Now that a federal judge has issued a preliminary injunction staying implementation of the new DOL regulations revising salary thresholds for determining application of the white collar minimum wage and overtime pay exemptions, otherwise slated to go into effect on December 1st, what happens next, and how quickly will that occur? Here are the possibilities.
- An interlocutory appeal to the 5th Circuit Court of Appeals. How that comes out is anyone’s guess, but the case is vulnerable in its analysis, as detailed below.
- Congressional Action that renders the decision academic. On September 28, 2016, the House of Representatives passed H.R. 6094, titled Regulatory Relief for Small Business, Schools, and Nonprofits Act. The bill would have changed the effective date of the revised overtime regulations from December 1, 2016 until June 1, 2017. With a Republican majority in both the House and Senate, there is a very real possibility that some form of law will be filed and passed in 2017. The question of course is what will that bill look like – for examples, will it exempt “small business”, and will it change the minimum salary amounts and/or remove automatic indexing?
So what should employers do now?
- An important and obvious factor is whether an employer has already announced or even implemented changes in its classifications and payment. The economic advantages of rolling back increases and other changes may be outweighed by the employee relations backlash. Employers may want to consider maintaining the changes and framing that as “the right thing to do” regardless of the legal status and outcome of the DOL regulations. On the other hand, there may be circumstances where it would be viewed as a positive to put on hold changes; for example, if employees previously classified as “salaried exempt” view the reclassification as a diminution of position or status in your organization.
- For employers who have not announced or implemented changes, a “wait and see” approach makes good sense as there are multiple possible outcomes, be it in the litigation or by Congressional action, all of which are just unknown at this time.
As to Judge Mazzant’s decision in Nevada v. U.S. Dept. of Labor, we believe that it may be challenged on several fronts, specifically:
- Since the FLSA in the first instance requires overtime pay for all employees, and exempts only some of them, the Court arguably is turning the analysis on its head when the Judge says that Congress did not intend to “categorically exclude an employee with EAP duties from the exemption” – rather, the question is whether it is consistent with congressional intent to require a baseline for inclusion in the exemption, and to include in that baseline not just duties but also a commensurate wage, since an exemption should be a special case and not something that swallows the general rule.
- The Court says the salary level creates a “salary only” test, but the opposite is true: the minimum salary is necessary but not sufficient for the exemption, and that hasn’t changed with the new rule. It is clear that there will be individuals paid more than the minimum who still will not meet the duties tests.
- The Court’s analysis about how setting a salary level is inconsistent with Congressional meaning does not make logical sense, and seemingly contradicted in in footnote 2: “The Court is not making a general statement on the lawfulness of the salary-level test for the [white collar] exemption. The Court is evaluating only the salary-level test as amended under the Department’s Final Rule.” Unless the Court is intimating that it is asking for a plaintiff to come forward and challenge the very concept of the salary basis at any level – its statement about the salary test does not square with the footnote. More specifically, the Court is claiming that the salary level used to be low enough that it only screened out the “obviously” non-exempt employees, but at the higher level it would screen out more people from the exemption, and that would somehow be against Congressional intent in a way that the status quo apparently is not. This begs the question of why some level of minimum salary is okay, but the new higher amount is not. The logical extension of the Court’s analysis is that the DOL cannot require employers to pay their white collar employees anything at all, whether on a salary basis or otherwise, minimum wage or not.
We of course will be monitoring developments on all fronts. In the meantime, please feel free to contact any one of our lawyers to discuss any questions you may have.