On November 22, 2016, in response to legal challenges filed by 22 states and over 50 business organizations, a federal district court in the Eastern District of Texas issued a temporary injunction preventing the Department of Labor (DOL) from implementing most of the DOL’s new regulations relating to overtime, which regulations were scheduled to become effective on December 1, 2016. (According to the Court’s order, only the highly compensated employee exemption change will apparently still take effect on Dec. 1, 2016). In its order, the Court noted:
The Department has admitted that it cannot create an evaluation “based on salary alone.” . . . But this significant increase to the salary level creates essentially a de facto salary-only test. For instance, the Department estimates 4.2 million workers currently ineligible for overtime, and who fall below the minimum salary level, will automatically become eligible under the Final Rule without a change to their duties. . . . Congress did not intend salary to categorically exclude an employee with EAP [executive, administrative, and professional] duties from the exemption [from the Fair Labor Standards Act’s minimum wage and overtime requirements].
The injunction applies nationwide. The Court will still have to hold a full evidentiary hearing before deciding whether the injunction is to become permanent, however. Even if that ultimately happens, the DOL could still appeal any permanent injunction to the Fifth Circuit Court of Appeals and ultimately to the United States Supreme Court. Whether the DOL will try to immediately appeal this temporary injunction is unclear. Also, it is unclear whether the new Trump administration will continue to fight for the implementation of the new salary level test or whether it will be content to leave the 2004 salary level of $455/week in place when it is installed in January 2017.
What is clear is that the new salary level test of $913/week will not go into effect in any state by Dec. 1, 2016, because of this temporary injunction. Whether employers, because of this temporary injunction, decide to delay changes to their employees’ pay based upon the new salary level or attempt to “roll-back” such changes already made will depend upon the business considerations of each employer.
As background for those who may not be familiar with the DOL’s proposed overtime rules, in May 2016, the DOL issued a final rule changing the salary level required to be paid to employees in order for those employees with otherwise exempt job duties to be paid on a salary basis and not be subject to the Fair Labor Standards Act’s (FLSA) minimum wage and overtime requirements. Below is a summary of some of the significant changes contained within that rule, which changes were scheduled to take effect on Dec. 1, 2016:
1. Salary Threshold Changed to $913/week ($47,476/Year) – This is the guaranteed pay that an employee must receive in order to be classified as exempt from the federal Fair Labor Standards Act’s minimum wage and overtime requirements. This new threshold more than doubles the current salary threshold level of $455/week. While this level is slightly lower than the threshold in the proposed rule ($970/week), it still encompasses many employees that are currently classified as exempt. Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
2. Automatic Salary Threshold Increases Every 3 Years (Not Annually) to Maintain Level at 40th Percentile in Lowest-Wage Census Region – The DOL reduced the frequency of the automatic increases in response to concerns raised by employers. Instead of annual increases, the threshold will be adjusted every 3 years to maintain the level at the 40th percentile of full-time salaried workers in the lowest-wage Census region.
3. Job Duties Test is Unchanged –The DOL did not make changes to the standard duties test.
4. Effective Date is December 1, 2016
5. Highly Compensated Employee (HCE) Exemption Is Now $134,004/Year – This is an increase from the current threshold of $100,000/year. The final rule retains the methodology in the proposed rule setting the threshold at the 90th percentile of full-time salaried workers nationally.
If you have questions about this development please give us a call.
Geoffrey A. Lindley | Attorney at Law
Rainey Kizer Reviere & Bell PLC