A federal judge in the Eastern District of Texas granted a nationwide preliminary injunction yesterday that will – at least temporarily – prevent the new federal overtime rules from taking effect on December 1, 2016.
As we have discussed in prior alerts, the Department of Labor (DOL) issued a Final Rule in May 2016, which required, among other obligations, that:
(a) as of December 1, 2016, employers would have to pay white collar employees a minimum annual salary of at least $47,476 in order to classify them as exempt from overtime pay (assuming the employees also performed bona fide administrative, professional, or executive duties); and
(b) the minimum salary level would be increased automatically every three years to reflect the 40th percentile of full-time workers in the lowest wage region of the country.
In this surprising decision, the judge determined that the DOL exceeded its authority when it implemented these provisions of the Final Rule, because, in effect, they created a “de facto salary-only test” for determining overtime eligibility for white collar workers, and improperly ignored Congress’s intended focus in the federal wage law on the duties that white collar workers perform.
While for now, the new minimum salary rule will not go into effect on December 1, 2016, it is expected that the DOL will appeal the judge’s ruling to the Fifth Circuit. It is also important to keep in mind that the judge granted a preliminary injunction, not a permanent injunction, so the law could still take effect. Regardless, the ultimate fate of the DOL’s Final Rule could also be decided by the new administration.
In assessing next steps, employers must remain mindful of complying with state and local laws governing overtime. For example, currently in New York, employers must pay white collar workers at least $35,100 annually to classify them as exempt from overtime under state law. Moreover, proposed legislation in New York State, which is expected to shortly become law, would increase this New York exempt salary minimum depending on the size and geographic location of the employer on an incremental scale between December 31, 2016 and December 31, 2021. For New York City employers with 11 or more employees specifically, under this proposed legislation, the new minimum exempt salary would go up to $42,900 annually as of December 31, 2016, up to $50,700 annually as of December 31, 2017, and up to $58,500 as of December 31, 2018. In California, employers must currently pay white collar workers at least $41,600 annually to classify them as exempt from overtime under state law. For California employers with 26 or more employees, the mandatory minimum increases to $43,680 as of January 1, 2017, and will increase incrementally up to $62,400 by January 1, 2022. For California employers with 25 or fewer employees, the mandatory minimum increases to $43,680 as of January 1, 2018, and will increase incrementally to $62,400 as of January 1, 2023.
We are continuing to monitor all overtime-related developments on local, state and federal levels, and will provide additional information as it becomes available. In the interim, employers who have not yet implemented or advised employees of pending changes should undergo a business analysis to determine whether to hold off on moving forward. Employers who previously notified employees of anticipated changes must consider whether to maintain the status quo, or to suspend or alter implementation. As part of this analysis, employers should consider: (i) whether potentially impacted employees meet the FLSA’s duties test; (ii) impact on employee morale; and (iii) related business risks.