Yesterday, a federal judge entered a nationwide injunction blocking at least temporarily the implementation of new Department of Labor (DOL) regulations which would have expanded overtime protections for employees by raising the minimum salary required for certain exempt "white-collar" employees under the Fair Labor Standards Act (FLSA). Without the Court's action, the regulations (the "New Regulations") would have gone into effect on December 1, 2016. Yesterday's order puts those changes on hold just days before their effective date.
By way of background, the FLSA generally requires employers to pay non-exempt employees at an elevated overtime rate of one-and-one-half times their regular rate of pay for any time worked over 40 hours in a given workweek. Certain "white-collar" workers, namely those employed in a "bona fide executive, administrative, or professional capacity," may, under certain circumstances, be exempt from this overtime requirement. Under current regulations, to properly treat an employee as exempt under a white-collar exemption, (i) the employee must be compensated on a salary basis at a rate of at least $455 per week ($23,660 annually), and (ii) the employee's primary duties must fall within the substantive parameters of the above-noted exemption categories. This latter criterion requires a fact-intensive assessment of the employee's work and specific job responsibilities. DOL's New Regulations would have raised the minimum salary threshold to $913 per week ($47,476 annually) but would not have changed the "duties" prong of the test.
In September 2016, 21 states and over 50 business organizations brought the above-noted lawsuit in Texas federal court challenging the New Regulations. They argued that DOL exceeded its authority under the FLSA when it issued the new salary threshold, and that the New Regulations' automatic updating mechanism – whereby the minimum salary threshold would be subject to automatic increases every three years – violates the Administrative Procedures Act, which requires a public notice and comment period before agencies enact new rules.
Though yesterday's decision did not determine the ultimate legality of the rule, in issuing the injunction, the Court opined that the states and businesses proved a "likelihood of success on the merits" of their claims, and found further that, if the rule were to go into effect before thorough court review, those states and businesses would suffer "irreparable harm." DOL, the court added, did not show that it would suffer any harm if the implementation of the New Regulations is delayed. In particular, the Court noted that the new salary basis is so high that it "supplants" the duties test and, as such, contravenes the intended operation of the exemption analysis.
While it is presently unclear whether DOL will seek to challenge yesterday's ruling – and, as of the time of this briefing, no appeal has been filed – for the moment, the minimum salary thresholds for the FLSA's white collar exemptions will not change on December 1.
Notably, the injunction does not appear to delay DOL's changes to the salary basis for "highly compensated" employees which, effective December 1, will increase from $100,000 to $134,004 as planned.
Because the New Regulations were slated to take effect in less than two weeks, many employers have already devised – and, in some instances, implemented – plans to change employee salaries or other, related pay practices. While the Court's decision creates a range of questions and places employers' plans in a state of limbo, employers should carefully assess their next steps, both from a compliance standpoint and an employee relations perspective. If you have questions about these issues, please feel free to contact a member of Venable's national Labor and Employment Team.
On Monday, November 28, Venable presented a webinar outlining the DOL's intended new rules, and offering guidance on employers' next steps in light of the injunction. The webinar is available here.