Got Outside Sales Personnel? You Have a Chance to Tell the Labor Department When You Should be Required to Pay Them Overtime

The Labor Department is seeking comments on an overtime rule – one that affects overtime payments to outside sales personnel and to administrative and executive personnel.  This is a rule that could dramatically change the pay structure of certain distributors, and is worth the attention of ASA members.

Background

The Fair Labor Standards Act (FLSA) generally requires covered employers to pay their employees overtime premium pay of not less than one and one-half times the employee’s regular rate of pay for any hours worked over 40 in a workweek. But there is an important exception that exempts “any employee employed in a bona fide executive, administrative, or professional capacity … or in the capacity of outside salesman ….”  These perosnnel are known as “exempt” personnel, and they are not subject to the FLSA protections.  Thus, outside sales personnel do not have to be paid overtime.  This allows outside sales personnel to be paid based on productivity rather than hours of effort (e.g. commission) where that compensation mechanism is appropriate.

The Issue

In May 2016, the Labor Department under President Obama issued a new rule that would extend overtime benefits to many employees who did not previously enjoy those benefits.  The Administration had bragged that this will automatically extend overtime pay protections to over 4 million workers who did not previously have this entitlement.

The Obama Administration proposed to add new tests that would have extended overtime pay to many categories of personnel (including outside sale personnel).  The new tests included a salary-level test and an automatic updating mechanism which would have extended the standards found in FLSA.  In November, a Federal Court stopped the rule from being implemented.  The Court concluded that the overtime exemption statute (29 U.S.C. § 213(a)(1)) was plain in its language, and did not permit the Department of Labor to add tests that undermined those exemptions.

The Trump Administration has pledged to dismantle many of the programs established by the Obama Administration, and this is the next one to potentially face the chopping block.

What Now?

On February 24, 2017, President Donald Trump signed Executive Order 13777, “Enforcing the Regulatory Reform Agenda,”  that directed federal agencies to identify regulations for repeal, replacement, or modification.

The overtime rule has been enjoined from enforcement, but it is still on the books.  It makes sense to revoke it, consistent with the  Executive Order.  But you cannot just waive a magic wand and be rid of a regulation – it must be rescinded using the same Administrative Procedures Act process that was used to enact it.  The Department of Labor has potentially started this process.

The Department of Labor has put out a request for information in which they are seeking comments on the overtime provision.  The call for comments includes a list of questions, but any comments on the overtime provisions are welcome.  The list of questions includes questions about reforming the overtime provisions in order to make them acceptable.

Written comments should be sent to the Department on or before September 25, 2017.  Please let ASA know your concerns, as well, so our comments can reflect your concerns.

Advertisements

Responding to an Administrative Subpoena

Many administrative agencies have subpoena power.  This means that they can send you a subpoena insisting that you give testimony, or (more commonly for administrative subpoenas) provide documents.

The first step in responding to an administrative subpoena is to issue a “litigation hold” within the company.  This is a written notice to your staff directing them to preserve any documents, records, or other information that may be responsive to the subpoena.  Rather than relying on the staff to identify what is responsive, companies typically want to prevent the staff from destroying any records, except under the direction of an attorney.  This also may mean turingin off systems that automatically dispose of records.  For example, if your system automatically deletes emails after a certain period, or if you periodically purge records, then those mechanisms should be turned off until a legal review can determine the right course of action (and don’t be surprised if the legal review insists that those purging systems stay off for the duration of the investigation).  Litigation holds can include both electronic records and paper records and can even apply to handwritten notes.

The second step in responding to an administrative subpoena is to talk to a lawyer (this is interchangeable with step one – they should happen at about the same time – the lawyer’s help may be quite useful in issuing the internal hold message).  There are many reasons for this, but one of them is that not all subpoenas are created equal.  It is possible that you might not need to respond, or that the right course of action could be to file a formal motion to quash.

