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Overtime Pay Exemption Amendments Finalized
By: Edward J. Krill
On March 27, 2003, the Department of Labor, Wage & Hour Division, published Proposed Regulations regarding the exemptions from overtime pay for salaried executive, administrative and professional workers. These proposals have been out for comment and drew considerable interest regarding changes in the exemption available to supervisory, technical, scientific and computer science workers. On April 20, 2004, revised Regulations were published as final, set to take effect in 120 days.
A proposal has been considered by the Congress to permit employers to offer hourly employees who work more than 40 hours per week the option of being paid time and one-half or taking paid comp time on straight pay basis. The comp time would accrue and be available in the discretion of the employer or paid out at the end of the year. This proposal was approved by the House Workforce Subcommittee last year, but no further significant Congressional action has occurred since that time.
The Fair Labor Standards Act, which is the basis for minimum wage and overtime pay requirements, was enacted in 1938. 29 U.S.C. §213(a)(17). By 1949, most of the content of the current Regulations, CFR Part 541, were in place and have not been substantially modified. See 14 FR 7705. The only significant recent change was the addition of standards that permit exemption from overtime for computer systems analysts, programmers, software engineers, and other computer and internet information technology workers, when paid at least $27.63 per hour. (Public Law 101-583, 1990)
Increased Minimum Salary § 541.600
The new Regulations provide that any employee not paid at least $455 per week, i.e. $23,660 annually must be paid overtime regardless of job duties. This provision nearly triples the former minimum salary standard and is an increase from the $425 per week minimum of the 2003 proposal.
Exemptions from the requirement to pay overtime have been regularly recognized by the Department of Labor for workers paid on a salary basis who are viewed as senior management, supervisory and degreed professionals, especially when performing discretionary duties on an independent basis, implementing and interpreting company policy or directing the work of others. Those exemptions have not fundamentally changed but have been clarified and broadened in scope.
The new Regulations lay out simplified, functional definitions for the three traditional exempt categories of: executive, administrative and professional employees, and eliminate highly technical distinctions that have long ceased to describe the modern workplace. In addition, the exemption available to information science and computer technicians has been broadened.
Simplified Regulations 29 C.F.R. Part 541
The Regulations are divided into eight major parts, with sections that provide an overview of their application, include definitions and explain the requirement to pay on the basis of a salary. The new Regulations are far more succinct than the F.L.S.A. Regulations they are replacing. The so called “long” and “short” tests have been eliminated in favor of one set of criteria for each type of exemption, and the examples of how the regulations apply to different situations have been simplified.
The minimum salary of $250 per week in each category’s “long” test has been replaced by the requirement that all exempt employees must be paid at least $455 per week, except for computer science workers and others, discussed below.
Executives § 541.100
Exemption from the payment of overtime based on “executive” status requires that the individual have the primary duty of managing the business of the employer on an overall basis or in the department, separate location or other subdivision of the employer’s operations. An employee in “sole charge” of a separate work site, department or division would normally qualify as an exempt executive under the changes. The executive must also regularly direct the work of at least two other employees and have either the authority to hire and fire employees or have a substantial role in the hiring, firing, promotion, advancement and work assignment of other employees.
There is no longer a limit of 20% on non-exempt duties, but the work must be primarily non-manual. Management duties include hiring, training, supervising, evaluating, disciplining, assigning work, conducting financial transactions and overseeing the production of products. The current exemption for working “foreman” has been retained, but the activity is now described as that of a working “supervisor” who directs the work of at least two employees.
Administrative Positions § 541.200
Administrative employees would be defined as those “in a position of responsibility” with the “primary duty of performing office or non-manual work related to the management or business operations of the employer. This is a broader and more functional definition of the previous requirement of “discretion and independent judgment.” An administrative employee must now exercise discretion and independent judgment on matters of significance to the employer.
The Regulations in list categories of workers who would normally qualify as performing exempt administrative services. The listed job classifications focus on job function and include employees in the tax, finance, accounting, budgeting, auditing, quality control, purchasing, procurement, advertising, marketing, research, insurance, safety, health, human resources, employee benefits, labor relations, public relations, security, Internet and database administration, regulatory compliance and grievance resolution.
A “position of responsibility” is one in which the work is of “substantial importance” or requires a “high level of experience, skill or training.” These functions are considered of substantial importance to the business.
The functions seen as exempt administrative activities when conducted with discretion and independent judgment include: formulating management policies, interpreting and advising regarding company policy and practice, providing expert technical advise or consultation to management, making decisions that have a substantial impact on business operations or on the company’s financial situation, reviewing and recommending changes in business and methods of operation, planning for short or long range business objectives, preparing reports for senior management on business issues.
Therefore, the “administrative” exemption has been broadened somewhat to include most of those who are considered mid-level “management” employees and those who independently perform services for management that require sophisticated decision making or technical skill.
