In June, we reported that the Pennsylvania Department of Labor and Industry (DLI) submitted to the Pennsylvania Independent Regulatory Review Commission (IRRC) a proposed rulemaking package that seeks to update the Executive, Administrative and Professional (EAP) exemptions to the Pennsylvania Minimum Wage Act's (PMWA) overtime requirements. Among other things, the proposed changes would significantly increase the salary threshold required to meet the exemptions, automatically increase the salary threshold every three years, and change certain elements of the duties tests. As part of the rulemaking process, DLI requested comments on its proposed rulemaking from the public, members of the legislature, and IRRC.

The formal public comment period ended on August 22, 2018, and DLI received hundreds of comments—both for and against the proposal. Many of the comments in favor of the proposal focused on the fact that Pennsylvania’s salary level is outdated. Many of the comments against the proposed regulations were consistent with our observations that they fell short of DLI’s aspirations to align and make consistent the Pennsylvania and the federal regulations. In addition, commenters noted that the proposed salary increase, with automatic increases with no oversight, went too far and would cause significant harm to both employers and employees.

On September 21, 2018, IRRC¹ responded by submitting its own comments to DLI and suggesting issues for DLI to address as it wrestles with drafting a final rulemaking packet. In general, IRRC observed that “[b]ased on the range of commentators and volume of comments, it appears that the Department’s regulatory language has not yet achieved consensus on many issues.”² IRRC also noted that “[t]he explanation of the regulation in the Preamble to the proposed rulemaking is not sufficient to allow IRRC to determine if the regulation is in the public interests.”³

In addition, IRRC makes a number of specific observations and recommendations for DLI to consider:

1. IRRC cites the estimated costs for compliance provided by higher education institutions and nonprofit organizations, noting that they appear to contradict DLI’s estimates.
2. IRRC highlights comments by nonprofits and local governments that DLI is pushing through an unfunded mandate, and it asks DLI to consult with the regulated community to gain a thorough understanding of the fiscal impacts of the proposal and to address those findings in the final rule and preamble.
3. IRRC highlights the substantial salary increases, and it asks DLI to explain why such a large increase is reasonable.
4. IRRC notes employers’ observations that they will have to convert currently-exempt salaried employees to hourly and that these options may negatively impact employee morale and workplace flexibility. IRRC recommends DLI revise its assessment of the impact of the proposed rule to account for these potential impacts on individuals and address the concerns raised by the comments in the preamble to the final-form regulation.
5. IRRC acknowledges the “non-deliberate inconsistencies” that remain between Pennsylvania and federal law. See comments submitted by the Pennsylvania Chamber of Business & Industry for more detail.
6. IRRC encourages DLI to delete the phrase “customarily and regularly” for the administrative exemption since it does not appear in the federal regulations. At a minimum, IRRC asks DLI to explain why this phrase is needed and how it aligns Pennsylvania’s regulations with the federal regulations (which as we previously explained—it does not).
7. IRRC observes that U.S. Department of Labor (DOL) is also in the process of rulemaking. Based on this, IRRC asks DLI to explain why it is in the public interest to proceed with rulemaking in advance of changes at the federal level. “If the Department continues with promulgation of the regulation, it should address how it will handle future misalignment with revised federal regulations. It should also explain its plans to review the state’s regulations once the federal overtime rule is adopted and how it will communicate with the regulated community regarding any changes.”
8. IRRC asks DLI to answer many questions posed by commenters, and it notes that it will review DLI’s responses to determine whether the regulation is in the public interest. Some of the questions include:
   • Why did DLI use the 30th percentile of weekly earnings of full-time nonhourly workers in the Northeast regions rather than data from neighboring states when it set the proposed salary threshold for the EAP exemptions?
   • With regard to the automatic reset of the salary threshold every third year, what happens in times of economic downturn?
   • What opportunities exist for the regulated community to have input or provide feedback to DLI regarding a new salary threshold?
   • What is DLI’s statutory authority to implement an automatic reset of the salary threshold?
   • How does DLI’s proposal differ from the DOL’s attempt to enact a similar regulation two years ago that was found to be unlawful?
   • How does DLI expect to avoid the same legal challenges in Pennsylvania? Did DLI consider using other data or another methodology?
9. IRRC highlights the concern that the proposed rulemaking is too significant and substantial a change to be undertaken by unelected officials, and it encourages DLI to work with legislators and the standing committees for any additional rulemaking.

The regulatory ball is now back in DLI’s court. The Regulatory Review Act requires DLI to respond to all comments received, including those from the public and IRRC, which it is expected to do in the coming months. DLI has until August 2020 to publish its final rule, but DLI has expressed an interest in finalizing the rule in 2019. To do so, it must submit its final-form regulation back to IRRC (and legislative committees and members of the public who have requested a copy). At that point, IRRC will hold a public meeting and vote on whether the final rule satisfies the Regulatory Review Act requirements.

Although the final rule will not be published in the Pennsylvania Bulletin for another formal public comment period during the final rulemaking process, interested parties will be permitted to submit comments in writing to DLI and/or IRRC members of the public also may comment on the final regulation at IRRC’s public meeting.

If IRRC votes to approve the final rule, DLI is expected to submit the final rule to the Attorney General for legal review. If the Attorney General approves the regulation, DLI will submit the final rule for publication in the Pennsylvania Bulletin. As currently drafted, the final rule will take effect the day the rule is published.

If IRRC votes to disapprove the final rule, DLI has three choices: it may (1) withdraw the regulation; (2) resubmit the regulation to IRRC with revisions within 40 days of receipt of the Commission’s disapproval order; or (3) submit the regulation without revisions to the General Assembly.

Takeaways

There are now two regulatory measures on the horizon seeking to significantly change the salary and duties requirements to qualify for the EAP exemptions. While DLI has until August 2020 to publish a final rule, both DLI and the DOL have indicated their desire to act sooner. Employers would be wise to study the proposed changes, start planning for how they may affect their workplace, and continue to closely monitor the status of these dueling measures. Employers should also take advantage of upcoming opportunities to submit comments.