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Washington Labor & Employment Wire » DOL Posts New Opinion Letters

DOL Posts New Opinion Letters

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On January 8, 2008, the Department of Labor’s Wage and Hour Division (WHD) posted eleven new opinion letters discussing a variety of wage and hour issues. Charged with administering the Fair Labor Standards Act (FLSA), the WHD periodically issues opinion letters in response to questions submitted by employers. This article discusses recent opinion letters on (1) the executive exemption to overtime, (2) the inclusion of a discretionary bonus into an employee’s regular rate, and (3) the compensability of on-call time.

Executive Exemption

The FLSA requires that overtime compensation be paid at a rate of not less than one and one-half times the regular rate of pay for all hours worked in excess of 40 in a workweek. See 29 C.F.R. Part 778. The regular rate of pay of an employee “is determined by dividing his total remuneration for employment (except statutory exclusions) in any workweek by the total number of hours actually worked by him in that workweek.” 29 C.F.R. § 778.108. The FLSA includes several exemptions from its overtime provisions, including an exemption for employees whose “primary duty” is performing managerial tasks.

In the first opinion letter, the WHD found that bona fide exempt managers could attend a seven-week training course and not lose their exempt status during the training. The employer annually selected store managers for a seven-week training course where the managers would train to be district managers. During the first week of the training period, the managers spent little time performing exempt work, and during the first several weeks of training, they were unlikely to spend more than half of their time performing exempt work. 

The WHD found that the temporary suspension of exempt duties did not alter the managers’ exempt status “because the primary duty test for executives need not be met each and every workweek in all cases.” The WHD stressed the importance of a “holistic approach” to exemption determinations under the FLSA. The managers’ “primary duty,” even when engaging in the non-exempt activities during the training program, “continues to be that of an exempt store manager.”

Discretionary Bonuses

In the second opinion letter, the WHD found that an employer did not have to include a bonus in an employee’s regular rate when the bonus was discretionary and there was no prior agreement or promise to pay such a bonus. The employer had decided to pay a $1,000 bonus to full-time emergency communications operators in recognition of the high stress level of the employees’ duties. The parties formalized the approval by signing a memorandum of understanding (MOU) that subsequently became a part of the bargaining unit contract and made provisions for future bonus payments. The employer paid out the first bonus after the MOU was distributed. The employer was concerned that, because it actually paid the first bonus after signing the MOU, the bonus was no longer “discretionary.”

Generally, bonus payments are excluded from the regular rate if “both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.” 29 U.S.C. §207(e)(3)(a). If an employer announces in advance that it will pay a bonus, it no longer has total discretion and the payment cannot be excluded from the employee’s regular rate. 29 CFR § 778.211(b). “Bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay.” 29 C.F.R. § 778.211(c).

The WHD found that the bonus in question was “discretionary” because it was not paid “pursuant to any prior contract, agreement, or promise.” The WHD discounted the fact that the bonus was actually paid after the MOU because the employer “did not issue the bonuses pursuant to the MOU, but rather used the agreement to formalize a decision previously made.”  Under these circumstances, the WHD concluded that the bonus was discretionary and did not have to be included in the regular rate.

On-Call Employees

In the third opinion letter, the WHD found that an on-call employee who must be reachable at all times while on duty, abstain from alcohol or other substances, and report to work within one hour of notification need not be compensated for the time spent on-call.  In submitting the issue for review, the employer posited that the employee was rarely called while on duty.

In general, on-call time is compensable when the on-call conditions are so restrictive or the calls so frequent that the employee cannot effectively use that time for personal purposes. See 29 C.F.R. § 553.221(d). The federal courts examine a variety of factors when determining whether on-call time is compensable, including but not limited to (1) whether there are excessive geographical limitations on an employee’s movements, (2) whether the frequency of calls received or a fixed time limit for response is unduly restrictive, (3) whether the employee could easily trade on-call responsibilities, (4) whether use of a pager could ease restrictions, and (5) whether the on-call policy is based on an agreement between the parties.

In finding the on-call time was not compensable, the WHD stressed the low frequency of calls the employee received while on duty. The WHD concluded that the one-hour temporal limitation reasonable and stated that the employee could use the on-call time for “personal purposes.” Additionally, the WHD clarified that the employer could discipline employees who refuse to follow on-call restrictions because the FLSA “does not require employers to pay for the inconvenience of being on call if such periods are not otherwise compensable . . . [and] disciplinary actions resulting from an employee’s refusal to be on call is not within the FLSA’s purview.”