Editor’s Note: This article is a shortened version of a feature in the winter edition of Club Director. For the full version, please click here.
The legislative, regulatory and judicial environment for clubs has never posed more challenges to clubs. From the proposed Overtime Rule to the longstanding Affordable Care Act (ACA), among other legal issues, clubs should be mindful of the direct impact these matters have on their operations. The National Club Association (NCA) has compiled a list of the most impactful issues for clubs to watch in 2016.
1. The Proposed Overtime Exemption Rule
Employee-related lawsuits are receiving more visibility in the public sphere. One of the most prominent areas for these lawsuits is overtime compensation. In fact, overtime lawsuits rose 7.6 percent in 2015 to an all-time high of 8,781 cases. In 2016 that number is expected to grow even more.
Currently, a South Florida club is in the midst of a lawsuit filed by a former sous chef who believes he was entitled to overtime pay. This case hinges on whether the plaintiff was exempt from overtime pay or not. It is likely to be one of many overtime cases from employees brought against clubs.
The Department of Labor’s (DOL’s) proposed overtime exemption rule will increase the minimum weekly salary for an employee to be exempt from overtime pay from $455 per week ($23,660 per year) to $970 per week ($50,440 per year). Also under review is the “primary duty” test for each exempt employee category. The rule is expected to go into effect in the second half of 2016.
Impact: As the overtime exemption threshold is set to increase, the number of nonexempt employees will rise sharply and will increase clubs’ vulnerability to overtime pay and potential litigation if clubs fail to comply with the new rule appropriately. In response, clubs should reevaluate their relationships with their exempt employees and clearly define employees’ roles and duties to comply with the regulation.
The proposed rule will also pose significant financial and administrative challenges to clubs. It may force club leaders to re-evaluate their current staffing plans, change employees’ hours and shifts, and alter employee compensation packages to minimize potential increases in overtime obligations. NCA will continue to work with DOL and lawmakers to find reasonable ways to modify the rule before it is finalized.
2. Independent Contractor Classification
In an effort to minimize worker misclassification under the Fair Labor Standards Act (FLSA), DOL has issued new guidelines for defining who is considered an independent contractor (IC) or an employee. Clubs must now look at an “economic realities” test to help them classify their staff correctly. Failure to do so, and thus failure to classify a worker correctly, could lead to significant financial penalties under the FLSA.
The factors a club must now look at include:
- Is the work performed integral to the club’s business?
- Does the worker’s opportunity for profit or loss depend on his own managerial skills?
- What is the extent of relative investment in each business by the club and worker?
- Does the work require special skills or initiative?
- How permanent has the relationship been between the worker and the club?
- What is the club’s degree of control over the worker?
Impact: DOL has broadened the definition of an IC, and coupled with the expansion of the term “joint employer (issue 6),” clubs that have caddies, golf and tennis pros, fitness instructors, even cleaning crews and landscapers now have new concerns. Clubs will be required to show more to ensure they comply with these rules to avoid unnecessary litigation. NCA will continue to review this guidance and let you know when additional information regarding enforcement is provided. Until then, NCA strongly urges all clubs currently using independent contractors to review this new DOL interpretation with their club counsel.
3. Waters of the United States (WOTUS) Rule
The WOTUS Rule now in effect will cause private clubs’ ponds, creeks and streams to fall under the Clean Water Act (CWA). Under this new regulation, clubs will be subject to the Environmental Protection Agency’s requirements that regulate the use of certain chemicals and fertilizers that may runoff into these newly protected bodies of water.
Fortunately for clubs, the rule has been put on hold for all 50 states until a lawsuit against the regulation is resolved. While the rule does not present an immediate concern, circumstances could change quickly.
Impact: If the courts decide to allow the WOTUS Rule to go forward, clubs will be hit with significant financial and administrative burdens. To prepare for this possibility, clubs should begin an audit of their course water to determine whether it falls under the law. If it does, clubs must ensure they meet the necessary requirements to avoid violating the CWA.
What Clubs Must Do
Clubs should prepare for these legal and workforce issues today. If you have any questions regarding these or other legal challenges affecting the club industry, please contact Brad D. Steele, NCA Vice President of Government Relations & General Counsel at 202-822-9822 or [email protected].
Phillip Mike is NCA’s senior communications manager.