U.S. Department Of Labor Shake Up, Doubling The Minimum Salary For Four (4) Million Exempt Employees, Is Put On Hold By A Federal Court Preliminary Injunction
The Fair Labor Standards Act (“FLSA”) sets, among other things, employee minimum wages and overtime pay requirements. Last set in 2004, the Department of Labor (“DOL”) Regulations required an employee, to be exempt (“EAP” – Executive Administrative and Professional employee) and not subject to overtime pay to meet the following three criteria: 1) paid a salary, not hourly; 2) paid a minimum of $455 a week, $23,660 a year; and 3) an employee must perform executive administrative or professional duties.
On May 23, 2016, the DOL enacted the “Final Rule”, earth shattering news for all employers, changing the regulation to provide that effective December 1, 2016, the minimum salary level for exempt employees would essentially double to $921 a week, $47,892 a year. In addition, there would now be an “automatic updating mechanism” that adjusts the minimum salary level every three years. The first automatic increase could be on January 1, 2020. This applies to all salaried employees.
The overtime eligibility threshold for highly compensated workers also would be raised from $100,000 to about $134,000 under the DOL’s rule.
In a Federal Court in Texas, twenty-one (21) states, led by the State of Nevada, sought a preliminary injunction against implementation of the “Final Rule” on these new overtime requirements. See State of Nevada v. United States Department of Labor, No. 4:16-CV-00731, Slip. Op. (E.D. Tex. 11/22/16). The Federal Court found for the states/employers entering a preliminary injunction preventing the implementation of the new Final Rule on December 1, 2016 until after a final hearing. The Court determined that there was a substantial likelihood of success in the end.
The Final Rule was found to be unlawful, on the present record, because the DOL overrode Congress’ intent in the statute by supplanting the minimum salary using the pretense of establishing a duties test. “After reading the plain meanings [of one employed in an executive, administrative or professional capacity] together with the statute, it is clear Congress intended the EAP exemption to apply to employees doing the actual executive, administrative and professional duties. In other words, Congress defined the EAP exemption with regard to duties, which does not include a minimum salary level.” (Op. at 11). Exempt employees, dependent upon their tasks/duties performed are not to receive overtime pay.
While the DOL is authorized to define and alter employee classifications because an employee’s duties can change over time “… this explicit delegation would give the Department significant leverage to establish the types of duties that might qualify an employee for the exemption, nothing in the EAP exemption indicates that Congress intended the Department to define and delimit with respect to minimum salary level.” (Op. at 12). “The Court is evaluating only the salary-level test as amended under the Department’s Final Rule.” (Id.) The Court determined that if Congress had intended for a salary requirement to supplant the duties test, then Congress and not the DOL should make that change.
So, the huge salary changes everyone has been bracing for on December 1, 2016, will not take place for the immediate future. Given the well reasoned and clear decision of the Federal Court in imposing the preliminary injunction, coupled with the likely and expected “business friendly” change in the newly elected federal administration, it is doubtful that the U.S. Department of Labor will pursue the “Final Rule” in its present form.
On December 1, 2016, the DOL said it would appeal the preliminary injunction, moving the matter to the United States Court of Appeals for the Fifth Circuit; more to come.
ABOUT NEIL A. MORRIS
nmorris@offitkurman.com| 267.338.1383
Neil Morris is the Chair of the Labor & Employment practice group in the Philadelphia regional office. He has passionately represented employers for the last 30 years. He specializes in the areas of labor and employment, municipal labor law, employment discrimination, defamation and business litigation. He has also served as Labor Counsel for every size business and institution on a local, regional, and national scale. He has represented more than 35 Pennsylvania Townships and Boroughs and the County of Bucks. He is often brought in to handle “crisis” situations involving employees and/or management.
ABOUT GABRIEL CELII
gcelii@offitkurman.com | 267.338.1361
Mr. Celii devotes his practice to representing businesses and municipal entities navigating labor and employment disputes ranging from wage and hour litigation and work place discrimination defense to labor negotiations and the resolution of grievances. During his representation of Philadelphia-area Townships and Counties, he has successfully defended claims brought against public officials and advised municipalities on the drafting of local ordinances, such as Police Pension DROP amendments.
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