I have encountered both valid and invalid administrative subpoenas over the years.  Validity can turn on a wide variety of factors.  Sometimes the subpoenas are issued by parties who were not authorized to issue them (rending the subpoena invalid). Sometimes they are overly broad; talking to the administrative agency about their investigative focus can sometimes help narrow the scope of the request to a more reasonable scope.  If you do this, though, make sure you record any such agreement about a change in scope in writing, with the government inspector’s written concurrence.

If the administrative subpoena is invalid, then you may wish to move to quash the subpoena.  Remember that one remedy for an invalid subpoena is to withdraw it and reissue a valid one, so discuss strategy carefully with your lawyer.

If the administrative subpoena is valid but needs to be amended (needs to be more specific, less overbroad, etc.) then you may want to have your lawyer negotiate an amendment with the issuing agency.  Sometimes the subpoena calls for an avalanche of records when the government only needs a small trickle, but the agent who issued the subpoena did not know how to describe the narrow category of records that he or she really wanted.

Remember that you are not always the target of the investigation.  An attorney can start to gauge the focus on the investigation by talking with the agency that issued the subpoena.  Many aircraft parts distributors have received subpoenas from export agencies because someone else in the chain of commerce is being investigated.  But if you are the target of an investigation, your rights in an administrative proceeding may be different than your rights in a criminal proceeding.

Having your attorney speak with the issuing agency is frequently a good move.  The investigator who caused the subpoena to be issued has a lot of power to modify the terms of the subpoena in order to (1) make it easier to comply, and (2) by easing compliance, make it more likely that the investigator will get the information that he or she desires.

Do not ignore the subpoena!  One aircraft parts distributor did and it cost them $225,000.  I know this claim sounds like part of an old-fashioned chain letter (or the modern email version), but in 2010 a distributor settled a claim that they had failed to comply with a subpoena, and it cost them nearly a quarter of a million dollars.

The facts of the case showed that the aircraft parts distributor had submitted 260 pages of responsive documents, but it failed to submit a copy of a post-sale e-mail.  The facts also showed that aircraft parts distributor had provided a copy of that email to its lawyer (the public documents did not reveal whether the lawyer was sanctioned for withholding that document).  The government even recognized that the company had relied in good faith on the advice of the lawyer in determining not to produce the e-mail.  Nonetheless, the company was accused of an egregious violation and ultimately settled the matter for $225,000.

Talk to ASA’s Lawyers at ACPC

Have you wondered what is the inside scoop on ASA and its government relations programs?  Well, wonder no longer!

ASA counsel Jason Dickstein and Ryan Aggergaard will be at ACPC this year, and they will be meeting with ASA members to find out what business hurdles you are facing, and what ASA can do to help.

Jason and Ryan will be setting up times during the Meet & Greet sessions at the hospitality suite.  They will also be available through the entire ACPC event.

Jason will also be teaching a class on how aircraft parts documentation is changing (and changing rapidly) and what the industry and FAA are doing about it.  If you are buying or selling aircraft parts, then you can’t afford t o miss this session!  His class takes place on Monday August 28 at 3:15.  As a bonus, George Ringger will appear immediately after (at 4:30) to discuss strategies for responding to the changing marketplace.

Want to set aside a special time to talk to ASA’s lawyers?  Just email us and we can make arrangements to meet during ACPC.  We look forward to seeing you there!

FUNCTION CODE 56 UPDATE: Airline Sourcing is OK; but PAH Trace Must be Established

Recent confusion about the use of function code 56 has caused some consternation in the industry.  The focus of this issue has been on parts obtained from air carriers (which represents a significant portion of the industry’s surplus parts).

The issue arose from an FAA email that incorrectly stated that articles obtained from an air carrier were ineligible for 8130-3.  This was not a correct statement, and the FAA is planning to issue a follow-up email to correct this statement.

