Businesses Can't Agree Not to "Poach" Employees

Businesses Can’t Agree Not to Poach Employees

It might be tempting to formally agree with other business owners in a niche field not to poach one another's employees, but it is illegal – and recently, some businesses have paid a high price. Eight hospitals in the Detroit area paid $90 million to settle claims that they had exchanged information with one another about how much they paid their nurses. The hospitals had allegedly conspired to limit the nurses' salaries, rather than competing with each other by raising wages.

The anti-trust laws include several penalties for conspiring to restrain trade, which is what the hospitals were accused of doing. Beware of circumstances where your business could be accused of such conduct.

Department of Labor Issues – New Overtime Payment Rules

On May 16, 2016, the U.S. Department of Labor announced a Final Rule regarding overtime wage payment qualifications for "white-collar exemptions" under the Fair Labor Standards Act (FLSA).

The Final Rule increases the salary an employee must be paid in order to qualify for a white-collar exemption. The required salary level is increased to $47,476 per year, and will be automatically updated every three years. The Final Rule does not modify the duties test employees must meet to qualify for the white-collar exemption. Employers will need to comply with this rule by December 1, 2016.

FLSA White-Collar Exemptions

The FLSA establishes minimum and overtime wage payment protections for most workers in the United States. However, the FLSA also offers a range of minimum wage and overtime exemptions for certain workers. The white-collar exemptions are minimum wage and overtime pay exemptions available to certain administrative, professional, outside sales, computer and highly compensated employees.

To qualify for a white-collar exemption, an employee must meet a salary basis test, a salary level test and a duties test. An employee must meet all three tests in order to be exempt from FLSA minimum wage or overtime pay requirements.

The salary basis test is used to make sure the employee is paid a predetermined and fixed salary that is not subject to reduction due to variations in the quality or quantity of work.

The salary level test is used to ensure that the employee meets a minimum specified amount to qualify for the exemption. This salary threshold provides employers with an objective and efficient way to determine whether an employee qualifies for a white-collar exemption.

The duties test requires that the employee's job duties conform to executive, administrative or professional duties, as defined by law. This analysis requires a more thorough evaluation of whether an employee can be classified in one of the categories mentioned above (administrative, professional, outside sales, computer and highly compensated employee).

Higher Salary Threshold Requirement

The final rule increases in the minimum salary level of $455 per week ($23,660 per year) to $913 per week ($47,476 per year). The new salary level represents the 40th percentile of wages earned by workers in the lowest wage census region in the United States (currently the south) for a full-year worker.

The Final Rule also increases the $100,000 salary level for highly compensated individuals to $134,004 per year – the 90th percentile of wages earned by the full-time workers across the entire United States.

These higher salary levels will be updated every three years to maintain the salary level at their corresponding 40th or 90th percentiles. The first automatic rate update is expected January 1, 2020. The DOL will publish updated rates in the Federal Register and on the Wage and Hour Divisions website at least 150 days before their effective date.

Calculating Employee Wages – Administrative, Executive and Professional Employees

The Final Rule will allow, for the first time, nondiscretionary bonuses and incentive payments (including commissions) to be used to satisfy up to 10% of an employee's standard salary level. This may include the payment of nondiscretionary incentive bonuses tied to productivity and profitability. Nondiscretionary bonuses and incentive payments may be used if they are paid on a quarterly basis, but more frequent payments are acceptable. However, the DOL will allow employers to make some "catch-up payments."

The DOL will also allow employers to use significantly large bonuses toward 10% of the required salary amount.

Enforcement and Compliance

Employers that fail to comply with the Final Rule may be subject to a variety of overtime wage payment enforcement mechanisms, including the ones listed below:

  • Private Employee Lawsuits: These lawsuits can be initiated by employees either individually or through a collective action, to recover back pay, interest, attorney fees and court costs
  • Administrative Injunctions: These injunctions may include prohibition on shipment of goods and interstate commerce if the goods were produced in violation of the FLSA (including overtime wage payment provisions)
  • Civil Fines for Willful and Repeated Violations: Up to $1,100 per violation
  • Criminal Charges for Willful Violations: Up to $10,000 in fines, imprisonment for up to six months, or both