Department of Labor Clarifies Stance on Still-Pending Overtime Rule

By James Pieper

In 2016, a dramatic overhaul of the rules for eligibility and payment of overtime under the Fair Labor Standards Act (FLSA) was on the verge of taking effect before being halted by an injunction issued by a federal judge.

With a new administration taking over the Department of Labor, the status of the overtime revisions has been uncertain.  Nor was it known whether the Department would defend its authority to revise the rules in the subject litigation.

In a brief filed on June 30, the Department’s new leadership finally provided some clarity.  The Department defended its legal authority to adopt a new rule (as had been challenged by the plaintiffs), but did not defend the actual changes proposed by the prior administration.

Accordingly, although the rule remains in legal and administrative limbo, it is clear that it will not take effect in the form proposed in 2016.  Should the courts conclude that the Department does have authority to set the earning threshold (under which overtime must be paid to non-exempt employees) by administrative rule, then the new Department leadership will adopt a threshold lower than the amount of $47,476 that was set prior to the injunction.

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Department of Labor Withdraws 2016 Guidance on “Joint Employment”

By James Pieper

On June 7, 2017, new Secretary of Labor Alexander Acosta withdrew guidance provided under the prior administration by the Department of Labor’s Wage and Hour Division that had staked out a broader interpretation of when “joint employment” exists pursuant to the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

When two or more employers “jointly” employ an employee, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when “joint employment” is found to exist, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA.

Under a traditional “common law” approach to employment, such “joint employment” would only exist if both employers are able to exercise “control” over the employee’s work.  The 2016 guidance sought to recognize “broader economic realities of the working relationship” and thus “cover some parties who might not qualify as [employees] under a strict application of traditional agency law principles.”

Accordingly, the guidance indicated that a number of scenarios that have not been historically considered “joint employment” – including, particularly, franchisee, staffing-agency and subcontractor relationships – might give rise to “joint employment” under the FLSA and MSPA, thus broadening the potential legal exposure for entities that had in the past not been considered joint employers.  The intent of the Department of Labor to implement such a broader interpretation is now withdrawn.

Although the action reduces some of the potential legal risk, particularly for franchisors and franchisees – who had actively sought the withdrawal of the guidance – the potential for “joint employment” remains a complex area requiring careful attention to potential penalties.

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Legacy ERISA Regulation Triggers Fiduciary Acknowledgement and Disclosures from Plan Advisers

By Monte Schatz

The Department of Labor’s fiduciary rule became effective June 9, 2017.  A whole new set of client disclosures will be required for advisers who previously were not operating under the fiduciary standard.  Interestingly, many of these disclosure requirements are not mandated by the fiduciary rule itself, but under a regulation that was part of the Employment Retirement Income Security Act of 1974 commonly referred to as ERISA.

29 C.F.R. § 408(b)(2) requires certain pension plan service providers to disclose information about the service providers’ compensation and potential conflict of interests.   Ironically, this regulation was introduced originally as an interim rule in 2010.  It was published as a final rule on February 3, 2012.  The intent and purpose of the regulation was to assist plan fiduciaries in assessing the reasonableness of compensation paid for services.  Also, the disclosure requirements are designed to assist plan fiduciaries to act prudently and solely in the interest of the plan’s participants by defraying reasonable expenses of administering the plan and avoiding conflicts of interest.

From 2012 to the present day, brokers and other non-fiduciary providers to ERISA retirement plans largely didn’t disclose they were fiduciaries.   However, with the institution of the fiduciary rule the status of those types of advisers have been elevated to the fiduciary standard which triggers the new disclosure requirements.  This subjects those groups to covered provider status.  The three major categories of covered service providers include:

(1) fiduciary investment managers and advisors,

(2) record keeping platforms and broker/dealers, and

(3) providers of other types of services that also receive revenue sharing payments                   or other “indirect” compensation other than from the plan or plan sponsor

The groups that fall under the provisions of 408(b)(2) must provide updated disclosures to plan fiduciaries within 60 days from the date of which the covered service provider is informed of such a change in status.   The 60 day standard is vague as it doesn’t define whether it is June 9th, 2017 or if the 60 days begins to run from the first day an adviser makes an investment recommendation post-June 9th.   The general consensus is to take the conservative approach and commence providing updated disclosure immediately and assume the 60 day clock runs from June 9th, 2017.

