Once in a great while, procrastinators are rewarded. And thanks to a Texas District Court judge, they have cause to celebrate.
On November 22, Judge Amos Mazzant issued a preliminary injunction halting a new U.S. Department of Labor (“DOL”) rule that would have required most salaried employees earning less than about $47,500 per year to receive overtime. As the rule was set to go into effect on December 1, the injunction gives employers at least a temporary reprieve on the new obligations.
Background on Exempt Status and the New Rule
As many readers of our updates know, all employees must be paid overtime unless they fall within an exemption to the overtime rules. The most common exemption is for white collar employees paid on a salary. In order to qualify for this exemption, the job must satisfy a three part test: 1) The employee is paid on a salary; 2) That salary cannot be less than the minimum set by the DOL; and 3) The position must perform certain exempt duties (managerial, professional, or administrative).
The new rule affected the second part of that test, more than doubling the minimum salary level from $455/week to $913/week. The DOL also set escalators in the rule, requiring that the minimum salary level increase every three years.
The new rule was predicted to affect over four million workers and cost business groups $12 billion per year over the next decade.
The Court’s Ruling
Twenty-one states challenged whether the DOL could make such large increase in the minimum salary level and also require an automatic escalation. In the ruling, Judge Mazzant found that the DOL exceeded its authority. Specifically, the judge said that “Congress defined the . . .exemption with regard to duties, which does not include a minimum salary level.”
The ruling went on to say that the rule “creates essentially a de facto salary-only test.” In other words, the judge found that until the DOL was granted permission by Congress, it could raise the minimum salary level as high as it did.
What does it Mean to Me?
The court’s decision means that the old rules are still in effect. So, until further notice (and no guarantee on when that will be), the minimum salary level remains $455/week to qualify for the exemption.
For those employers that have waited on announcing that employees would either be reclassified as non-exempt or receive a raise in order to continue to qualify as exempt, you can continue waiting.
Employers that have been proactive and prepared for the new rule by announcing salary increases will likely want to keep those raises in place. While employers are not legally obligated to give employees the promised raise under the wage and hour laws, you don’t need a lawyer to tell you that there may be some morale issues going into the holiday season if you reverse course now. If you decide to change an employee’s promised raise, you should seek legal advice about whether you can at this point. At the least, you will want to make any announcement about your decision before the December 1 implementation date. You should also keep in mind that promises of a raise might become contractually binding to the extent that the employee relied on the raise to his or her detriment by not pursuing other job opportunities.
For employers who planned on reclassifying employees to non-exempt status, the injunction means that employers are not required to reclassify under the wage and hour laws until the litigation plays out. However, you will want to keep abreast of these issues to ensure that you don’t fall out of compliance in the future.
What Happens Now to the Rule?
A preliminary injunction does not last forever. For now, the fate of the rule is in limbo. While the DOL feels confident that it can win on appeal, it would be appealing to the Fifth Circuit, which has not been friendly to this administration before.
We all also know that a new administration will be taking over in January and it could decide to drop any appeal filed. If the Trump administration does not pursue an appeal, we would predict that either the DOL (under the new administration) would reevaluate the rule or that Congress would step in to provide guidance or further delay implementation while the rule is reconsidered.
If you want more information, please come to our seminar on December 7 where we will be talking about this issue, along with more legal updates!
For more information about wage and hour issues or the upcoming seminar, you can contact David Briggs at (503) 399-1070 or firstname.lastname@example.org or any member of our employment team.