Professional employees have traditionally been thought of as those with a degree and a license to practice one of the “learned professions” of law, medicine, architecture, engineering, psychology, teaching, counseling and creative artists. The work of an exempt professional must be non-manual labor. The exemption was established in the past by looking for a diploma and license to practice. This basis for exemption has never included the skilled manual trades such as the electrician, plumber or HVAC technician, however “professional” they have become.
The major change is to view employees as a “learned professional” if they primarily perform intellectual work requiring advanced knowledge in a field of science or learning that is customarily obtained by a “prolonged course of specialized intellectual instruction.” It no longer matters whether an employee has acquired that knowledge via instruction in an educational institution or by means of some instruction plus work experience. The test is whether the person possesses and uses the level of advanced knowledge typically acquired with an academic degree that is required by the profession, regardless of how acquired.
This new approach recognizes workers who took some courses, received additional training in seminars and workshops, engaged in self-study and had years of experience to the point where they could do the work of an individual who had just completed the traditional on-campus program and passed the licensing exam. Therefore, a highly skilled (college level degree or technical specialization) paralegal, medical technician, draftsperson, structural designer, teacher or similar worker can be paid a salary and considered exempt from overtime under this liberalized approach. Whether or not the person has a degree and license is no longer a barrier to exempt status in fields where the training for the job can be either formal or on the job.
Creative Professional § 541.302
The exemption applicable to those in the artistic fields remains essentially unchanged. The new description of the artistic professional is any employee “..with the primary duty of performing work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.” The employees of organizations in the fields of music, writing, acting and the graphic arts are covered by this exemption when engaged in work requiring imagination, originality or talent.
Teachers § 541.303
The “professional” exemption available to teachers has been simplified and consolidated. All teachers and instructors are exempt if their duties are primarily to instruct students in the classroom. There is no minimum salary requirement applicable to teachers.
Computer Science §541.400
Computer professionals are currently those persons who have a primary duty of performing work requiring the “theoretical and practical application of highly specialized knowledge in computer systems analysis, programming or software engineering.” The current Regulations further specify that the individual must consistently work on an independent basis and must be paid at least $455 per week on a salary basis or $27.63 on an hourly basis.
Outside Sales §541.500
Outside salesmen who work away from the employer’s place of business by primarily making sales, obtaining orders for goods or services, marketing and display activities and conducting sales meetings and conferences are exempt.
Law and Medicine § 541.600(e)
Those who hold a license to practice either law or medicine and are actually doing so are exempt regardless of salary or compensation and that includes medical residents and interns in training programs.
Highly Compensated Employees § 541.601
A new exempt category of “highly compensated employee” has been added. If an employee earns at least $100,000, generally performs executive, administrative or professional duties and is entitled to at least $455 per week, the employee is deemed exempt from the payment of overtime. This basis for exemption is available for employees who do not meet all of the separate requirements of any of the three exempt classifications, i.e. executive, administrative or professional employment.
“Salary” Defined § 541.602 and 603
The requirement to pay all exempt employees on a salaried basis has been liberalized considerably, perhaps to conform to the reality of current employment practices. Employers have on occasion reduced the pay of salaried employees for an array of reasons, sometimes by a full day or in hourly increments. These reductions have been for quasi-disciplinary reasons such as coming in late, leaving early or taking a day off without a good excuse. It has been believed that this practice creates a risk that the employee’s exempt status could be lost and overtime payment due.
In the past, weekly salary compensation could not be subject to any reduction based on the “quality or quantity” of the work performed. This was uniformly interpreted to mean that if an employee worked any part of a week, they were entitled to be paid for the entire week. If an employee elected to take leave time in accord with a written plan, payment for that time off could be governed by the plan. Under the new Regulations, if a salaried employee is absent for a full day for personal reasons, not sickness or injury, an exception to the normal rule permits a reduction of one whole day’s pay, if that was the employer’s formal published written practice.
Absences for full days of sickness or disability may reduce pay when, in accord with a formal written plan, other compensation is provided to the employee. Thus if an employer has a short term disability program, the employer need not pay a salaried employee for the “waiting period” before benefits begin, for the period of benefits or for an period after STD benefits are exhausted. Similarly, if a Family Medical Leave Act absence occurs, an employer may reduce the employee’s salary in proportion to the amount of days or hours of leave used.
The new Regulations make it possible for employers to continue the practice of reducing pay for disciplinary reasons without risking loss of that employee’s exempt status as a salaried employee. Currently, disciplinary suspensions of less than one week are permitted only for serious violations of safety rules. The new Regulations permit employers to impose full day disciplinary suspension without pay for additional serious misconduct such as sexual harassment or workplace violence, without risk to the exemption from the obligation to pay overtime.
