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NEW FLSA OVERTIME REGULATIONS ARE IN TURMOIL

In September, 21 states sued the Department of Labor to block implementation of the FLSA overtime regulations slated to go into effect on December 1st of this year.  Separately, over 50 business groups challenged the DOL’s authority to establish a salary test for determining if an employee is or is not exempt from overtime. Those two cases were eventually consolidated.  On November 22nd, federal judge Amos Mazzant, a judge for the eastern district of Texas, appointed by President Barack Obama, entered a nationwide preliminary injunction to stop the implementation of the new overtime regulations. The new regulations would have increased the minimum salary for exempt “white collar” executive, administrative and professional employees from $455 per week to $913 per week, or $47,476 per year.

The Federal Court ruled that Congress intended the EAP exemption to apply to employees doing actual executive, administrative, and professional duties rather than an employee’s salary.  The Court concluded, that the new regulations, which raise the salary threshold significantly would have created “essentially a de facto salary-only test.”  The Court explained, “[t]he [DOL’s] role is to carry out Congress’s intent.  If Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change.”

This past Thursday, December 1st, the DOL filed an appeal asking the Fifth Circuit Court of Appeals to overturn the preliminary injunction against its new overtime regulations. Since an appeal in the Fifth Circuit can take a year or more, many labor experts and attorneys expect there will be further legislative or administrative action once the Inauguration occurs and a new Secretary of Labor is in place and this likely will happen well before a final court ruling takes place.

However, many employers have already implemented changes, by either raising exempt employees’ salaries to meet the new threshold or reclassifying employees who are still earning less to nonexempt status.  Employers who have already implemented such changes, may want to leave decisions in place as It would be difficult to take back salary increases.  Employers may want to postpone reclassifications that have not yet been done to give the litigation a chance to play out.  And Employers may want to communicate that there may be future changes depending on Federal Court, Congressional, or Trump administration activities.  Employers shouldn’t assume that the overtime rule will be permanently barred and should have a plan to move forward if necessary in the future.

This said, here are a few possible future scenarios that could unfold:

  • A lame-duck Congress comes up with a compromise bill for President Obama’s signature (not likely);
  • President Elect Trump addresses this after his confirmation by abandoning the Obama administration’s defense of the final rule; and
  • The new administration may introduce legislation seeking a compromise, with a lower, or graduated salary threshold increase, and without the automatic escalator clause.

Regardless of what action the current administration or the new administration take, it is very likely we will see more activity at the state and local government levels. Unions are leading the effort for a $15 minimum wage at the state and local levels. They have had some success in California, Oregon, Washington and New York. As part of that effort, adding a doubling of salary for exempt employees is a logical extension of the unions’ efforts. Why? Because the minimum wage effort impacts exempt employees under FLSA. Exempt employees who are not paid for overtime may see their line employees earning more than they do.

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