In May 2016, a new rule published by the U.S. Department of Labor raised the salary level required for executive, administrative, and professional employees to be exempt from the FLSA's overtime requirements. The increase was substantial, from $455 to $913 per week (or from $23,660 per year to $47,476 per year). The rule was scheduled to take effect December 1, 2016. Employers scrambled to come into compliance, generally balancing whether, as a matter of math, it made more economic sense to reclassify previously exempt employees as hourly and absorb the administrative burdens of doing so (such as tracking previously untracked hours and trimming certain non-critical job duties) or to give these exempt employees a raise in pay. Yesterday, after all that effort and deliberation, employers were granted at least a temporary – perhaps a final – reprieve in the form of a preliminary injunction prohibiting enforcement of the DOL's new rule. While the injunction does mean that the rule will not go into effect on December 1, it is only preliminary and does not yet represent the final word on the matter. Employers should not yet discard or wholly abandon any planned changes. However, employers may delay their implementation of those changes and need not move forward with any salary increases or reclassifications on December 1, 2016.
On November 22, 2016, United States District Judge Amos L. Mazzant, of the United States District Court for the Eastern District of Texas, issued a Memorandum Opinion and Order enjoining, nationwide, the implementation and enforcement of the Department of Labor's final rule published on May 23, 2016. That rule would have increased the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $921 per week ($47,892 annually) effective December 1, 2016. Below we provide information about this preliminary injunction and guidance for dealing with its ramifications.
Summary of the Preliminary Injunction Order
On May 23, 2016, the Department of Labor published the final version of its new rule, which increased the minimum salary level for employees exempt from the FLSA's minimum wage and overtime requirements under the exemption for employees in an executive, administrative, or professional capacity. In relevant part, the rule states "[w]hite collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities." Under this final rule, effective December 1, 2016, the minimum salary level increased from $455 per week ($23,660 annually) to $921 per week ($47,892 annually).
On October 12, 2016, twenty-one states filed a motion for an emergency preliminary injunction to stay implementation and enforcement of the DOL's "new overtime rule." The state plaintiffs argued the DOL's rule is unlawful and the DOL did not have authority to promulgate the rule. Following extensive briefing by the state plaintiffs and the DOL, the district court held a preliminary injunction hearing on November 16, 2016, and issued its Memorandum Opinion and Order granting the preliminary injunction on November 22, 2016.
In rejecting the DOL's defense of the rule's increased salary requirement, the district court determined "it is clear Congress intended the EAP exemption to apply to employees doing 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." (Nov. 22, 2016 Order, page 11) The court further concluded "Congress intended the EAP exemption to depend on an employee's duties rather than an employee's salary," but also specifically noted it was "evaluating only the salary-level test as amended under the Department's Final Rule" and "not making a general statement on the lawfulness of the salary-level test for the EAP exemption." (Id. at page 12)
The court determined the rule to be unlawful because, in promulgating the rule, the DOL "exceed[ed] its delegated authority and ignore[d] Congress's intent by raising the minimum salary level such that it supplants the duties test." (Id. at page 13).
The court found the public interest would be best served by the entry of a preliminary injunction to "preserve the status quo while the Court determines the Department's authority to make the Final Rule as well as the Final Rule's validity." (Id. at pages 17-18) The court also agreed with the state plaintiffs that a nationwide injunction should be entered to "protect both employees and employers from being subject to different EAP exemptions based on location." (Id. at page 18)
What Happens Now?
Following the court's granting of the preliminary injunction, the DOL issued this statement:
"We strongly disagree with the decision by the court, which has the effect of delaying a fair day's pay for a long day's work for millions of hardworking Americans. The department's overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule. We are currently considering all of our legal options."
One legal option available to the DOL is to appeal the decision, and move to stay the injunction pending resolution of the appeal. A motion to stay would only be granted if the DOL can prove the appeal is likely to succeed on the merits. Another option would be to proceed with litigation in the district court to a final decision on the merits.
Regardless of what the DOL ultimately chooses, the preliminary injunction means the DOL's new overtime rule will not be going into effect on December 1, 2016. We provide the following guidance to employers:
- Continue to comply with the current DOL rules regarding the EAP exemption and minimum salary level requirement. Ensure that all employees that are classified as exempt meet the current salary basis requirements ($455 per week or $23,660 annually).
- Delay (but do not entirely abandon) the implementation of any changes to the classification of employees or to the salary of employees that were motivated solely by the DOL's new overtime rule. However, be prepared that the rule could ultimately take effect and that those changes may need to be implemented at a later date.
- Carefully evaluate the potential consequences of "taking back" or "undoing" any salary increases or other decisions that have already been made or communicated in anticipation of the DOL's rule going into effect on December 1, 2016.
As always, your Lewis Brisbois attorneys are available to assist you with any questions regarding the November 22, 2016 Memorandum Opinion and Order enjoining nationwide the implementation and enforcement of the DOL's new overtime rule.
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.