Another change would clarify the circumstances in which an employer’s pay practices could be seen as inconsistent with the salary basis for compensation. In the past, there was some concern that a single event of, for example, improperly reducing a salaried employee’s pay by a number of hours or a day could trigger a loss of exemption. The new Regulations would establish a “safe harbor” provision that would disregard isolated instances of pay reduction if the employer publishes a policy that prohibits improper pay practices and generally follows that policy.
Finally, the new Regulations continue the practice of permitting compensation in addition to salary, such as extra pay for special project work or long hours. In addition, the view that hourly pay with a minimum guaranteed number of hours as consistent with exempt status is retained in the new regulations. This permits employers to build some flexibility into the scheduling of exempt workers without consistently paying for more or less hours of work than is actually performed. The fluctuation should not, however, be significant from week to week.
As noted above, many employer rights may only be exercised if set forth in a written employment policy which has been disseminated to all employees. Further, job descriptions that describe the actual duties of a position are essential in the event of a Department of Labor audit. A review of the current classification of employees is recommended, especially in the case of employers in the fields of technology, management services, trade and learned associations and firms engaged in the provision of professional services.
The combination of accurate job descriptions, correct classification of employees and a clear Employee Handbook statement of policies regarding compensation is essential to an employer who wishes to minimize risks that can include substantial back pay awards.
*Mr. Krill is an attorney with the firm of Carr Maloney, P.C. in Washington, D.C. who advises businesses, professional organizations, health care institutions and computer science employers regarding laws impacting employment practices. He can be reached at 202-310-5500 or via email.
To have Carr Maloney P.C. review and, if necessary, revise an employee handbook to ensure compliance with the FLSA and maximum protection of the employer’s rights, please contact Mr. Krill directly, or respond via email to the editor firstname.lastname@example.org.
Copyrights: A Primer
By: Ali A. Beydoun
There are many misconceptions about copyright law. Some think, for example, that registration is necessary or that photocopying requires express permission from the author in all cases, regardless of the intended use of the material. Others make mistakes regarding the most effective methods of registration and protection of their own creative works, or errors they commit in transferring rights and licensing of the use of their expression. Simply stated, copyright law is misunderstood.
The Copyright as Intellectual Property
A copyright is a type of intellectual property. An attachment of intangible rights occurs when certain rules are followed to defend improper use of the original “expression of the author.” Unlike other types of intellectual property law, such as patents, trademarks or trade secrets, which guard confidential information or discoveries/inventions, a copyright seeks to ensure that the originality and the expression of the actual author is protected, as opposed to just his ideas.
Ownership of copyrighted material in a work is distinguishable from ownership of the object within which the copyrighted work is embodied. For example, when you go to the store to purchase a music CD, you are purchasing the media (a CD) and the right (or “license”) to enjoy the author’s expression of his art. However, in purchasing that CD you are not purchasing a license to the use artist’s work embodied in the CD as you wish. If you were to use the music contained in the CD for any commercial use, you would need to purchase additional licenses from the author of that music.
Exclusive Rights & Transfers
“Exclusive rights” means that the copyright holder alone is allowed to do as they please at everyone else’s “exclusion.” A copyright holder (the one who holds the copyright regardless of who created the work) typically has exclusive rights to do the following with the work:
- make and sell copies
- make derivatives
- perform publicly
- sell or assign these rights
Since a copyright is actually a bundle of different rights and licenses, all rights do not have to be transferred completely when the holder sells one particular license. The assignment or the ownership of the copyright may be transferred in whole or in part. In these examples, the person buying the copyright “owns” the copyright or the particular right at issue. Another situation occurs when a license is sold. As in the CD example mentioned previously, a purchaser can buy a music CD, and thereby purchase a license to listen to the music, but nothing else. Conversely, a purchaser can buy the rights to the song on the CD and use it at their discretion in any manner they choose. Therefore, copyrights may be granted, sold or relinquished. It is common for a copyright holder to contractually transfer rights to a corporation or individual in exchange for money or distribution assistance.
No publication, registration or other action is required to secure a copyright. This occurs automatically when a work is created. A work is “created” when it is fixed in a copy or recorded for the first time. “Copies” are material objects from which a work can be read or visually perceived either directly or with the aid of a machine or device such as: books, manuscripts, sheet music, film, videotape, microfilm or computers.
Recordings are material objects embodying fixations of sounds such as cassette tapes, CD’s, or LP’s. Thus, a song (the “work”) can be fixed in sheet music (“copies”) or in digital recordings or both. If a work is prepared over a period of time, the part of the work that is fixed on a particular date constitutes the created work as of that date.
The Advantages of Registration
Registration is a legal formality intended to make a public record of the basic facts of a particular copyright. While registration is not a condition or requirement of copyright protection, the law provides several inducements to encourage participation.
Some of these advantages are as follows:
- Registration establishes a public record of the copyright claim. It should be noted that before an infringement suit may be filed in court, registration is necessary for works of U.S. origin.
