On July 22, 2016, Governor Rauner signed the Local Government Travel Expense Control Act into law (Public Act 099-0604). This law requires all non-home rule units of local government, including municipalities, school districts, special districts and community college districts, to regulate travel expenses at the board level. Thus, every covered unit of local government must adopt a resolution or ordinance that, at a minimum, contains for following provisions:
- Allowed reimbursable activities (e.g., conference attendance, travel for business meetings, etc.);
- The maximum amount that the unit of local government will reimburse for travel, meal and lodging expenses; and
- A standardized form for documenting travel, meal or lodging expenses, as well as “the nature of the official business” for which reimbursement is sought.
Travel, meal or lodging expenses may not be approved unless the minimum documentation requirements have been met.
Timelines
- Effective date: January 1, 2017.
- Phase-In period : 60 days, i.e., until March 2, 2017. After March 2, 2017, expenses for employees or officers that exceed the minimum allowable expenses must be approved by a roll call vote of the Board at an open meeting, and all expenses of board members or corporate authorities must also be approved in this manner.
- Sanction for failure to adopt a compliant expense policy : If a covered unit of local government fails to implement expense regulations by ordinance or resolution within 180 days of the effective date (June 29, 2017), no expenses can be approved until the unit of local government comes into compliance with the law.
Entertainment Expenses
After January 1, 2017, no unit of local government can reimburse any board member, employee or officer for entertainment expenses such as tickets for sporting events or other amusement unless such entertainment expenses are “ancillary to the purpose of the program or event” (e.g., as part of a convention).
Applicability of FOIA
Documents and information submitted in compliance with this new law “are public records subject to disclosure under the Freedom of Information Act.”
Summary
To implement the law, each unit of local government will need to define acceptable standards and procedures for reimbursement of expenses, as well as the maximum reimbursement amount for travel, meals, and lodging. Although the law is deceptively simple, a number of factors will have to be reviewed and addressed in establishing an expense policy that complies with this new law. If you have any questions or if you would like assistance in drafting a new policy that will be in compliance with this new law, please contact your Clark Baird Smith LLP attorney.
Earlier this year, we reported on new regulations issued by the U.S. Department of Labor , which would dramatically increase the minimum salary required for an employee to be classified as “exempt” from the overtime rules contained in the Fair Labor Standards Act.
On Tuesday, November 22, 2016, the new DOL salary basis test was blocked . See State of Nevada v. United States Department of Labor , Case No. 4:16-CV-00731 (Nov. 22, 2016). The court found that the state plaintiffs satisfied all of the prerequisites necessary to issue a preliminary injunction to suspend the December 1, 2016 implementation of the regulations that would have doubled the minimum salary threshold required to qualify for the Fair Labor Standard Act’s “white collar” exemption. This “preliminary injunction” preserves the nation-wide status quo with respect to the current salary basis test (i.e. $455 per week) while the court determines the merits of the case.
Significantly, the court’s opinion suggests that the DOL does not have the authority to define a minimum salary level. The court stated: “it is clear Congress intended the [Executive, Administrative, and Professional] EAP exemption[s] to apply to employees doing actual executive, administrative, and professional duties. In other words, Congress defined the EAP exemption[s] with regard to duties, which does not include a minimum salary level.”
The immediate takeaway from this decision is that employers, for the time being, do not need to change any employee’s exempt status classification based on those new regulations, which have now been blocked at least on a temporary basis (and will perhaps become obsolete or permanently blocked in the future). Employers should be mindful that they do not “whip saw” their employees, flip flopping them from exempt to non-exempt, and back again depending on future litigation and legislation. This could have significant impact on morale in the workplace. Please stay tuned, this injunction is immediately appealable. This is not likely to be the end of the litigation or legislation in this area.
Please contact a CBS LLP attorney with questions about what this means for your workplace.
On January 11, 2016, the U.S. Supreme Court heard Oral Argument in the case of Friedrichs v. California Teachers Ass’n , Case No. 14-915, which has the potential to change the landscape of public sector labor relations throughout the country. In Friedrichs , a group of California public school teachers is challenging the constitutional precedent allowing for the inclusion of agency shop clauses in public sector collective bargaining agreements. This precedent was first established by the U.S. Supreme Court nearly forty years ago, in Abood v. Detroit Board of Education , 431 U.S. 209 (1977).
