The regulations were scheduled to go into effect on December 1.
On November 22, a judge from the US District Court for the Eastern District of Texas issued an order enjoining, on a national basis, all but a few parts of the Department of Labor’s (DOL’s) new overtime regulations scheduled to take effect on December 1.
The heart of the decision is the court’s finding that the DOL was not authorized to include a significantly higher salary level test for “bona fide executive, administrative or professional employees” or to instruct that individuals paid below that new higher salary level could not be exempt from the obligation to provide overtime pay. In the court’s view, that combination of factors effectively supplanted the “duties” test for determining exempt status. The court found such action by the DOL to be beyond the intent of US Congress in establishing the white collar exemptions.
The court did not specifically enjoin the new regulation to the extent it provides for a higher total annual compensation level for the highly compensated exemption (29 C.F.R. Sec. 601) or the new base rate for the motion picture producing industry (29 C.F.R. Sec. 709).
What the Decision Means and What Is Likely to Come Next:
- For as long as this injunction remains in effect, the old salary basis test for the white collar exemption remains in effect (i.e., a minimum of $455 per week). As of now, employers need not increase the salaries of employees on December 1 in order for them to continue to qualify for the executive, administrative, professional, or computer professional exemptions, as previously expected. However, employers should be ready to comply with the new regulations on very short notice because, in the event that the injunction is lifted at any time after December 1, the new regulations could become effective immediately, leaving employers potentially liable for any overtime obligations incurred between the effective date of the regulations (i.e., at or following the date the injunction is lifted) and the date the employer complies.
- The court did not opine on the validity of the old salary level or duties requirements. As such, employers should continue to satisfy the pre-existing regulations for all white collar exemptions (i.e., a salary level of at least $455 per week and meeting the “duties” test).
- This ruling has no effect on state and local law overtime exemptions, so employers will need to continue to comply with all requirements under those laws, some of which already have in place salary levels higher than the existing federal level (e.g., in New York, the salary requirement is $675 per week). Notably, in California, the weekly salary requirement will increase to $840 per week ($43,680 per year) on January 1, 2017.
- Because the court did not specifically enjoin the new total annual compensation level for the highly compensated employee exemption, to be safe, employers relying exclusively on that exemption for certain employees should meet the new, higher total annual compensation requirement effective December 1 (i.e., $134,004). The issue is far from clear, however. The court enjoined the new salary level for the basic white collar exemptions under 29 C.F.R. Sec. 541.600, and the highly compensated exemption contains a requirement that the total annual compensation must include at least a salary in the amount contained in 29 C.F.R. Sec. 541.600(a). Thus, the court could have intended that the minimum salary included within the total annual compensation need only be the existing $455 per week (with the total annual compensation still needing to be the higher level of $134,004). The parties to the litigation may seek clarification of this issue.
- The DOL has the right to an immediate appeal of this decision if it chooses to pursue that option, which we believe would have been quite likely but for the results of the election. For example, it is possible that the president-elect’s transition team may seek to delay any immediate appeal pending an opportunity to review what the Trump administration’s decision will be on this issue. If the DOL does file an immediate notice of appeal, it may also seek expedited appellate review. The DOL also could continue to defend the case before the district court judge who issued the injunction hoping for a different result on a final decision. The DOL issued a statement last night expressing its strong disagreement with the decision and indicating that it was considering all of its options.
- As noted above, the change in administration adds further uncertainty to the status of the new regulations and the future of this legal challenge. The new administration could decide whether to continue to defend this litigation and/or pursue any appeal that may be pending. The new DOL could decide to seek to implement new regulations that undo or change the regulations that had been slated to go into effect on December 1. Congress could also attempt to pass a law addressing the regulations or the Federal Labor Standards Act (FLSA) itself.
We are monitoring developments closely and are happy to discuss our views on what may happen next with respect to the new regulations and possible next steps for your organization.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Lisa Stephanian Burton
Sari M. Alamuddin
Ronald E. Manthey
John S. Battenfeld
Anne Marie Estevez
Mark E. Zelek
Christopher A. Parlo
Samuel S. Shaulson
Carrie A. Gonell
Daryl S. Landy
Barbara J. Miller
Michael J. Ossip
Michael J. Puma
Christopher K. Ramsey
Thomas A. Linthorst
Richard G. Rosenblatt
Robert Jon Hendricks
Melinda S. Riechert
Russell R. Bruch