KEEPING UP WITH...

DOL’s New Overtime Regulations In Effect

By Joseph G. “Chip” Galagaza and Scott R. McLaughlin

On August 23rd, 2004, enforcement of the Department of Labor’s (DOL) new overtime regulations officially began. The new regulations are the first significant revision in over 50 years to what are commonly known as the “white collar” exemptions to the overtime pay provisions of the Fair Labor Standards Act. These revisions also represent the DOL’s efforts to modernize and clarify the standards for employers and employees.
The new regulations articulate a single - and substantially increased - minimum salary that an employee must receive to be considered exempt; this replaces the “long” and “short” test salary bases of the old regulations. The new salary level is $455 per week (or $23,660 annually), and the salary must still be paid every week, regardless of the quality or quantity of work performed. On the “duties” side of the equation, the new regulations provide for one standard test for each of the exempt categories – executive, administrative, professional, outside sales, and computer professional.
To be an exempt executive under both old and new regulations, the employee’s primary duty must be the management of an enterprise or a recognized department or subdivision, and the employee must also customarily and regularly direct the work of two or more other full-time employees or part time equivalents. The DOL added a third prong to the executive duties test: that the executive must have the authority to hire or fire, or have “particular weight” given to the executive’s recommendations on hiring, firing, advancement, promotion, or other changes in subordinates’ status. The DOL has also added a concurrent duties exception designed to clarify that the analysis should be qualitative (i.e., the most important duty) rather than quantitative (i.e., the percentage of time spent performing management functions).
The administrative exemption is substantially similar under the new regulations. It requires the employee to exercise discretion and judgment on matters of significance. In addition, administrative employees must perform office or non-manual work directly related to the management or business operations of the employer or its customers. More important, the new regulations provide clearer and more modern examples of the kinds of duties that are or are not exempt. This should assist employers in determining if any particular position might qualify for this exemption.
Similarly, the new professional exemption regulations describe a number of 21st-century qualities of an exempt professional. This professional’s primary duty must be the performance of work requiring advanced knowledge in a field of science or learning that is customarily acquired by a prolonged course of specialized intellectual instruction. The new regulations also recognize that an employee need not obtain a degree in his chosen field; work experience can substitute for some intellectual instruction.
The DOL revised the outside sales exemption to eliminate the percentage limitation for time spent on non-outside sales work. Nevertheless, the outside salesperson’s primary duty must still be in making outside sales. In contrast, the computer professional and creative professional exemptions have not materially changed, though there are small changes that may be important in close cases.
The new regulations also allow employers to impose disciplinary suspensions of less than an entire workweek, without destroying the salary basis required. This is an important change that now allows disciplinary suspensions without pay in whole day increments imposed “in good faith for infractions of workplace conduct rules” that are “pursuant to a written policy applicable to all employees.” This provision only applies to serious workplace misconduct, like sexual harassment, violence, and drug and alcohol infractions.
In addition, the new regulations exempt certain “highly compensated employees” who receive at least $100,000 as an annual salary, which is a substantial increase from the $65,000 originally proposed. So long as such employees perform at least one exempt duty from the various white-collar exemptions, they qualify for the highly compensated employee exemption.
Finally, the new regulations make it abundantly clear that no matter how much pay is received, the white-collar exemptions do not apply to blue-collar workers (i.e., workers who work with their hands, and use their physical skill and energy), or to public safety employees.
Since enforcement began August 23, employers should audit their exempt classifications to ensure compliance with these new overtime rules.

