Blog: Court Ruling Halts New Minimum Salary Requirements
November 23, 2016
Employers Give Thanks for Court Ruling that Halts New Minimum Salary Requirements for Exempt White Collar Employees
Yesterday afternoon, the Federal District Court for the Eastern District of Texas gave employers a Thanksgiving gift by enjoining the new minimum salary rules for the white collar exemptions under the FLSA from taking effect December 1, 2016. This ruling applies nationwide.
Under the Fair Labor Standards Act (“FLSA”), “bona fide executive, administrative, or professional” employees are exempt from the requirement to pay overtime. Since 2004, to qualify for this “white collar exemption” the Department of Labor (“DOL”) regulations required an employee to be paid on a salary basis, perform specific duties, and also be paid at least $455 per week ($23,660 annually). In May of this year, the DOL issued new final regulations increasing the minimum salary threshold to $913 per week ($47,476 annually). The new rules were set to take effect December 1, 2016 and were estimated to affect 4.2 million workers that would automatically become eligible for overtime as a result of not meeting the new salary threshold under the exemption.
Since May and especially during the past few months, many employers have been preparing for the new rules. Employers were faced with having to either give raises to employees who would no longer meet the minimum salary threshold or convert these employees to non-exempt. Many employees set to be converted to non-exempt had to be trained on the employer’s time clock system and policies. Some employers were revising or reallocating job duties.
With this court ruling, such preparations can now be thrown out the window. The question now is how (and if) to do that. Factors to consider are timing, practicality, and employee morale. A largely unknown factor is what the DOL, Congress, and the new Trump Administration will do. Although the DOL may appeal this ruling to the Fifth Circuit Court of Appeals, it is highly unlikely that any appeal will be heard and decided before December 1. Also, technically, the court’s decision was a preliminary injunction maintaining the status quo until a final ruling on whether the new regulations are unlawful. The final ruling could differ from the preliminary injunction. However, the ruling was so strong in its findings that it is unlikely that a ruling on the ultimate merits, which will be made by the same judge, will be a departure from the judge’s initial determination that the new regulations are unlawful. In the future, Congress or the new Administration may well decide to revise the current white collar exemption, but we think it unlikely given the Republican control that any revisions will be in the same form as amendments that were halted yesterday. In sum, the amendments that were halted are not likely to be implemented in the same form in the future. From a legal perspective, it makes little sense for employers to make changes now to comply with the new rules that are not going into effect.
From a human resources management perspective, dealing with the change of course may require a more nuanced approach than abruptly halting and reversing changes made. With December 1 a little over a week away, many employers had changes set to take effect December 1, and some may have already put the necessary changes in place. Some of the preparations are probably easy to reverse, especially if the changes had not yet gone into effect. Employers can inform employees that were set to be converted to non-exempt that they no longer need to clock in and out and that they will continue to be exempt employees. Other decisions may be harder. From an employee morale and business perspective, employers may want to think twice about reversing any benefits that were previously promised to employees or that have already gone into effect. Employers may make a business decision to still give raises to employees who were told they were getting raises as of December 1.
Regardless of what approach is adopted, employers should communicate with all of the employees affected by this ruling. Generally, as a standard employment practice, employers should inform employees if they are exempt or non-exempt. In light of this ruling and the changes made, employers should reaffirm to employees their applicable exempt or non-exempt classification and clarify any time keeping policy requirements, job duties, and terms of compensation.
This blog post is meant for informational purposes only and is not meant to provide legal advice in any particular circumstance or factual situation. You should consult with an attorney prior to taking any action regarding the information contained herein.