Abood involved an agency shop clause that compelled public employees to pay union dues, despite their opposition to their union’s political and social agenda. At the time, the Supreme Court ruled that an agency shop clause was constitutionally permissible in public sector contracts, as long as the compelled union dues were used to finance collective bargaining, contract administration, and grievance adjustments that benefited all bargaining unit employees. By contrast, the Abood Court held that public employees cannot be compelled by a collective bargaining agreement to contribute money to a union’s political and ideological causes that are not germane to its collective bargaining obligations.
Until recently, this constitutional holding was never directly challenged by public employees. In Friedrichs , however, a group of public school teachers now argue that the political/collective bargaining distinction first announced in Abood was shortsighted, because it overlooked the fact that a union’s bargaining positions are inherently “political” to the extent they affect a public employer’s operations and finances. During Monday’s oral argument, Justice Scalia summarized this problem by stressing the difficulty in separating political/ideological activities from collective bargaining activities. “ [ E]verything that is collectively bargained with the government,” said Justice Scalia, “is within the political sphere, almost by definition .” He listed examples, “Should the government pay higher wages or lesser wages? Should it promote teachers on the basis of seniority[?] … – all of those questions are necessarily political questions.”
It became apparent during the oral argument that a number of Justices rejected the notion that a public sector union must be able to compel public employees to pay their “fair share” of union dues, otherwise, those employees will become figurative “free riders.” Such free riders, argued the Unions, enjoy the benefits of collective bargaining without having to pay for them. Justice Kennedy seemingly discounted the notion of free riders, however, stating during oral argument that “the union basically is making these teachers compelled riders for issues on which they strongly disagree.”
At one point, the petitioning teachers were asked whether public sector unions would still be able to secure sufficient funding in order to perform their collective bargaining responsibilities in the absence of fair share clauses. Counsel for the teachers pointed to the federal government experience as evidence for why the elimination of agency fees will not lead to the demise of public sector unions. Specifically, the Petitioners noted that the federal government (in its employer capacity) does not permit unions to compel federal employees to pay agency fees, which in turn has resulted in only about a third of all federal employees maintaining formal union membership. Yet, statistics show that federal sector unions not only survive, but thrive in this environment. Considering these statistics along with the public sector union density rate in California (90%), the Petitioners argued that it is highly unlikely that California public sector unions would suddenly “disintegrate” if agency shop clauses are held unconstitutional.
Interestingly, the petitioning public school teachers have asked only for prospective relief. In that regard, fair share fees already collected under existing collective bargaining agreements would not have to be returned. A union’s future bargaining efforts, however, could no longer be subsidized by compelled union dues.
Ultimately, the Petitioners’ counsel opened and closed their oral argument by stating that public sector unions have every right to pursue whatever political or ideological positions they deem appropriate. These unions do not, however, have the right “to demand that the other side subsidize their views on these essential questions of basic public importance.”
Several commentators believe that Justices Scalia, Kennedy, Thomas, Alito, Chief Justice Roberts, and even, perhaps, Justice Breyer – all nominated by Republican presidents – will join together to overrule Abood and find public sector agency shop clauses to be unconstitutional. If that occurs, numerous public sector collective bargaining agreements will be impacted on a going forward basis. Such a ruling also would limit an important source of funding for public sector unions across the country, which in turn could limit union influence on a variety of political and social causes. The Supreme Court is expected to rule on this important issue by the end of June.
Clark Baird Smith LLP attorneys will discuss the potential bargaining ramifications of this decision in greater detail at the annual Employment Law Seminar on March 4, 2016, hosted by the Illinois Public Employer Labor Relations Association.
On March 29, 2016, the U.S. Supreme Court issued a divided 4-4 per curium decision in Friedrichs v. California Teachers Ass’n , 2016 WL 1191684, which affirmed a decision by the U.S. Court of Appeals for the Ninth Circuit that upheld the constitutionality of public sector fair share/agency shop agreements. This decision leaves the lower court’s decision undisturbed, creates no newly binding U.S. Supreme Court precedent on the issue, and leaves the door open for other parties to pursue future challenges to the U.S. Supreme Court. Therefore, the Ninth Circuit’s decision is still binding precedent on the states that fall within its jurisdiction, such that requiring teachers to opt out of ‘non-chargeable’ union expenditures (such as political or ideological causes) that exceed a union’s collective bargaining duties is constitutional.
