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Labor Agency Unexpectedly Moves on Employer-Friendly Pay Rule

Aug. 16, 2019, 2:01 PM

A regulation to give businesses more flexibility when compensating workers with inconsistent schedules is unexpectedly under review at the White House this week, the latest sign of new acting Labor Secretary Patrick Pizzella’s aggressive approach to deregulation.

The “fluctuating workweek” proposal, a Trump Labor Department effort to revive an employer-supported initiative from the George W. Bush administration, was added to the DOL’s long-term action list in May, meaning it typically wouldn’t get released for at least a year. But the department sent a final draft of the proposed rule, marked as a “deregulatory action,” to the White House Office of Information and Regulatory Affairs for review Aug. 15, according to an online posting. This is typically the final stage before a proposed regulation is released to the public for notice and comment.

The regulation targets the Fair Labor Standards Act’s “fluctuating workweek” compensation method, an option for employers to pay certain workers whose hours vary widely each week at half their regular rates, instead of one-and-a-half times, for any hours worked over 40.

“Currently, this method is not available to employers who compensate their employees with bonuses or other incentive-based pay,” the Wage and Hour Division said in a May abstract. “The Department proposes to revise these regulations to grant employers greater flexibility to provide additional forms of compensation to employees whose hours vary from week to week.”

A DOL representative didn’t immediately comment on the transfer of the final draft rule to OIRA.

A similar rulemaking effort from the prior GOP administration wound up dying under the Obama White House.

The surprise progress on this proposal comes after Pizzella took charge of the department in July and instantly declared that his mission would be to “focus like a laser beam” on completing Trump administration rulemaking projects. Although the initiative first appeared on the long-term action list, rather than the rulemaking calendar for the next 12 months, the accelerated pace signals Pizzella’s adherence to a mandate from Trump’s acting Chief of Staff Mick Mulvaney for the DOL to move faster on deregulation under prior labor chief Alexander Acosta.

The proposal is also likely to address employer concerns that paying bonuses to workers being compensated under the fluctuating workweek calculation could lead them to face allegations in court of shorting employees on pay. The 2008 proposal would have stated that when applying the fluctuating workweek method, bonus or premium payments are included when calculating employees’ regular rate of pay that is then reduced in half for hours beyond 40.

But in a 2011 final rule, the Obama DOL reversed course out of concern that some companies would take advantage of this policy.

“The proposed regulation could have had the unintended effect of permitting employers to pay a greatly reduced fixed salary and shift a large portion of employees’ compensation into bonus and premium payments, potentially resulting in wide disparities in employees’ weekly pay depending on the particular hours worked,” the agency said in justifying the 2011 decision not to finalize the 2008 proposal.

But this has led to continued ambiguity for businesses who want to do right by workers, said Alex Passantino, who was acting chief of the Wage and Hour Division when it released the proposal in 2008.

“If you pay a bonus on top of someone who is paid a fluctuating workweek you run a risk that the whole ball of wax gets blown up,” said Alex Passantino, who is now a partner at management-side firm Seyfarth Shaw in Washington. “There are employers making decisions if they’re paying someone on fluctuating workweek not to give a bonus to those employees.”

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com