For advisers who previously have operated under the fiduciary standard the 408(b)(2) requirements will be “business as usual”.  For those advisers that are new to the fiduciary standard it is imperative that they provide the required disclosures in a concise and understandable one page format.   Previous plan adviser agreements that placed disclosures in multiple documents will no longer satisfy the disclosure requirements that are a critical part of the fiduciary rule.

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SOURCES:

http://www.investmentnews.com/article/20170608/FREE/170609941/the-disclosure-401-k-advisers-may-be-missing-under-the-dol-fiduciary?utm_source=Morning-20170609&utm_campaign=investmentnews&utm_medium=email&utm_visit=655100

http://www.investmentnews.com/article/20120202/FREE/120209978/labor-department-unveils-kinder-gentler-fee-disclosure-regs

http://webapps.dol.gov/federalregister/PdfDisplay.aspx?DocId=25781

IRS Issues Tax and Reporting Relief for Proposed Fiduciary Standard Consistent with Department of Labor Regulations

By Monte Schatz

There have been a significant series of regulatory announcements and rulings related to the fiduciary duty and its application to employee benefit plans.  The final fiduciary duty rule became effective on June 7, 2016, and has an applicability date of April 10, 2017. The President by Memorandum to the Secretary of Labor directed the Labor Department to examine the impact of the fiduciary duty rule.  On March 2nd the DOL published 82 FR 12319 seeking public comments about questions raised in the Presidential Memorandum.  The March 2nd notice also provided that a 60-day delay in implementation would be effective on the date of publication of a final rule

The Principal Transactions Exemptions and the accompanying Best Interest Contract provisions, included as part of the fiduciary duty rule, also have an applicability date of April 10, 2017, with a phased implementation period ending on January 1, 2018. The BIC Exemption effectively states that the fiduciary advisor must sign a “Best Interests Contract” (BIC) with the client, stipulating that the advisor will provide advice that is in the Best Interests of the client.   The Principal Transactions Exemption allows compensation for certain transactions by certain broker-dealers, insurance agents, and others that will act as investment advice fiduciaries that would otherwise violate prohibited transaction rules that trigger excise taxes and civil liability.

Most investment industry groups’ concerns regarding any non-compliance during a “gap period” of the financial fiduciary rule focused on Department of Labor and its potential civil liability enforcement provisions as outlined under ERISA.  Additional concerns were raised concerning Internal Revenue Service enforcement provisions found in Internal Revenue Code §4975 prohibited transaction rules that provides for the imposition of excise taxes for violations of that rule.

As a result of delays of the Fiduciary Standard rules, the Department of Labor published Field Assistance Bulletin (FAB) 2017-01.  FAB 2017-01 provides that, to the extent circumstances surrounding its decision on the proposed delay of the April 10 applicability date give rise to the need for other temporary relief, including retroactive prohibited transaction relief, the DOL will consider taking such additional steps as necessary with respect to the arrangements and transactions covered by the DOL temporary enforcement policy and any subsequent related DOL enforcement guidance.

In Announcement 2017–4 the IRS stated, Because the Code and ERISA contemplate consistency in the enforcement of the prohibited transaction rules by the IRS and the DOL, the Treasury Department and the IRS have determined that it is appropriate to adopt a temporary excise tax non-applicability policy that conforms with the DOL’s temporary enforcement policy described in FAB 2017-01. Accordingly, the IRS will not apply § 4975 and related reporting obligations with respect to any transaction or agreement to which the DOL’s temporary enforcement policy, or other subsequent related enforcement guidance, would apply.

