United States: Back To 1981: More Reasonable Salary Levels For The Overtime Regulations

By almost all accounts, the Trump administration, under the leadership of Secretary of Labor-designate Andrew Puzder, should inherit the part 541 regulations of the Obama administration that dramatically increased the salary amount required for the executive, administrative, and professional (EAP) employee exemptions. Hopefully, the Trump administration will make this rule a high priority and initiate a new rulemaking in January of 2017, so it can establish a more reasonable salary level test that complements the duties tests.

As you may recall, the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction on November 22, 2016, prohibiting the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) from implementing its $913 per week ($47,476 per year) salary level requirement, which was scheduled to go into effect on December 1, 2016. The government then filed a motion for expedited briefing and oral argument with the Fifth Circuit Court of Appeals, which issued an order on December 8, 2016, granting the government's motion as modified and extending the briefing and oral argument in the appeal until February of 2017, at the earliest. Specifically, briefing would end on January 31, 2017, and oral argument "will be scheduled . . . for the first available sitting after the close of briefing."

In the interim, President-elect Trump will be inaugurated as the nation's 45th president on January 20, 2017, a date well before the end of briefing and oral argument in the government's appeal. Thus, as long as the preliminary injunction remains in effect until or after January 20, 2017, the Trump administration under Secretary of Labor-designate Puzder can and, more importantly, is likely to take immediate steps to implement a more reasonable salary level that is consistent with the EAP exemptions in section 13(a)(1) of the Fair Labor Standards Act (FLSA).

Reagan Administration Roadmap

A similar scenario of events unfolded after the November of 1980 general election in which Ronald Reagan defeated Jimmy Carter. These developments are instructive to this 2016 rulemaking because the Carter administration's DOL issued a final rule to increase the salary levels that would have become effective after the change in administrations. Specifically, on January 13, 1981, the DOL published a final rule in which it increased the salary level tests in two stages as follows: (1) for the "long" test of the executive and administrative employee exemptions, to $225 effective February 13, 1981, and to $250 effective February 13, 1983; (2) for the "long" test of the professional employee exemption, to $250 effective February 13, 1981, and to $280 effective February 13, 1983; and (3) for the "upset" salary or "short" test of the executive, administrative, and professional exemptions, to $320 effective February 13, 1981, and to $345 effective February 13, 1983. This January 13, 1981, final rule culminated from an April 7, 1978, notice of proposed rulemaking (NPRM) on which WHD held a 3-day public hearing on May 8–10, 1978, featuring oral testimony from 22 witnesses and during which 62 written comments were filed. An additional 127 comments were submitted after the close of the public hearing through June 10, 1978.

However, before the January 13, 1981, final rule became effective, the Reagan administration's DOL published a notice in the Federal Register on February 12, 1981, which "indefinitely stayed" the effective date of the January salary levels in order to permit the DOL "to review the rule fully before it takes effect" and to reopen the comment period through April 6, 1981.

Subsequently on March 27, 1981, the DOL published a new NPRM in the Federal Register requesting comments "on the question of whether there should be an indefinite suspension of the [January 13, 1981] regulation, pending further review of the regulation" and inviting comments on "the substance of the regulation itself, and specifically regarding the economic effects of the regulation." It should be noted that throughout this entire timeframe—from the April 7, 1978 NPRM through the January 13, 1981 final rule to the February 12, 1981 notice of stay and comment period reopening and the March 27, 1981 NPRM—the interim salary levels adopted effective April 1, 1975, remained in effect.

Yet later still, the DOL published an advance notice of proposed rulemaking on November 19, 1985, in which it invited comments on a number of questions related to the salary level tests as well as the various duties tests. This rulemaking was never completed and the 1975 interim salary levels remained in effect for 29 years until the DOL issued a final rule in 2004 implementing the current salary level of $455 per week (or $23,660 per year) for the EAP standard duties tests and the total annual compensation threshold of $100,000 for certain highly compensated employees.

Course of Action for the Trump Administration

Based on this precedent, the Trump DOL, led by Puzder, could issue a notice as soon possible after January 20, 2017, in which it stays indefinitely the final rule published by the Obama administration on May 23, 2016. As long as the district court's preliminary injunction remains in place, then arguably the DOL could take such action. Further, the DOL could either reopen the May 23, 2016 rulemaking for additional comments or issue a new NPRM inviting comments only on an appropriate salary level that complements the existing duties tests for the EAP exemptions and a total annual compensation amount for highly compensated employees.

Given that the Obama DOL published its NPRM on July 6, 2015, allowed for a 60-day comment period, and issued a final rule in May of 2016, a Trump DOL could use the economic data contained in that final rule for preparing a new NPRM and use a 30- or 60-day (at the maximum) comment period since most comments filed in 2015 need only be updated to reflect more current data. This could enable the Trump DOL to issue a final rule later in 2017 that updates the salary level tests and the total annual compensation requirements for the part 541 regulations. Additionally, after the inauguration, the Trump administration's Department of Justice could petition the courts to alter the timing of any judicial actions in order to permit DOL to indefinitely stay the May 2016 final rule and afford it adequate time to issue reasonable salary level tests and a total annual compensation amount for highly compensated employees.

While some may argue that the current $455 salary level tests should not be increased, this is a tenuous position at best since it has been more than 12 years since they were updated last. Also, as the July 2015 NPRM and May 2016 final rule note, the poverty level for a family of four is greater than the current salary of $23,660 per year. The DOL in 2004 even acknowledged an intent "in the future to update the salary on a more regular basis" to avoid another 29-year delay "when wage survey data and other policy concerns support such a change." Thus, the overwhelming consensus follows the Texas federal court in believing that policy considerations and wage survey data justify revisions to the salary level tests, as well as the total annual compensation amount, that are more reasonable and complement the duties tests for the EAP exemptions as opposed to imposing overreaching amounts that supplant the duties tests.   

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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