Our FAA contacts says that they have seen at least one case where Limited DAR-F’s are issuing 8130-3 tags for parts that were not traceable to a PAH in accordance with the criteria FAA established in the DAR 56 policy memo of October 14, 2016.  The FAA reports that a function code 56 designee had issued tags based solely on paperwork from an airline, in the absence of paperwork or markings from the PAH. While some DAR function codes permit reliance on air carrier evidence (e.g. to identify new surplus parts), function code 56 does not permit that to be the sole basis of an airworthiness decision.

Recently the FAA sent an email to the entire Limited DAR-F community to warn them about this issue.  The intent of the email was to make it clear that the paperwork or the physical part markings had to be traceable to a PAH in order to issue an 8130-3 tag under DAR function code 56.

The recent emailed guidance suggested that function code 56 does not allow 8130-3 tags for articles from Part 121 air carriers.  This description was not an accurate portrayal of FAA policy, because the statement was truncated.  We have discussed this matter with Scott Geddie, who heads up designee policy for the FAA, and he confirmed that the correct statement should have looked like this:

This program DOES NOT allow issuance of an 8130-3 tag for:

….

  • Parts or articles obtained from an FAA Part 121 air carrier, unless proper documentation exists from the PAH or there are part markings traceable to the PAH

The italicized text (above) was not in the original FAA email, but the FAA has pledged to send a follow-up email with the italicized text, and has confirmed that italicized text represents the intent of the FAA.

For comparison purposes, the original October 14, 2016 policy memo makes the function code 56 requirements very clear.  To issue an 8130-3 under function code 56, you need one of the following:

  1. Certificate of Conformity/Statement of Conformity from a Production Approval Holder (PAH); or
  2. Certificate of Conformity/Statement of Conformity or shipping document from a PAH supplier with verification of direct ship authorization; or
  3. Part Markings made under 14 C.F.R. § 45.15.

If you have other evidence of airworthiness (like valid air carrier trace), then an 8130-3 may still be issued – but it must be issued by a DAR with a different function code.

Receiving Inspectors are Not Performing Maintenance

In a victory for common sense, the FAA has issued a legal interpretation that confirms that receiving inspectors who are receiving articles for stock are not performing maintenance activities, and therefore they are not among the personnel who are required to be subject to DOT-regulated drug and alcohol testing.

This effort was spearheaded by our industry colleagues at ARSA, but the final request for interpretation was jointly filed by 15 organizations (including ASA).

The root of the issue is that the Part 120 requirements require air carriers to ensure that their maintenance subcontractors are tested under the drug and alcohol rules.  This requirement is applied to those who perform aircraft maintenance duties – but those who do not perform such duties are not subject to the testing requirement.

During development of the request for opinion, we pointed out that distribution had been excluded from the scope of drug and alcohol testing in a federal register preamble (at the request of ASA).  Receiving inspection is generally performed in a uniform manner across the aviation industry, so the receiving for stock that is not maintenance in a distribution facility should be treated the same as the receiving for stock in an air carrier or repair station facility.

The FAA agreed with our logic, and yesterday issued a legal opinion letter confirming that receiving inspectors who are receiving articles for stock are not performing maintenance in a way that would make them subject to DOT’s drug and alcohol testing requirements.

“Last Certificated Agency” on Spec 106: What does it Mean?

One of ASA’s members wrote to me with a Spec 106 question.  It is a question that I have heard before.  At its root, the question is, “What does block 13C on the ATA Spec 106 form (“Last Certificated Agency”) mean and whose name do we put into that block?”

In this case, a distributor was planning on purchasing aircraft parts from a non-US air carrier.  The carrier in question is a foreign regional carrier (FRC) with no Part 129 certification from the FAA.  The distributor was wondering whether the FRC could be “Last Certified Agency” of Block 13C of their ATA-106?  The answer to that question depends on whether the FCC has performed a maintenance activity on the part.

The Spec 106 instructions for block 13C very simply say:

“Name the last certificated agency and its certificate number who last performed maintenance on the part.”

Although this sentence likely anticipated FAA-certificated agencies (because it was written over 20 years ago by US air carrier representatives), that limitation is not specified in the instructions.

