The below message is from Angelo Spinola of Littler Law. Angelo is an attorney who specializes in Wage & Hour law and is dedicated to serving the interests of home care agency owners. He can be contacted at 404.760.3921 or ASpinola@littler.com.
We wanted to update you on a significant decision. The federal court in the Eastern District of Texas has issued a nationwide injunction blocking the new rule on FLSA “white collar” exemptions and overtime (“Final Rule”) that was scheduled to go into effect on December 1. The Texas court found a preliminary showing had been made that the Department of Labor (DOL) did not have authority to issue the Final Rule. The injunctions stops implementation and enforcement of both the increased salary amount to qualify for the white collar exemptions and the automatic updating mechanism that would change the required salary level every three years. This ruling prevents the DOL from requiring employers to pay salaried workers $47,476 per year ($913/week) to maintain exempt status. This would have replaced the current rule, which sets a salary threshold of $23,660 annually, or $455 per week, for workers to be exempt from overtime.
We have gotten several calls about what this ruling means for employers and what companies should do now. As such, this email gives an overview of the injunction and what employers should consider in choosing a course of action for December 1 and beyond. Before we dive in however, I want to give a big shout out to our attorneys who represented the business groups in this litigation and helped to achieve this result. In particular, Maury Baskin’s oral argument last week was instrumental in achieving this result. Congratulations Maury, Robert Friedman, and Tammy McCutchen!!! Also, big kudos to Jessie Brown who assisted me in drafting this alert in a very short window of time. Note also that we are in the process of publishing a more formal and thorough insight concerning this decision and its impact so please sign up for our free publications at http://reactiontest.littler.com/reaction/RSGenPage.asp?RSID=XaDY9TtV_p9Wd2u5sFzS28jhfHME-3rxt8dckXhyVWFRqHnbV_KULDyjBZU_ENZm. Further, if anyone would like to see the actual order let us know and we will send it to you.
What effect does the preliminary injunction have?
The preliminary injunction suspends implementation and enforcement of the Final Rule, such that it will not go into effect on December 1. However, the preliminary injunction is not a final decision; it simply means the Texas court concluded (1) it is substantially likely the DOL will be found to have no authority to issue the Final Rule, (2) the Final Rule will cause irreparable harm if implemented as scheduled, (3) the damage from implementing the Final Rule if erroneous would outweigh any damage from delaying implementation of the Final Rule if valid, and (4) the public interest is served by an injunction.
The preliminary injunction will stay in place until the court issues a decision on the merits of the case or unless the DOL succeeds in getting the preliminary injunction reversed on appeal. Due to the impact of preliminary injunctions, parties may appeal them immediately. The DOL doubtless will appeal the preliminary injunction, but the Fifth Circuit Court of Appeals will not rule on the appeal by December 1. Until another court order or an appellate decision is entered, the Final Rule is not law. Further, a motion for summary judgment that would make the injunction permanent is already fully briefed, and the Littler team believes it is very possible that this motion will be granted. If that happens, there is a good chance that the new regulations will never go in effect, as the new administration could withdraw them before any appeal could be resolved. The Trump administration takes office on January 20, 2017 and he will appoint several new DOL representatives who likely will have a different agenda and may abandon the prior administration’s efforts to increase the salary levels. The story is still unfolding and there is more to be done, but the bottom line is that the new proposed salary threshold may not go into effect at all.
Why did the Texas court consider it likely the DOL would be shown to have no authority to issue the Final Rule?
The Texas court found it substantially likely the DOL ultimately will be shown, based on the merits of the case, to have no authority to issue the Final Rule. The court’s decision primarily rested on its reading of the Fair Labor Standards Act (FLSA) section that addresses the white collar exemptions. The court found the FLSA clearly shows Congress’s intent for the white collar exemptions to apply based on employees’ job duties, not their salary levels. The DOL’s authority to “define” and “delimit” the exemptions, then, concerns the duties that qualify employees for the exemptions, not a salary-level test. The Final Rule, however, explicitly states employees will not qualify for the white collar exemptions if they fail to meet the minimum salary level, regardless of their job duties. The court thus concluded the Final Rule effectively “supplants” the duties test with a salary test, which Congress did not give the DOL authority to do. This lack of authority extends to the three-year automatic increases of the minimum salary level. While these conclusions seem to bring into question the validity of the salary-level test generally, even the previous, lower salary level, the court expressly stated its evaluation concerns only the salary-level test under the Final Rule.
What should we do on December 1?
Legally, companies have no need to effect any changes they had planned in order to comply with the Final Rule. Companies planning to reclassify employees as non-exempt or increase employees’ pay to maintain exempt status can delay and potentially abandon those changes depending on what happens next. One exception is if your company operates in a state that requires certain notice for wage changes and you have already issued notice of a wage change. It this case, you may need to issue another wage change notice before abandoning the planned changes. For companies that abandon planned changes, the preliminary injunction’s statement that the Final Rule cannot be implemented or enforced “pending further order of this Court” will help with respect to any claimed liability if the preliminary injunction is later modified, vacated, or reversed.
As a business matter, companies have other factors to consider in deciding whether to proceed with or abandon the changes planned to comply with the Final Rule. If employees generally had a negative reaction to the planned changes, employee morale might improve if the company abandons those changes and returns to the previous course. For example, many clients have already announced their plans to either reclassify employees to non-exempt status. The vast majority of employees who were set to be reclassified were unhappy with this plan, making it much easier for the company to walk back from those changes. Note however that if companies took advantage of the Final Rule to reclassify positions that are often the target of misclassification litigation, the planned changes may reduce risk to such a degree that the benefit outweighs any downside.
In contrast, companies that chose to increase salaries to comply with the expected new minimum thresholds will have a more difficult time reversing course given the fact that employees welcomed these planned changes. In this instance, a company might want to leave the changes in place in the interests of preventing a drop in morale. These are fact specific business decisions that must be made on an individual basis. We will be working with our clients to evaluate the options and provide support for whatever decision is made in the form of notices, talking points, FAQs, etc. We will also be tracking what our clients are doing on a macro level so that individual clients can soften the blow with their employees by referencing these general trends.