PROPOSED NEW FEDERAL EMPLOYEE OVERTIME PAY RULES:

The United States Department of Labor (DOL) recently proposed changes to federal overtime pay regulations. The proposed regulations would change who is eligible for overtime under the Fair Labor Standards Act (FLSA). The changes are expected to make an additional 5 million workers nationwide eligible for overtime in 2016. We have seen an article that estimates 200,000 of those workers will be in Pennsylvania. The final regulations should be adopted in early fall.

Wage and hour claims (including class actions) are a fast-growing type of federal employment litigation. Employers should assess how the proposed changes may affect their business.

This blog covers proposed changes to the exemption for “white collar” (administrative, executive and professional) employees. It does not discuss a companion proposed change dealing with employees presently making over $100,000 per year (to be increased to $122,148 if the proposed changes become law).

Background
Among other things, the FLSA requires non-exempt employees be paid 1-1/2 times their regular rate of pay for all hours worked over 40 hours in a work week. While all employees are presumed to be eligible for overtime, there are “white collar” exemptions for certain administrative, executive and professional workers who meet a three-part test: (1) employees must be paid on a salary basis, meaning they are paid a predetermined amount not subject to reduction because of variations in the number of hours worked; (2) employees must be paid a minimum salary of $455 per week ($23,660 per year); and (3) their primary job duties must satisfy certain “duties tests” set forth in DOL regulations. These “job duties” tests vary depending on the exemption sought.

The Changes
The DOL changes look to raise the weekly minimum salary needed to qualify for one of the “white collar” exemptions (administrative, executive and professional) from $455/week to $921/week in 2015 and $970 in 2016. This means first line supervisors and other employees currently covered by the executive, administrative or other white collar exemptions making less than $921 per week would suddenly be eligible for overtime regardless of their job duties. Under the proposed regulations, employees now exempt because they earn $455 or more a week but less than $921 per week in 2015 would now be entitled to overtime for all hours worked over 40 and would be required to track all hours worked.

The proposed regulations would also create a mechanism – tied to a percentile of earnings – to automatically update the salary and compensation level without requiring action by future administrations–basically an auto-pilot for increasing the levels in the future. (Hence the $970 per week in 2016.) Clearly, these changes will be far-reaching and will require employers to re-evaluate employee classifications and pay practices.
Steps Employers Should Take Now
Before these proposed changes to the FLSA regulations are enacted, there are some actions that employers may wish to take. These include:

• Make sure your written job descriptions are up-to-date and accurately reflect the actual duties being performed by the employees. Assess whether the employees’ duties exempt them under the current and proposed regulations. See if employees qualify for another overtime exemption that does not include a minimum salary requirement, or their duties can be changed to make them qualify for such an exemption.
• Prepare to convert employees currently making less than $921 per week to overtime-eligible, non-exempt employees. In order to minimize the additional expense related to this conversion and keep total compensation close to the current salary, employers will want to evaluate the number of hours these employees work, whether those hours fluctuate, and how those hours can be tracked. Review budgets to determine if adjustments need to be made to take the increased labor costs into account.
• Review work schedules and work flow needs. Will converting currently exempt employees to non-exempt, overtime eligible employees require hiring of additional personnel?
• Review your processes for tracking hours worked. The changes in the law will mean that employees who were formerly salaried, but are changed to hourly, non-exempt will be required to track all hours worked. This may be difficult to implement and require additional training and the implementation of better time tracking systems.

• Review your employee handbook and/or personnel policies. It may be advisable to revise policies regarding approval of overtime, after-hours work, email and/or “Bring Your Own Device,” given the increased number of hourly, non-exempt employees covered by those policies. In addition, supervisors may need additional training about work time, after hours or off-site work and time tracking. Remember, the FLSA requires non-exempt employees be paid for all hours worked, whether approved or not.

We have prepared this blog as a service to our clients. As general business attorneys, we routinely handle basic employment matters for our clients. For more advanced employment matters, we refer our clients to employment law attorneys with whom we maintain relations. If you are a client and need to address this topic, please contact us and we will be glad to refer you to employment law compliance counsel.

Pennsylvania Business Law Changes July 2015

Important changes to Pennsylvania business law are taking effect July 1, 2015 that could impact your business. These changes will improve the structure of the current Pennsylvania business law by removing some inconsistencies and redundancies, and provide entities with more flexibility in conducting transactions. These changes were the result of work done by a committee of the Pennsylvania Bar Association that Chuck serves on. Chuck spoke about some of these changes at a Pennsylvania Bar Institute seminar on the new law. This new law is based on the Model Entity Transactions Act (META).