Something that is specified in the instructions is that suppliers of surplus parts that have been inspected shall include a document from a FAA 121, 135, 129 or 145 certificate holder indicating condition.  This would be in addition to the Spec 106 form.  This is not a regulatory requirement, but it is a requirement of the specification in section 3-7, and it shows us what was considered appropriate when the specification was developed.

Back to our fact pattern; the distributor indicated that the FRC employs certified inspectors.  These inspectors perform inspection at the time of receipt (receiving inspection) and issue documentation stating that the part is considered airworthy.   Inspection is typically considered a maintenance activity that must be reflected in an approval for return to service or other maintenance release.  Typically receiving inspections are not considered to be maintenance activities in their own right, but are part of the maintenance organization’s activities.  But if receiving inspection is treated as a separate maintenance activity in this FRC, and receiving inspection is documented as such, then this activity coul dbe a maintenance activity performed by a certificated agency.

So now we have to look at what kind fo parts are being transacted in this case.

If the parts are new parts that are surplus to the FRC’s needs, then the inspectors could inspect them to new condition, issue appropriate approval for return to service verifying that the parts have been inspected to new condition, and then the Spec 106 form could list the FRC as the last certified agency in block 13C.  This may be subject to the same section 3-7 caveat mentioned above if the parts are received by a company with a Spec-106 compliance receiving inspection system.  But the idea of issuing an air carrier approval for return to service is not a new one.  Northwest Airlines used to issue 8130-3 tags for their surplus parts indicating that the parts had been inspected to verify the condition in which they were sold.  For new surplus parts, this meant that their new, unused, status has been confirmed.  An FRC could use whatever maintenance release form they typically use (such as the ANAC SEGVOO-003, CAAC AAC-038, EASA Form One, TCCA Form One, etc.) in order to document the inspection.  They should be careful to describe what inspection was performed in the remarks block of the maintenance release form.

But what if we are talking about parts in ‘as removed’ condition?  In such a case, the FRC could still be the last certificated agency if it performed an activity like an inspection.  For example, a post-removal inspection that verifies atht the part is unairworthy could be a maintenance activity.  In this case the activity would be the inspection, and the unserviceable tag could be the record of the work performed (to meet this requirement, it typically needs to state what work was performed, e.g. the inspection).

Just because the part is not serviceable does not negate the fact that an inspection was performed and documented.  But of course, the FRC must have appropriate maintenance capabilities to perform the inspection in question – if they do not (e.g. because all of their maintenance work is performed by contractors) then their ‘inspection’ might represent unauthorized maintenance – in such a case the maintenance contractor might the appropriate party to perform and document the inspection in question.  In that situation, the maintenance contractor may be the last certificated party.

OPPORTUNITY FOR IMPROVEMENT

One of the issues with the Spec 106 form is that the instruction set is not very well suited to non-US operations (it was written for A4A in the 1990s).  IN today’s industry, global operations and global sources fo supply have become the norm.

ASA is currently working on proposed revisions to spec 106.  we have formed a subcommittee from among our Quality Assurance Committee and that group has been working on proposed changes.

Our work plan, which we’ve coordinated with IATA and A4A, is that we will next share our proposals with IATA and then ASA and IATA intend to jointly present a set of proposed changes to A4A.  Because the ATA specifications belong to A4A, A4A is the final arbiter of any changes to ATA Spec 106.

If you have any interest in participating in this process, then please let ASA know; we are currently working on this project, and plan to have our proposals ready quite soon.  We will be briefing the Quality Assurance Committee on progress at the Annual Conference in July, so we would appreciate your input NOW to make sure it is included in the ASA proposal.

ACPC Registration is Coming Up!

Don’t forget to register for the Air Carrier Purchasing Conference (ACPC).

Registration begins on Monday morning, May 1, 2017, at 9:00 am eastern time.  You should register through their website at www.acpc.com.

This year’s ACPC will take place August 26 – 29, 2017 in San Diego, California at the Marriott Marquis San Diego Marina Hotel.

%d bloggers like this: