Federal Judge Bars Implementation of New Salary Level Rule

What Happened

On November 22, 2016, a United States District Judge in Texas issued a nationwide preliminary injunction barring implementation of the U.S. Department of Labor’s [“DOL”] regulation increasing the level of salary employers must pay to executive, administrative and professional employees in order for such employees to remain exempt from overtime pay requirements under the Fair Labor Standards Act [“FLSA”]. The DOL’s regulation was set to become effective December 1, 2016. It increased the minimum salary level for exemption from the FLSA’s overtime requirements from $455 per week [$23,660 per year] to $913 per week [$47,476 per year].

What This Means

The DOL announced the regulatory change May 23, 2016. Employers have since been planning for implementation. Some employers planned to increase salary levels for employees who have until now been exempt from overtime pay requirements because of their duties. Other employers planned to convert such employees to hourly pay rates and pay them overtime compensation for weekly time worked in excess of forty hours. The preliminary injunction means that, at least for now, employers do not have to make these changes in order to continue to pay executive, administrative and professional employees on a salary basis without overtime compensation.

Background

In a written opinion issued with his preliminary injunction order, the judge called into question the DOL’s authority to set any salary level. He noted that the FLSA, as passed by Congress in the 1930s, exempted executive, administrative and professional employees from receiving overtime compensation based upon their job duties only. While Congress gave the DOL authority to regulate about what types of duties qualified employees for the overtime exemption, the judge concluded that Congress did not give the DOL authority to base overtime exemptions upon the amount of salary paid to employees. He concluded that only Congress has the authority to establish salary levels as a basis for overtime exemption.

What Happens Next

On November 28, the same judge will hold a hearing and take evidence in order to determine whether to make his preliminary decision final. If he rules in favor of the business and state and local government organizations which sued to block the DOL’s regulation, the DOL could appeal his decision to a Federal Appeals Court. However, if the final decision is issued after the change in administration on January 20, 2017, the new Trump administration could decide to drop opposition to the lawsuits challenging the FLSA regulations.

What to Do Now

Employers who made compensation system changes because they assumed the rule would go into effect are now placed in a difficult situation because rolling back changes already made could have strong negative effects on employee morale. However, the preliminary injunction means that, for now, employers may legally maintain the status quo: employers may continue to treat otherwise exempt employees earning more than $455 per week as exempt from the requirement that they receive overtime compensation if they work more than forty hours in a week.

If you have any questions regarding this Client Alert, please contact Joe Hofmann at 717.399.6643 or the Stevens & Lee attorney with whom you normally consult for labor and employment matters.

This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.

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