The Ninth Circuit based its decision on the U.S. Supreme Court’s precedent set in Abood v. Detroit Board of Education , 431 U.S. 209 (1977), which held that public employees can be compelled by a collective bargaining agreement to contribute money to a union in order to fund the union’s collective bargaining obligations to bargaining unit members. At the conclusion of oral arguments in Freidrichs, however, many commentators believed Abood ’s days were numbered, and that the Court would soon rule that public sector fair share/agency shop agreements are unconstitutional. After Justice Scalia’s death in February 2016, however, the Supreme Court justices could not form a majority opinion on the issue, which leaves us with today’s 4-4 per curiam decision. As a result, the Supreme Court’s Abood decision remains the applicable Supreme Court precedent on the constitutionality of fair share fee clauses in public sector collective bargaining agreements, which by definition includes those in Illinois public sector contracts.
Meanwhile, in Illinois, the constitutionality of fair share/agency shop clauses in public sector collective bargaining agreements was challenged in a lawsuit originally filed by Governor Rauner. See Janus v. AFSCME 31 et al., 1:15CV01235. This case was initially filed in February 2015, but was stayed pending the Supreme Court’s decision in Friedrichs. A status hearing is currently scheduled for July 7, 2016. Given today’s Friedrichs decision, it is anticipated that this Illinois case will now move forward to decision, and may become the vehicle for a new Supreme Court challenge to the constitutionality of public sector fair share fee clauses. At this juncture, however, the ultimate outcome of such a new challenge would appear to depend on the views of the person who takes Justice Scalia’s seat on the Supreme Court.
On May 18, 2016, the Department of Labor announced the publication of its final rule updating the overtime regulations in the Fair Labor Standards Act (“FLSA”). Most importantly, the final rule more than doubles the minimum salary required in order for most employees to be classified as “exempt” from the overtime provisions of the FLSA. Currently, in order to be classified as an exempt administrative, professional, or executive employee, most employees need to be paid a minimum salary of at least $455 per week ($23,660 per year). Under the new rule, the minimum salary will increase to $913 per week , which equates to an annual salary of $47,476 per year. The rule applies equally to all employers in both the public and private sectors. The final rule becomes effective on December 1, 2016.
The final rule closely follows the DOL’s Notice of Proposed Rulemaking , which was published on June 30, 2015, but there are several important differences between the original proposal and the final rule. These differences include:
- Originally, the Department planned to increase the salary requirement to $50,440 per year ($970 per week). As just mentioned, the salary requirement in the final rule has been lowered to $47,476 per year ($913 per week).
- Originally, the Department planned that the salary requirement would be updated every year, and that the salary would be tied to the 40th percentile of all full-time, salaried workers in the country. In the final rule, the salary requirement will be updated every three years. Furthermore, the Department will not look at the 40th percentile on a nationwide basis, but will only look at the 40th percentile in the lowest-wage Census Region.
- The salary requirement for the highly compensated employees exemption will increase to $134,004 per year. This is based on the 90th percentile of full-time salaried workers nationally (not regionally).
- The final rule does not include any changes to the exempt status “duties” tests.
- Under the final rule, up to 10% of the minimum salary can be accomplished through the payment of nondiscretionary bonuses.
These changes are described below in greater detail.
Minimum Salary Is $47,476 Per Year
Beginning on December 1, 2016, in order to be properly classified as “exempt” from the overtime requirements of the FLSA, employees must receive a salary of $913 per week or $47,476 per year. The DOL based this salary on the 40th percentile of earnings for full-time salaried workers in the lowest-wage Census report, which is currently the South. The DOL estimates that 4.2 million employees who are currently classified as exempt employees will not meet the new minimum salary level.
It is critically important that all employers review the salaries paid to their exempt employees. If an exempt employee is paid less than $47,476 per year, the employer needs to decide what changes it will make before December 1, 2016. As outlined in our alert when the Notice of Proposed Rulemaking was published last year , employers have several options:
- Increase the employee’s salary to meet the new minimum and keep the employee classified as exempt.
- Convert the employee to a non-exempt position. If the employee will be converted to non-exempt, the employer must make additional decision: how will the employee be paid as a non-exempt worker? Some options to consider include:
- If the plan is to convert the employee to a non-exempt position, consider restructuring the employee’s pay so that the employee is paid on an hourly basis instead of a salary basis.
- If the plan is to convert the employee to a non-exempt position, consider reallocating responsibilities to minimize the amount of overtime that will be paid.
- If the plan is to convert the employee to a non-exempt position, but overtime will be required, consider adjusting the hourly rate of pay so as to minimize the impact of the new overtime costs.
