issues Proposed Rule re FLSA Salary Thresholds and New Guidance Regarding Child Labor "Hot Goods" Enforcement

Your Department of Labor (“DOL”) has been hard at work this summer. And as Labor Day was on the horizon, it made sense that two more of their summer projects would find their way to my inbox.

Proposed Rule to Increase Salary Thresholds for FLSA Exemptions

DOL’s first action last week was to issue a Notice of Proposed Rulemaking to raise the salary threshold below which most salaried employees cannot be exempt from Fair Labor Standards Act (“FLSA”) overtime and minimum wage coverage. This is regardless of what duties they perform on the job (except for some workers such as doctors, lawyers, and outside sales employees who are not subject to the salary test). If adopted, the salary threshold would be raised from $684/week ($35,568/year) to $1,059/week ($55,068/year). Entitled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” the proposed rule can be found at www.dol.gov/sites/dolgov/files/WHD/flsa/eap-exemption-nprm.pdf.

The rulemaking also would raise the total annual compensation requirement that is among the prerequisites for the relaxed duties test applicable to highly compensated employees. Highly compensated employees who perform office or nonmanual work may be found exempt from the FLSA if they customarily and regularly perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee. If adopted, the HCE annual compensation requirement would increase from $107,432 to $143,988 per year.

DOL also proposes to automatically update these rates every three years. It further proposes to apply these standards to certain territories that previously had been subject to lower salary thresholds.

The proposed rule was posted on DOL’s website last week (on August 30), but it hasn’t yet been published in the Federal Register. Once it’s published there (and posted at regulations.gov), interested parites will have 60-day to submit comments. Likely, comments will be due in early November.

Essentially, this proposal is an attempt to reinstate similar changes that were made in the Obama Administration. Those changes were scrapped when a federal court in Texas found them invalid because they represented an inappropriate displacement of the duties tests applicable to the assessment of whether workers are exempt from the FLSA. The Trump Administration dropped the Obama proposal, set aside the Government’s appeal of that decision, and adopted a more modest increase that led to the current salary thresholds.

But don’t get lost in the numbers. The proposed 35% increase in the exemption threshold, while large, sounds far less aggressive than the Obama rule, which would have doubled the then-current salary threshold that had been set in 2004. The Trump increase sounded like a decent raise over the 2004 rate, but it essentially updated the threshold using the 2004 formula. The proposed 35% increase is calculated using the Obama formula.

Thus if you ignore the passage of time and inflation that occurred between the changes, what you’re seeing is a tit-for-tat change in the underlying basis for the rate. In 2004, the rate reflected the 20th percentile of salaries paid in the South. The Obama proposal would have used the 40th percentile of salaries paid in the South. The Trump rate reinstated the use of the 20th percentile of salaries in the South. The current proposal would return to the 40th percentile. The HCE requirements also have changed in a similar manner.

If the Biden rule is adopted, DOL estimates many more workers will be covered by the FLSA and entitled to overtime. This will reverse the more limited scope of the Trump Administration. In other words, it’s just all back-and-forth depending on which party is in the White House. Tennis anyone?

Hot Goods Enforcement of Child Labor Violations

DOL’s second initiative this week was the release of a new Field Assistance Bulletin (FAB no. 2023-3) entitled “Prohibitions Against the Shipment of “Hot Goods” Under the Child Labor Provisions of the Fair Labor Standards Act.” Basically, the FAB is setting forth DOL’s policy for using the FLSA “hot goods” provisions to go after child labor violators. Hmmm—this sounds like it’s ripped from an episode of “Law and Order.”

So, what are these “hot goods”? Hot goods are a creature of the FLSA’s prohibitions of oppressive child labor practices. Specifically, FLSA Section 212(a) states: “No producer, manufacturer, or dealer shall ship or deliver for shipment in commerce any goods produced in an establishment situated in the United States in or about which within thirty days prior to the removal of such goods therefrom any oppressive child labor has been employed....” 29 U.S.C. § 212(a). In other words, hot goods are goods that were produced in an establishment in which “oppressive child labor” was used in violation of the FLSA. The FAB confirms DOL’s interpretation of the statute to mean that the establishment is prohibited from shipping any goods produced there in a 30-day period after the date of the last violation. And it’s not necessary that the goods were produced by the children themselves.

As this FAB is “hot” off the presses, I won’t dig into its details. However, DOL is sending a very clear message to child labor violators—if you produce goods in a facility where children were employed in violation of the FLSA, DOL may seek an order prohibiting the shipment of everything produced in that facility within a 30-day period following the last violation of the child labor laws. And—they may push this prohibition downstream to prevent recipients from shipping those goods any further.

It seems to me that this most directly aimed straight at meat processing plants, which have been the site of many such violations in recent years. Indeed, the first example of how the hot goods provision might be used is set in a poultry processing plant. It’ll be one thing to force the plant to dump all of those chickens, but DOL seems to be saying that it may also turn its attention to downstream wholesalers and grocers. I presume this tactic will be limited to particularly egregious violators.

FABs don’t have the force of law; however, as explained by DOL, they’re issued periodically to provide DOL investigators and staff with “guidance on enforcement positions and clarification of policies or changes in the policy of” the Wage and Hour Division (WHD).

Here, DOL may be gearing up to swing a very heavy cudgel.