- Court Puts New FLSA White Collar Salary Test Rule on Hold
- December 12, 2016
- Law Firm: Bose McKinney Evans LLP - Indianapolis Office
On May 18, 2016, the U.S. Department of Labor (“DOL”) published its final rule increasing the salary test for the administrative, executive, and professional exemptions under the Fair Labor Standards Act (“FLSA”) from $455 per week or $23,660 annually to $913 per week or $47,476 annually. The new salary requirements were to take effect on December 1, 2016.
Late yesterday, the U.S. District Court for the Eastern District of Texas issued its awaited order in a lawsuit by several states and business groups challenging the new rule. The judge-who was appointed by President Obama-surprisingly held that the final rule was unlawful because it imposes a minimum salary requirement for white collar workers that is not authorized by the FLSA. The order is historically significant because the salary amount has been updated seven times since 1938, the most recent being 2004, without any significant opposition challenging the DOL’s ability to do so. As a result of the Court’s order, the DOL is prevented from enforcing the new rule, and the Court stopped the rule from taking effect. The Court also made it clear that its order applies nationwide.
While the DOL can appeal, time is not on its side. The appeal process could effectively run out the clock and push the defense of the rule to President Trump’s administration. It is likely that the DOL under President Trump will not defend the final rule and, instead, will allow it to fall.
So what are employers to do now? The nationwide order does offer employers the ability to delay (perhaps, indefinitely) compliance with the final rule, but each employer’s situation may be different based on the circumstances (e.g., whether the change was already implemented or simply announced). Furthermore, employers should stay tuned because the judge could withdraw or modify the order, or the decision could be reversed on appeal, which could put the rule into effect. Employers should also consider how any decision may impact employee morale. For example, if employers planned appropriately and communicated upcoming salary increases to comply with the new salary requirements, employee morale may be adversely affected by a change in course, especially in light of the holiday season. Finally, if changes were made to misclassified employees under cover of the new law, the employer will likely wish to keep those changes in place.
On the other hand, those employers desiring to change course on implementing the new rule may wish to communicate to employees a message to the following effect: “Given the nationwide order just issued by a district court in Texas enjoining enforcement of the changes to the law that created our need to modify your compensation method (i.e., from exempt to non-exempt), we are going to put the change on hold pending the outcome of the Texas litigation and any other legislative or regulatory modifications that may follow. This means that until further notice you will return to [or “stay in” (if the announcement the employer made was prospective)] the exempt status and pay level you enjoyed before we revised [or “announced the revision to”] your compensation method in anticipation of this new rule taking effect.”