- If the plan is to convert the employee to a non-exempt position, review your benefit plans to determine what secondary effects the change might have on the employees’ eligibility for those benefits. The terms of some benefit plans limit their availability to only “exempt” or “non-exempt” employees.
- Although rare, it is possible that this rule will impact some bargaining unit employees who are classified as exempt employees. If you have any such employees, you need to carefully consider your bargaining obligations with respect to making any changes to the way in which those employees are paid.
Automatic Updates Every Three Years
Under the final rule, the DOL will automatically update the minimum salary every three years. The minimum salary will continue to be the 40th percentile for full-time, salaried workers in the lowest-wage Census Region at the time. The first change to the minimum salary level will be effective January 1, 2020. The Department has said that it will publish the new salary levels at least 150 days before they become effective.
The automatic escalator presents two significant challenges. The first challenge is a budgetary challenge. For example, if an employer operates on a May 1 fiscal year, it will be difficult to budget overtime and salary expenses with precision for the fiscal year May 1, 2019 to April 30, 2020. That is because the new salary level will not be announced until August 4, 2019, long after the budget was established for that fiscal year. The best that can be done is to look at the most current census data, estimate what the change to the salary level is likely to be, and make mid-year adjustments if the final salary level is different than your predictions.
Second, the automatic escalators present a mathematical challenge. That is because the department’s 40th percentile measurement is tied to the pool of salaried employees, not the pool of all wage earners. Based on the DOL’s own predictions, approximately 2.4 million employees will have to have their wages increased or be reclassified as non-exempt. While in theory some employers might choose to classify those employees as “salaried, non-exempt,” in practicality most employers will raise salaries or convert those employees to hourly workers. That will significantly change the pool on which the 40th percentile is measured. Thus, the minimum salary will be driven further up, resulting in cyclical increases that can easily exceed the growth in the cost of living.
No Changes To The “Duties” Tests
The Notice of Proposed Rulemaking suggested that the DOL might make changes to the “duties” tests to make those tests stricter. Fortunately, the final rule includes no such changes. However, the mere possibility of changes to the duties tests serves as a very important reminder. Many employers make the mistake of thinking, “all salaried employees are exempt.” That is wrong, and can lead to significant legal liability for unpaid overtime wages. In addition to the salary basis test, all exempt employees must satisfy one of the “duties” tests. By far, the most common exemptions are the administrative, executive, and professional employee exemptions.
Although the duties tests did not change, the new regulations present employers with a perfect opportunity to audit their exempt status classifications to make sure that all employees are classified properly. Application of the duties test is a fact-intensive, nuanced inquiry. We strongly encourage all employers to consult with their legal counsel to ensure their employees are properly classified.
What Should Employers Do?
Employers should strongly consider taking the following action:
1. Clark Baird Smith LLP will be hosting a seminar in the very near future to help employers cope with these new regulations. Details will follow as soon as the logistics have been finalized. You should strongly consider attending this seminar if you have any exempt employees who currently earn less than $47,476 per year. You should also attend this seminar if you have any questions about the application of the exempt status regulations to your work force.
2. Identify all of your exempt employees and determine whether those employees earn at least $47,476 per year.
3. If an employee does not meet the increased salary basis test, begin to plan your strategy if the proposed rule becomes a final rule. Options to consider include:
a. Increase the employee’s salary to meet the new minimum.
b. Plan to convert the employee to a non-exempt position.
i. If the plan is to convert the employee to a non-exempt position, consider restructuring the employee’s pay so that the employee is paid on an hourly basis instead of a salary basis.
ii. If the plan is to convert the employee to a non-exempt position, consider reallocating responsibilities to minimize the amount of overtime that will be paid.
iii. If the plan is to convert the employee to a non-exempt position, but overtime will be required, consider adjusting the hourly rate of pay so as to minimize the impact of the new overtime costs.If the plan is to convert the employee to a non-exempt position (either hourly or salaried), review your benefit plans to determine what secondary effects the change might have on the employees’ eligibility for those benefits.
4. The employer’s budget should be re-examined to ensure funding is available to cover potential cost increases.
5. Use these changes as an opportunity to conduct a legal review of your employees’ job responsibilities to ensure that the employees are properly classified as “exempt” under both the duties test and the salary basis test. A legal review could help provide a “good faith” defense to some forms of damages in wage-and-hour litigation.
If you have any questions about how the Notice of Proposed Rulemaking may affect you, or if you would like assistance submitting comments to the DOL or conducting an exempt-status audit to help verify compliance with the law, please contact any of the attorneys at Clark Baird Smith LLP.