SOURCES:

http://www.asppa.org/News/Article/ArticleID/8480

https://www.irs.gov/pub/irs-drop/a-17-04.pdf

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Department of Labor Delays Implementation of the Fiduciary Rule

Last year, the Department of Labor (“DOL”) issued a final rule, expanding the definition of a fiduciary, making many broker-dealers and insurance agents fiduciaries. This rule, issued April 2016, was set to become effective June 2016, but was then delayed until April 10, 2017, with certain provisions delayed until January of 2018. However, President Trump ordered a review of the new rule and the DOL issued another delay, of 60 days, to complete the review. With the delay, the expanded fiduciary definition will become effective June 9, 2017.

Under the rule, a person or firm that is deemed a fiduciary is required to act in the best interests of their clients. This includes an obligation to avoid conflicts of interests, or otherwise receive compensation that creates a conflict between the interests of the fiduciary and the client. The new rule poses several issues for certain professionals that will be deemed a fiduciary under the new rule. For example, sales commissions would be deemed a conflict of interest, creating an especially problematic situation for broker-dealers that engage in principal transactions with clients. However, the DOL recognized the issue and created several principal transaction exemptions, but the exemptions require additional burdensome steps. This issue, among others, are central to the review causing the rule to be delayed.

Despite this delay, and the DOL admitting the review will not be complete by June 9, 2017, the expanded definition of fiduciary will be implemented at the end of the 60-day delay. Therefore, broker-dealers, insurance agents, and others that will now be deemed a fiduciary, should be prepared for the additional requirements on June 9, 2017.

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The Saga Continues: The DOL Appeals the Court’s Ruling Halting The New Overtime Rules

In the latest chapter in the ongoing saga of the newly revised (and currently halted) overtime rules, on December 1, the Department of Labor appealed the lower court’s ruling to the United States Court of Appeals for the Fifth Circuit.

As we previously reported, last week Judge Amos Mazzant issued a temporary injunction stopping the implementation of the revised overtime rules scheduled to go into effect on December 1.  The appeal by the Department of Labor challenges that ruling.

Judge Mazant’s temporary injunction remains in place for now until the Court of Appeals rules on the appeal.  The Court of Appeals’ ruling will likely not come until 2017.  Of course, no matter what the Court of Appeals decides, one of the parties may appeal that ruling to the Supreme Court further prolonging a final resolution of the issue.

However, President-elect Trump has signaled that he is not in favor of the new rule; therefore, the new administration may have little interest in continuing to pursue the matter after he takes office.

The bottom line is, for now, the temporary injunction halting the implementation of the new overtime regulations continues unless and until the higher court rules otherwise.

We will continue to monitor the situation and keep you updated.

© 2016 Vandenack Weaver LLC
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DOL Revises The Family and Medical Leave Act (FMLA) Poster

by Joshua A. Diveley

The Department of Labor (DOL) revised The Family and Medical Leave Act (FMLA) poster which certain employers must display at employment locations. The revisions were released in late April, 2016. The poster was revised to clarify language and include additional information not contained in the prior February 2013 version of the poster.

All covered employers, generally those with at least 50 employees, are required to display the poster and keep it displayed. The poster summarizes the major provisions of FMLA and informs employees how to file a complaint for non-compliance by an employer. The poster must be displayed in a conspicuous place where employees and applicants for employment can see it. A poster must be displayed at all locations even if there are no eligible employees.

A copy of the revised poster is available at: http://www.dol.gov/whd/regs/compliance/posters/fmlaen.pdf.

The February 2013 version of the FMLA poster is still permitted and can be used to fulfill the posting requirement. Although displaying the revised poster is not mandatory, it is still a good idea for an employer to display the most recent version of the poster. Use of the most current poster shows a good faith effort to make employees aware of the latest information relating to employment laws.

An employer who willfully violates the posting requirement may be assessed a civil fine of $110 for each separate offense.

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