Fair Labor Standards Act Salary Level Regulations Enjoined! What Should Employers Do Now?

Fair Labor Standards Act Salary Level Regulations Enjoined! What Should Employers Do Now?

Summary

A nationwide temporary injunction blocking the Department of Labor’s new salary level Rule from going into effect on December 1, 2016 was issued last week by Judge Amos L. Mazant III of the U.S. District Court for the Eastern District of Texas.  The new Rule would have resulted in extending eligibility for overtime pay to an estimated 4.2 million exempt workers unless their weekly salaries were increased to the new minimum salary levels.

The temporary ruling is a welcome respite to business, especially small businesses; at the same time, it raises questions for employers who have already taken the necessary actions to prepare for December 1.  This article will provide employers with practical ideas as to what they should do now that the injunction is in place.

The Final Rule

The Final Rule would have increased the standard minimum salary level for exemption from overtime under the FLSA by just over 100%, from $455 per week ($23,660 annually) to $913 per week ($47,436 annually).  The salary level for highly compensated employees (HCEs) would have increased from $100,000 to $134,004 annually.  The changes would impact employers in virtually all industries in both the private and public sectors.

The Temporary Injunction

In September, two suits were filed seeking to enjoin the new regulations: one by the U.S. Chamber of Commerce and 54 other businesses and business groups, the other by the State of Nevada and 21 other States.  The cases were combined and, on November 16, the Court heard argument on the injunction request.  On November 22, the Court issued a nationwide temporary injunction blocking the Rule from going into effect on December 1.  The DOL has indicated that it is exploring its legal options, including whether to appeal the ruling to the Fifth Circuit Court of Appeals.

What Should Employers Do Now?

Many employers have already taken steps to achieve compliance by December 1, 2016; many employers have done little or nothing.  Most employers likely fall into one of four categories:
    1. Employers who have:
        a. analyzed job titles;
        b. made decisions about whether to increase salaries to maintain the exemption or reclassify employees to hourly status;
        c. revised job descriptions in accordance with these decisions;
        d. communicated with their employees about upcoming changes;
        e. instituted time-keeping for all employees;
        f. defined compensable time and limited off-the-clock work;
        g. revised policies, such as workplace flexibility, telecommuting and other policies to which employees had become accustomed;
        h. implemented payroll changes to accommodate salary increases and reclassifications;
    2. Employers who have taken the above actions AND have already implemented the changes in advance of December 1;
    3. Employers who have taken most of the above actions BUT HAVE NOT YET communicated with their employees about specific changes; or
    4. Employers who have done little or nothing in advance of December 1, whether out of optimism or some other reason.

For employers who have not taken steps to achieve compliance by December 1, 2016, you have lucked out!  Although it is possible that you may never have to engage in the compliance actions we recommended in Part 2 of our Overtime Regulations series (click here to view), do not be too complacent – it is still possible that the preliminary injunction will be dissolved and the Final Rule will go into effect at some point in the future in its current form or some modified form.  For now, be aware of future developments and be glad that, unlike employers who have already implemented the changes or otherwise communicated about the changes with their employees, you are not faced with decisions about whether to unwind those changes.

Employers who have made the salary vs. hourly and other decisions but who have not yet implemented these changes or communicated them to their employees can sit tight and wait to see what happens.  Like the employers who have not taken steps to achieve compliance, you should monitor the situation and be prepared for future changes.

For employers who have taken steps to achieve compliance by December 1, your situation is more difficult.  Employers who have implemented the changes already will need to assess whether to pull back those changes or live with them.  On one hand, you have already assessed whether it will cost less to maintain the exemption or reclassify certain employees to non-exempt status in view of the number of hours they typically work; on the other hand, you have already implemented changes that may not have been welcomed by some of the affected employees, and this may result in lost productivity due to morale issues or an increase in overtime to attempt to recoup what they had been making in salary.  To the extent you have also communicated and/or implemented time-keeping procedures and changes to workplace flexibility, you will have to determine whether to retain or modify those actions as well.

Similarly, employers who have made the decisions and communicated them to their employees but who have not yet implemented all of the changes will also need to assess whether to move forward with some or most of the changes or put everything on the back burner pending a final outcome.  As with the employers who have already implemented the changes, taking back positive changes is difficult.  In some cases, taking back negative changes may be difficult as well since the affected employees may have been offended by the decision, whether it was to reclassify an exempt employee to non-exempt, or to reclassify a non-exempt employee to exempt status and cut off eligibility for overtime pay. 

Some things to consider before taking back any or all of these changes:

  • If you have implemented or communicated salary changes already, retracting them may be difficult.  Consider whether to retract them or make future adjustments by holding back or holding down future increases until the salary bump has been equalized.
  • If you have reclassified employees already, you may wish to consider whether to reclassify them again.  You have already assessed salary costs to your organization and made the classification decisions.  If you think you may wish to explore reclassification of reclassified employees, consider including the employees in your decision – some employees will prefer hours limitations and the opportunity to earn overtime; others will prefer to remain exempt.
  • If you do reclassify employees, reconfirm that their duties and salary levels meet FLSA and state law requirements for exemption and make any appropriate changes.
  • If you do reclassify employees, confirm and follow requirements for communicating changes in wages and wage structures; for example, some states require notice of such changes at least one pay period in advance of making the changes.
  • If you have implemented time-keeping procedures for both exempt and non-exempt employees, consider retaining that practice – if you have the bad luck to be audited by the DOL in the future, having a record of time worked will give you the evidence you need to defend against potential back wage claims based on misclassification and the failure to make catch-up payments.

For now, all employers should monitor this issue to ensure that they are prepared if and when things change.  Potential changes include a permanent injunction against the Final Rule, withdrawal of the Final Rule by the DOL, modifications to the Final Rule to include things such as an implementation delay, an implementation phase-in period, downward adjustments to the salary levels, or some other changes that will enable the DOL to increase the salary level for exempt status without running afoul of the law, the courts and employers.  We continue to recommend time-keeping for all employees, regardless of exempt or non-exempt status, and it remains important to ensure that employees are recording their time worked, whether on or off employer premises and whether during or after regular work hours.

The Labor and Employment attorneys at Saul Ewing LLP will continue to keep you apprised of what you need to know.

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