Earlier this year, the U.S. Department of Labor published new regulations for white-collar exemptions to the federal overtime wage law, known as the Fair Labor Standards Act (FLSA). These new regulations would require many employers to either raise salary levels or start paying overtime for certain employees. The regulations were scheduled to go into effect on December 1, 2016. However, a federal court in Texas has issued a preliminary injunction (i.e. a temporary court order) forbidding the implementation of the new regulations until the court can fully hear the case. What does this mean for businesses?
The FLSA requires covered employers to pay most employees 1.5 times their normal hourly rate for hours worked in excess of 40 hours in a workweek. However, white-collar employees are exempt from this overtime requirement. In order to be considered an exempt white-collar employee under the current FLSA regulations, the employee must:
- Be paid on a salary basis, which is not subject to reduction based on quality or quantity of work (the “salary-basis test”)
- Be paid a salary of at least $455 per week, which totals to $23,660 per year (the “salary-level test”)
- Primarily perform duties that are executive, administrative or professional in nature (the “duties test”)
There is a slightly different test for white-collar employees making over $100,000 per year.
The new regulations, among other things, increase the minimum salary level from $455 per week to $913 per week ($47,476 per year), more than doubling the salary requirement. If these new regulations are implemented, employers of currently exempt employees that make under $47,476 per year will either need to (1) increase their salaries to the new minimum or (2) pay overtime for hours worked in excess of 40 in a workweek. The Department of Labor estimates that this change will cost employers on average $295 million per year.
In order to prevent the new regulations from being implemented, 21 states and over 50 business organizations (the plaintiffs) sued the Department of Labor in federal court. Court cases can take many months, if not years, to reach a final conclusion. Accordingly, the plaintiffs asked the court to issue a preliminary injunction prohibiting the implementation of the new regulations until the court can reach a final determination on the lawfulness of the new regulations.
On November 22, 2016, the court issued a nationwide preliminary injunction. In its analysis, the court found that the plaintiffs were likely to win the entire case because Congress’ intent with the FLSA exemption was to focus on duties rather than salary level, and the drastic increase in salary level seems to exceed the authorization granted to the Department of Labor in the statute.
What Does This Mean for Businesses?
This means that employers who are compliant with the current FLSA white-collar exemption regulations do not need to make any changes to their current payment structure for the time being. It may take many months for the court to make a final ruling on the lawfulness of the regulations, and the issuance of the preliminary injunction means that the court is likely to make the injunction permanent at that time.
However, in light of the ongoing court case and the changing political climate at the national level, employers would be well advised to keep apprised of this court case and any potential executive or legislative action that may be put forward by the new administration.