In an administration-spanning saga, the United States District Court for the Eastern District of Texas invalidated the Department of Labor (“DOL”) revisions to the Fair Labor Standards Act (“FLSA”). These revisions (originally due to be effective on December 1, 2016) changed the threshold to qualify for the overtime exemption from a base salary of $23,660 to $47,476 (the “Rule”). The DOL touted the new Rule as a way to combat overtime abused by the country’s largest employers, and give a “pay raise” to millions of Americans. However, the Rule could very well have devastated small businesses.
The Rule essentially limited the determination of whether an employee was exempt from the Federal Overtime requirements to whether the employee was paid an annual salary of at least $47,476. Like every new law and government action for the last… well, forever… there were some good aspect to to the rule, and the intent of bringing the salary floor up to reflect inflation was laudable. However, the Rule ignored the duties test under prior DOL guidance and numerous court decisions. Over 55 business groups asked the Texas Court to invalidate the DOL’s new Rule.
The Court found the DOL had exceeded its authority. The Court invalidated the new rule as “any salary-level test that will effectively eliminated the duties test [or] categorically exclude those who perform ‘bona fide executive, administrative, or professional capacity’ duties” was improper and invalidated Congress’s intent in enacting the FLSA overtime exemptions. Because the new rule doubled the base salary requirements and effectively ignored the duties test the Rule could not stand. The Court went on to find that the provision of the new Rule which would have required automatic increases to the salary threshold was also invalid because it bypassed the statutory requirements for approval of changes to the FLSA.
WHAT THIS MEANS FOR YOUR BUSINESS.
For now, the old salary levels and duties test determine whether your employee is owed overtime under Federal Law. Beware, even if overtime isn’t required by Federal law, overtime may still be required under your state’s laws. The Court’s decision didn’t say the DOL couldn’t adjust the salary level to address inflation. And, since the DOL is seeking comments on a proposed new rule through September 24, 2017, it seems likely a salary increase of some amount is on the horizon. Given the change in the political climate since the Rule’s enactment, it seems unlikely that there will be an appeal of this ruling.
There’s another logistical problem to the invalidation of the new salary requirements. While companies that put pay changes on hold based on the Court’s delay of the Rule’s effective date will continue operations as normal. This isn’t true for all companies. Some companies didn’t hire new employees or fired employees because of the likely increase in overhead expenses under the Rules. Many companies increased employee compensation effective December 1, 2016, to meet the new salary threshold. Decreasing employee compensation based on the invalidity of the Rule is an employee morale and retention. But keeping salaries for exempt employees at the Rule’s levels may pose a significant risk to your business’s ongoing operations and finances. Now that the Rule is invalidated balancing employees’ expectations and company finances may be conflict.Managing your company’s overtime determinations will continue to be a challenge. Classifying employees properly and keeping updated on the changing Federal landscape is tricky.We are monitoring developments and comments on the latest proposed rule from the DOL closely, and are happy to discuss your next best move for your organization.
If you need advice related to overtime classification, employee management or would like assistance with any other business matter, please contact Nancyat Land, Carroll and Blair, PC, in Alexandria and Fairfax, VA at:
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