What may be important to you. The new law will create some opportunities. For example, the new law:

1. Will allow a general partnership to convert to a limited partnership. Under a general partnership, the general partners generally have unlimited liability. By converting to a limited partnership, the partners will be able to limit their personal liability prospectively. In addition, if a general partnership owns real estate, it will continue to own that real estate after a conversion and will not be assessed realty transfer taxes upon the conversion.

2. Will allow a professional practice who currently operates through a restricted professional services company (a type of limited liability company) to change to a corporation and avoid paying the annual registration fees in the future.

3. Provides a new procedure, an “interest exchange,” that will permit indirect acquisitions of businesses without requiring multiple steps, such as a triangular merger where an acquiring company forms a subsidiary and merges an acquired company into the subsidiary. Such excess actions will not be needed.

Chuck will be happy to help you with any structuring or changes you may wish to make based on this new law as well as speak to any groups who may be interested in learning more about this new law.

Top 10 Practical Pointers in Negotiating Commercial Leases if you are the Commercial Tenant

Many businesses lease real estate to operate and conduct their businesses.  The commercial leases have become increasingly longer and more complicated over the years, and there is no such thing as a “standard lease”.

Listed below are 10 practical pointers you should review if you are planning to lease commercial space:

  1. Realistically assess your strengths and weaknesses and your negotiating position. From the landlord’s perspective, leases are essentially a form of financing for a landlord.  Questions to ask yourself – how much space are you leasing?  Is it a large or small portion in relation to the other space if you are in a multi-tenant Center?  What is your financial strength?  Also, consider the current condition of the real estate market.  How long has the space been vacant?  Is it in a desirable geographic area?  All of these factors will affect how much you are able to negotiate the terms of the lease with the landlord, including the rent.
  1. Identify the “real” cost per square foot.  Often, leases are “net leases” which means that the tenant pays a base rent per square foot plus additional rent per square foot.  This additional rent usually consists of all of the landlord’s costs of maintaining and operating the space and often fluctuates over the lease term.  This additional rent is either called Common Area Maintenance Charges (CAM) or Operating Expenses (OE).  The cost of this additional rent can be substantial.   The tenant usually pays a proportionate share of the CAM or OE.  Find out what your particular share is and what the current additional rent is.
  1. Negotiate a Cap on the CAM or OE and other key provisions. Since a net lease usually passes all of the costs of maintaining and operating the space through to a tenant, you should negotiate certain protections.  These include a cap or limit on any increase on the CAM or OE.  Also, negotiate that any capital expenditure incurred by landlord, such as roof replacement or repaving a parking lot, are amortized over the useful life of the expenditure.  Add a right to audit the landlord’s calculation of the CAM or OE.
  1. Starting dates for possession, payment of base rent, and additional rent. These dates could all be different.    Know what they are.
  1. Negotiating the Base Rent. If you wish to negotiate a lower base rent and the landlord is unwilling, ask the landlord for “free” base rent for a certain time period.   Often, a landlord may agree to free rent instead of a reduction since it is more palatable to the landlord’s lender.
  1. HVAC replacement cost. The cost to replace an HVAC unit is not cheap.  Since the landlord often will want the tenant to replace the HVAC unit if it fails, you should negotiate that you only pay for a proportionate share of the new unit based on the number of years remaining on the lease term and the useful life of the unit.
  1. Exclusive Use. Especially if your business is retail, you should negotiate that your business will be the only business of such type if you are in a multi-tenant center.
  1. Default and remedies. Now is the time to limit landlord’s rights if tenant fails to pay rent or otherwise defaults.  Typical provisions include adding notice and grace periods and a cap on damages if the landlord accelerates the rent.  Another provision is to require the landlord to attempt to rent the space to another tenant to reduce landlord’s damages.
  1. Signs. Have a clear understanding of where the tenant may place signs, including who pays for the cost of the sign.  Most tenants will want to have its sign placed on any pylon sign or directory, but often there may be limited space on a pylon sign.
  1. Personal Guarantee.  If the landlord is requesting a personal guarantee, try to negotiate a dollar limit on the guarantee or a staged release so that the guarantee is reduced over the term of the lease.