Take note of employment law changes before expanding your practice

Issue January/February 2016 By Elizabeth Dillon and Karlene Manley

The Massachusetts Bar Association's Young Lawyers Division is designed for attorneys in practice for 10 years or fewer (or since no earlier than 2005). Many of these young lawyers are employed in solo practices and small firms as a result of their difficulty finding employment during and after the Great Recession of 2007-2009. Now that the economy is recovering, these young lawyers have an opportunity to expand their legal practices.

Careful consideration should be paid, however, to the potential economic cost of expansion, particularly in light of changes in Massachusetts and federal employment law. Worthy of consideration are:

Recent increases to the Massachusetts minimum wage.

Leave that certain Massachusettsemployers are now required to provide.

The Department of Labor's recent proposals to expand overtime regulations.

These laws in particular stand to impact the bottom line of solo practices and small firms at which many young lawyers are employed, and so should be afforded particular consideration prior to any hiring or other expansion.

The impact of the increasing minimum wage

The first change of note is the increased Massachusetts minimum wage. On Jan. 1, 2016, Massachusetts' minimum wage rose from $9 per hour to $10 per hour. The minimum wage will increase again on Jan. 1, 2017, rising to $11 per hour (M.G.L. c.151, §§1, 2, 7).

The increased minimum wage will necessarily result in an increased cost of labor, which may affect solo practitioners and small firms disproportionately, as small businesses tend to hire more minimum wage and near-minimum wage employees than other businesses. Businesses that pay employees more than the minimum wage are likely to feel an economic impact as well. According to the Brookings Institute, raising the minimum wages has a ripple effect, leading to increased hourly wages for not only minimum wage earners, but also for near-minimum wage earners. The Massachusetts Budget and Policy Center estimates that 20 percent of Massachusetts workers will be directly or indirectly affected when the minimum wage increases to $11 in 2017.

While larger firms can often offset these increased labor costs with higher hourly rates or by simply absorbing the economic impact, this approach may not be feasible for smaller firms. It may be, however, that increased labor costs will at least be partly offset for smaller firms by the reduced worker turnover and increased worker productivity expected to result from the rising minimum wage.

It is important to note that firms that do not pay minimum wage or near minimum wage may also be impacted by the rising minimum wage, as they may indirectly benefit if workers with larger incomes choose to spend part of their additional wages on legal services.

The potential effects of Massachusetts' scheduled minimum wage increases are hotly disputed. Small business owners themselves disagree on the nature of any impact that raising the minimum wage will have. While the United States Department of Labor claims that the majority of small business owners nationwide support increasing the minimum wage, many small business owners oppose the changes, on the belief that any benefit derived from the increased minimum wage will not offset the cost associated with it. While the topic is disputed, it is clear that small firms in particular should consider the potential impact the rising minimum wage will have on any expansion plans, and in particular, any hiring plans.

The impact of recent changes to employee leave laws

Firms considering expansion and hiring should also consider the potential impact of changes to employment leave, including leave provided under the new earned sick time law (M.G.L. c.149, §148C), the Parental Leave Act (M.G.L. c.149, §105D) and the new Domestic Violence Leave Act (M.G.L. c.149, §52E).

Under the new earned sick time law, Massachusetts employees generally earn one hour of sick leave for every 30 hours worked, up to a total of 40 total accrued hours. Employers with 11 or more employees must provide paid sick leave, while employers with fewer than 11 employees may provide either paid or unpaid sick leave.

Under the Parental Leave Act, employers must now generally provide both male and female employees with eight weeks leave (either paid or unpaid) following the birth or adoption of a child. The law formerly only required that female employees be given such leave.

Under the Domestic Violence Leave Act, employers with 50 or more employees are now required to provide up to 15 days of leave (paid or unpaid) in a 12 month period to allow employees to address issues relating to abusive behavior directed against themselves or a family member.

The overall impact of these changes has yet to be determined. Like the rising minimum wage, one direct impact will likely be increased labor costs. The new earned sick time law alone will cost Massachusetts businesses approximately $198 million, according to the Institute for Women's Policy Research (IWPR). This amount represents a 19 cent per hour increase for employees receiving paid leave under the law.

Like with the minimum wage, increased labor costs may ultimately be offset by other factors. For example, the IWPR estimates that costs resulting from the Earned Sick Leave Act, will be more than fully offset by reduced turnover, fewer sick days (due to the decreased spread of illness at the workplace) and higher employee productivity.

Also of note is the fact that the changes do not apply to all small businesses. Again, the Domestic Violence Leave Act only pertains to employers with more than 50 employees, and the Earned Sick Leave Act only requires paid leave for employers with eleven or more employees. For firms with fewer employees, the impact may be more limited.

The potential impact of proposed Department of Labor regulations

Solo and small firms should also consider proposed changes to employment laws, including the Department of Labor's (DOL) proposed changes to overtime regulations issued under the Fair Labor Standards Act (FLSA).

The FLSA's overtime regulations exempt from overtime pay certain employees who meet minimum tests related to their primary job duties (the so-called "primary duties test") and who are paid a salary over a specified minimum amount. Currently, the standard salary level required for exemption is $455 per week (or $23,600 per year). The DOL proposes to more than double the standard salary required for exemption, to $970 per week (or $50,440 per year), and proposes the adoption of a mechanism which would automatically update the standard salary for exemption going forward.

Raising the standard salary level for exemption may not be as impactful for solo and small firms as for other small businesses, as law firm employees who would be affected under any new regulations are fairly limited. For example, the DOL has repeatedly held that paralegals are non-exempt no matter the base salary, based on their primary duties. Similarly, legal secretaries and receptionists generally are and would remain non-exempt, again based on their duties. In contrast, lawyers are specifically exempted by regulation, no matter their salary (29 C.F.R. §541.304). These employees are unlikely to be directly affected by any change in the FLSA regulations.

Some law firm employees will be affected by the proposed changes, however. Most notably, it is expected that law clerks, summer associates and legal interns who have not already obtained a law degree, and who make less than $970 per week (or $50,440 per year) would be entitled to overtime under the proposed changes.

A bright future for young lawyers

The future looks bright for young lawyers. Using the same entrepreneurial skills and innovative approaches they used in job-hunting immediately after the Great Recession, young lawyers are growing their firms and expanding their opportunities in the recovering economy. To ensure the continued success of this growth, young lawyers, and specifically solo practitioners and those employed in small firms, should take particular care to consider the impact of the ever-developing world of employment law.