- If made before or within five (5) years of publication, registration will establish prima face evidence in court of the validity of the copyright as well as the facts stated in the certificate.
- If registration is made with three (3) months after publication of the work or prior to an infringement of the work, statutory damages and attorney fees will be available to the copyright owner in court actions. Otherwise, only an award of actual damages and profits is available to the copyright owner.
The life of a copyright depends upon whether it was created before or after January 1, 1978. For copyrights created after January 1, 1978, expiration occurs (1) 50 years after the death of the author or (2) for copyrights owned by the employer of the author, 75 years from date of publication or 100 years from date of creation, whichever occurs first. For copyrights created before January 1, 1978, determination of expiration date is more complicated. Use of proper copyright notice, renewal, publication status and other factors affect expiration of copyrights created before January 1, 1978. Reference to the Copyright Statute is recommended for expiration questions regarding pre-1978 copyrights. See generally 17 U.S.C.S. §101 et seq.
The law does not provide innocent infringement (i.e. – not willful) as a defense, though such cases often involve less monetary liability. Nevertheless, the innocent infringer may still be liable for damages and subject to other judicial remedies.
A copyright infringement claim focuses on the violation of the copyright owner’s property rights. Generally, this is caused by the licensee’s failure to comply with the terms of the licensing agreement.
There are two forms of copyright infringement that we will focus on for purposes of this article. The first is “copying” and the second is “unlawful” or “unlicensed” reproduction. Some examples of unlawful reproduction include claims of plagiarism or misappropriation of a copyrighted work. While examples of unlicensed reproduction include: infringing on a protected property right by using the product in violation of the terms of the license or continuing to manufacture the product after the license terminated (see notes below).
Practically speaking, it is rare to show actual evidence of an infringement upon a copyrighted material. Mostly, this is shown through circumstantial evidence. To be successful, a plaintiff would need to demonstrate through clear and convincing evidence that the alleged defendant infringer had access to the copyrighted work. If the plaintiff is successful in that effort, he must further show that the two works are “substantially similar” to the intended audience. However, the greater the similarity between the two works, the less necessary it becomes to demonstrate the defendant’s access to the infringed material.
A successful plaintiff would then have three types of remedies available to him: monetary damages, injunctive relief, and recovery of costs, including attorney’s fees. Depending on the nature of the infringement, and the timeliness of the copyright registration, the courts have wide latitude to fashion a remedy.
The Doctrine of “Fair Use”
The rights of a copyright holder are limited by the doctrine of “fair use.” Under this doctrine, a work may be used without the permission of the copyright owner for purposes such as criticism, comment, news reporting, teaching, scholarship or research.
Courts look at four (4) factors to determine whether a use is fair, including:
- the purpose and character of the use, including whether it is used for commercial or non-profit purposes;
- the nature of the copyrighted work;
- the amount and substantiality of the portion used in relation to the work as a whole; and
- the effect on the potential market for the copyrighted work.
Each case will be judged on its particular merits and facts. “Fair use” is never presumed.
Copyright issues can arise in a variety of legal contexts. With a basic understanding of copyright law and its protections, the average person can know what questions to ask to better protect himself and guard against infringement of his own intellectual property or infringement upon another’s rights.
Copyright infringement claims of this nature “arise under” federal copyright laws. See WGN Continental Broadcasting Co. v. United Video, Inc., 693 F.2d 622, 625 (7th Cir. 1982) (a licensee’s use of a copyrighted work that exceeded the license granted by the copyright owner constitutes a copyright infringement) (citation omitted); Photofile, Inc. v. Graphicomp Sys., Inc., 1993 U.S. Dist. LEXIS 13177, 92 C 8414 (N.D. Ill. 1993)(“Even if the [licensee’s] delinquent payment were not considered a failure to satisfy a condition or a material breach [of the license], plaintiffs allege that defendants’ use of the photographs in a second printing of the brochure exceeded the scope of the licensing agreement. For this additional injury, plaintiffs can seek relief under the copyright laws.”) (emphasis added); Joseph J. Legat Architects, P.C., v. United States Dev. Corp., 601 F. Supp. 673, 676 (N.D. Ill. 1985) (where the court determined that it had subject matter jurisdiction under 28 U.S.C. § 1338(a) over plaintiff’s copyright infringement claim; the plaintiff alleged that the defendant had copied and used his copyrighted architectural plans without authorization in violation of their contract); Powell v. Green Hill Publishers, Inc., 719 F. Supp. 743, 745 (N.D. Ill. 1989) (where the court found that it had subject matter jurisdiction under 28 U.S.C. § 1338(a) over plaintiff’s copyright claim; the plaintiff alleged that the defendant published a second printing of plaintiff’s book even though the plaintiff had previously terminated the defendant’s license).