Joseph G. (Chip) Galagaza and Scott R. McLaughlin are partners in the Houston office of Seyfarth Shaw LLP, and both are Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization. The Firm’s website can be found at www.seyfarth.com

Special Appearances and the Single Business Enterprise Theory

By Fred A. Simpson

Texas long-arm statutes and the special appearances they attract were recently reviewed in the Corpus Christi Court of Appeals. Justice Yañez’s opinion is noteworthy for its holding and for its succinct and orderly statement of current Texas law on the procedure known as the special appearance. In Bridgestone Corporation v. Lopez, 131 S.W.3d 670 (Tex. App.—Corpus Christi 2004, pet. filed), the issue was whether a Japanese tire manufacturer and its U.S. subsidiary were amenable to service in Texas in a lawsuit concerning a defective tire and a single vehicle automobile crash that took place in Mexico in which only Mexican citizens were injured.
The trial court’s findings were affirmed on appeal, based on principles of the “single business enterprise” doctrine. In her review, Justice Yañez investigated the law of special appearances, concluding that a Mexican corporation and its U.S. parent were the same party as the Japanese parent company, thus constituting a “single business enterprise.” In addition, the Court held that service was proper in Texas because the U.S. parent company had a tire testing and proving ground in Texas, notwithstanding the fact that the defective tire was manufactured and sold by the Mexican subsidiary. The process of applying the single business enterprise theory left the two higher corporate levels subject to Texas jurisdiction.
The Corpus Christi Court of Appeals found “single business enterprise” after reviewing about one hundred findings of fact from the trial court. The essence of these findings established several of the “non-exhaustive” factors pertinent to an integration of resources and operations necessary to prove a “common business purpose” under the single business enterprise doctrine: (1) common personnel of the various corporations; (2) common offices and facilities; (3) centralized accounting and an unclear allocation of profits and losses; (4) payment of wages and rendition of services by one corporation for the other; and (5) common business name. After carefully reviewing the evidence and findings of the trial court, the Court of Appeals held that there was sufficient evidence showing that the foreign and domestic entities were a “single business enterprise.”
The Court further held that Bridgestone failed to present evidence establishing that the exercise of jurisdiction would be unreasonable. Once the Court held that the entities were a “single business enterprise,” it was incumbent upon Bridgestone to show some evidence that the exercise of jurisdiction would offend traditional notions of fair play and substantial justice. Because Bridgestone failed to make this showing, the Court affirmed the trial court’s denial of Bridgestone’s special appearance.

Fred A. Simpson is a partner in the Houston Litigation Section of Jackson Walker, L.L.P. engaged in insurance law, motion practice, appellate law, and mediation and arbitration.

Bulletin from the Discovery Wars

By Marty Thompson and Diane Boudalis

In In re Dana Corporation, 138 S.W.3d 298 (Tex. 2004), the Texas Supreme Court granted mandamus relief to the underlying defendant, Dana, and directed the trial court to modify its overly broad discovery order to limit the production of insurance policies to only those under which Dana “may be liable to satisfy all or part of the judgment.” The court rejected the need for a special rule concerning discovery of insurance agreements in mass tort cases, and instead relied on existing Rule 192.3(f) to limit discovery to only those policies coinciding with established dates of asbestos exposure.
In addition, the Court departed from the holding in In re Senior Living, 63 S.W.3d 594 (Tex. App.–Tyler 2002, orig. proceeding) that suggested the insurance-erosion information that plaintiffs sought was necessarily discoverable. Instead, the Court held that a party could discover information beyond an insurance agreement’s existence and contents only if the information was otherwise discoverable under Rule 192.3(a), the scope-of-discovery rule. Accordingly, merely requiring Dana to produce a “knowledgeable witness” for deposition is not an abuse of discretion insofar as the witness may be necessary to prove up the contents of the policies.

Marty Thompson is an associate in the Environmental Practice Group of Haynes and Boone, LLP in Houston, Texas. She is a member of the Houston Downtown Alliance Board and Steering Committee and the University of St. Thomas Alumni Board.

Diane Boudalis is a summer clerk with Haynes and Boone, LLP in Houston, Texas. She will be a third-year law student at the University of Texas School of Law. She graduated with a bachelor of arts in political science in 2002 from Stanford University.

< BACK TO TOP >