In the spirit of Thanksgiving, millions of employers are giving thanks for a nationwide injunction entered yesterday by a federal judge in East Texas. The Court’s order temporarily blocks the Department of Labor’s controversial increase in the minimum salary that must be paid for an employee to be exempt from overtime pay as an executive, administrative, or professional employee. The amendment would have effectively doubled the minimum annual salary for exempt employees to over $47,000 per year. The Court’s injunction is nationwide, preserving the current minimum salary basis of $455 per week unless and until the injunction is lifted, or the decision is disturbed by the Court of Appeals or U.S. Supreme Court.
Until the injunction was entered, beginning on December 1 employers would have been forced to increase the minimum pay of exempt executive, administrative, and professional employees to at least $913 per week. Absent that increase, even the most senior manager making less than $913 per week would have been instantly eligible for overtime pay for all hours worked over forty per week. The economic impact on many employers would have been devastating and violations would have subjected employers to investigation by the Department of Labor and even more costly lawsuits under the Fair Labor Standards Act.
So what does the decision mean for now? First, note that the injunction is not yet permanent. The Court has only temporarily blocked the salary amendments pending further court proceedings and a possible appeal. Whether and when the injunction might be lifted is unclear. In the meantime, however, some options to consider include:
- Maintain the status quo by continuing to pay salaried exempt employees no less than $455 per week ($23,660 per year) and stay tuned for whether the Court decides later to green light the DOL’s rule change. Should the Court later allow the new rule, it is unlikely that it would do so without advance notice being provided for its implementation. Under this option, affected employees should be notified that any planned changes are on hold pending resolution of the issue in the courts.
- Proceed as though the new regulations will go into effect on December 1 and reserve exempt status to those making no less than $913 per week ($47,476 per year). Those paid less than $913 per week would receive overtime when working more than forty hours in any given week.
- If there are concerns about the morale of employees who were anticipating a substantial pay raise, or who were resistant to being “demoted” to hourly status, consider a modest increase in base salary to something between the current $455 and the proposed $913 per week. Recognizing that payroll budgets are typically fixed far in advance, such increases may come at the cost of separating employees and reallocating job responsibilities to those who remain. Nothing in the statute prohibits the reduction of headcount to meet budgetary needs, provided of course that there is no retaliatory motive behind the separation.
- Evaluate whether certain positions continue to be properly classified as exempt under the “duties test.” The salary threshold aside, the duties and responsibilities of a particular position must still fit within one of the “white collar” exemptions. With the passage of time, job descriptions can become fluid and less reliable. Determining whether job descriptions still accurately reflect the work performed may help shore up any unknown compliance issues.
We will continue to monitor the court proceedings and advise of any further developments that might impact your operations. In the meantime, please feel free to contact any member of our Labor and Employment team at (615) 244-6380 if you have questions or would like to discuss these issues further. Wishing you a Happy Thanksgiving.
This update is provided by Waller for educational and informational purposes only and is not intended and should not be construed as legal advice.