The Department of Labor recently issued sweeping new regulations on the eligibility of workers, especially “white-collar” employees, for overtime pay. Federal law requires that overtime be paid for nonexempt employees at a rate of one and one-half of regular pay for all hours worked over 40 hours in a week. To be “exempt” is to be ineligible for overtime. Employers should update their employee handbooks to reflect the new law on overtime pay.Salary Tests
Since 1975, workers paid a salary of less than $155 per week ($8,060 per year) have been eligible for overtime, regardless of their job duties or how they are paid. Now that threshold has been raised considerably, to $455 per week ($23,660 per year). The “highly compensated employee” test will make workers with an annual salary of at least $100,000 exempt, if they perform office or nonmanual work and “customarily and regularly” perform one of the duties of either an exempt executive, administrative, or professional employee. The exempt duty need not be the employee’s “primary duty.”
Manual laborers, other blue-collar workers, licensed practical nurses, and “first responders,” such as police officers and firefighters, will be eligible for overtime regardless of salary.
Executive Exemption
In the middle ground of compensation, between $23,660 and $100,000 per year, individuals will be exempt as executives if their primary duty is management of the enterprise or one of its departments or subdivisions, and if they “customarily and regularly” direct the work of at least two full-time employees. A new requirement is that would-be executives must either have the power to hire and fire or at least their recommendations in such matters must be given “particular weight.” This tighter focus on hiring and firing is a change from the former regulations in which employees could fall within an executive exemption because of their general managerial authority. The term “particular weight” invites differing interpretations, but courts can be expected to look at factors such as whether hiring and firing recommendations are part of an employee’s regular job duties and how frequently such recommendations are made. An employee who owns at least 20% of a business and is actively engaged in managing it will also be exempt, without regard to salary thresholds.
Administrative Exemption
For employees in the same mid-range of compensation used for the executive exemption, but whose primary duty is “the performance of office or nonmanual work directly related to the management of the general business operations of the employer or [its] customers,” the administrative exemption will apply. The employee’s primary duty must also include work that involves the “exercise of discretion and independent judgment with respect to matters of significance.” These criteria are too broad to allow an exhaustive list of “administrative” positions, but some examples from the new regulations include insurance claims adjusters, financial service employees, policymaking human resource managers, and team leaders for major projects.
Professional Exemption
“Learned professionals” earning between $23,660 and $100,000 will continue to be exempt from overtime as long as their primary duty is the performance of work requiring advanced knowledge in a field of science or learning that is customarily acquired by a “prolonged course of specialized intellectual instruction.” The learned professional’s work must include work “requiring the consistent exercise of discretion and judgment,” as opposed to routine mental, manual, mechanical, or physical work.
Safe Harbor
Coming into compliance with the new regulations could be a daunting task, given their length, complexity, and lack of specific terminology. Ironclad advice that applies across the board is also in short supply because applying the new rules correctly is highly dependent on the facts and circumstances of each case. But balancing the difficulty of compliance is some leniency in enforcement. A “safe harbor” in the new regulations protects employers who make improper salary deductions. Employers with clear policies and procedures for addressing salary deduction errors will not lose an exemption for a class of employees unless the employer continues to make improper deductions after receiving complaints.
Real Estate Letters of Intent
A letter of intent (LOI) reduces to writing a preliminary understanding of parties who intend to enter into a contract, including contracts to purchase real property. The concept falls somewhere on the continuum between the first informal talk about a possible deal and a binding written agreement covering all of the essential terms. By its nature, an LOI does not bind the parties to the transaction, raising the question as to how it can still be useful. An LOI is evidence of some commitment, albeit more moral than legal, to the deal. A potential buyer with an LOI in hand has an edge over others who may have an eye on the property. Having laid a foundation on which a deal could be built, the buyer and the seller can feel more comfortable about putting in the effort, energy, and money that may be necessary to actually close the deal.
LOIs have potential drawbacks and should not be entered into without advice of counsel. First, if an LOI is produced only after extensive proposals and counter-proposals, or if it becomes stuffed with details you would normally expect to find in the fine print of a contract, it may be more trouble than a nonbinding document is worth. All of that work is better saved for the “main event.”
Second, while it may be appropriate and even desirable to describe the key terms of the subsequent contract in the LOI, it must be made very clear that the terms are not yet binding. In fact, an LOI should state generally that the parties do not intend to be legally bound to consummate any transaction until they have signed and delivered a written agreement in which they agree to be bound. It helps in this regard to avoid using boilerplate contract terms like “agree,” “offer,” and “accept” in an LOI. Language to the effect that an agreement is subject to formal documentation may be helpful, but by itself it may not rule out a conclusion that the parties intended to be bound. Similarly, while it may not settle the issue, calling the document a “letter of intent” implies a nonbinding expression in contemplation of a future contract.
In an LOI, the buyer and the seller may need to bind themselves to certain preliminary matters leading up to the contract, however, such as access to the property for inspections. In that case, it is essential to distinguish clearly between nonbinding and binding items in the LOI. Even when the language of the LOI is in good order, a party to the LOI should take care to avoid conduct or statements that are at odds with the LOI’s preliminary nature. Otherwise, the other party may attempt to argue, in effect, that actions speak louder than even written words, and that both parties meant to be, and are, bound by everything in the LOI.
In a recent case, a court ruled that a “letter offer” sent by a developer and signed by the owner of undeveloped land was not a binding agreement. The factors that led to the decision are instructive. The language in the letter stating that it “will serve to set forth some of the parameters for an offer” suggested the setting of negotiating boundaries, rather than final terms. The letter expressly anticipated that a contract of purchase and sale would be executed later.
It was also significant that several key obligations and events concerning the expected sale, such as the beginning of an inspection period, were to be triggered only by the execution of a contract, not by the offer itself. Finally, the letter offer omitted some terms one would expect to find in a multimillion-dollar contract for the sale of property, such as a closing date, warranties, conveyance provisions, responsibility for taxes, and how the parties were to notify each other of contractually significant events.