Monday, November 28, 2016

SURPRISE RULING ON FLSA OVERTIME RULE



It continues to be a season of surprises in American politics . . . and in employment law.  Who would ever have thought that a federal judge, appointed by President Obama, would throw a money wrench in a key initiative of the Obama Department of Labor?  Not me.  As I incorrectly predicted in my November 18, 2016 article, I fully expected U.S. District Judge Amos L. Mazzant III to shoot down an injunction aimed at blocking the December 1, 2016 implementation of the DOL’s Final Rule, bumping the minimum salary level for white collar exemptions under the Fair Labor Standards Act ("FLSA") from $23,660 annually ($455 per week) to $47,476 annually ($913 per week).

What instead happened was that Judge Mazzant entered a nationwide preliminary injunction on November 22, 2016, blocking for now the U.S. Department of Labor (“DOL”) from implementing significant changes to the overtime rules applicable to white collar employees.  The ruling out of the U.S. District Court for the Eastern District of Texas held that the DOL most likely exceeded its authority by doubling the salary requirement, which would have rendered essentially meaningless the duties test, which is actually written into the FLSA.

The issuance of an injunction means that implementation and enforcement of the Final Rule by the DOL is just on hold until further notice by the Court.  The DOL has not yet announced whether it intends to appeal the ruling, and it remains to be seen if the Trump administration would have any interest in trying to implement a Rule so unpopular within the business community.  Another potential option might be a revised Rule that would include a smaller increase in the minimum salary requirement.

What I think I did get correct was my observation that “[i]f the unlikely actually happens, I expect an enormous sigh of relief from many employers, tinged with annoyance and aggravation over six months spent preparing for a rule that never went into effect.”  Annoyance aside, what should employers do at this point? 

In expectation of the December 1, 2016 deadline, many employers had bumped employee salaries to meet the new requirement, and many more had simply adjusted hour wages and work schedules in an effort to reduce overtime or keep actual wages approximately the same.  As reported in the Wall Street Journal, businesses are now faced with the difficult decision of either walking back pay increases they had already put in place, resulting in angry employees, or eating the expense of changes made in anticipation of a now uncertain requirement.

There is no right or wrong answer, and employers will have to look at a number of factors in making their decision for their particular business.  These factors include, but are not limited to: (1) whether the employer has already begun implementation of salary/exemption changes, (2) whether the employer has already communicated planned salary increases or changes even if it hasn’t actually put them in place, (3) whether the changes impact or potentially impact the company’s benefit plans, (4) the overall economic impact of the change to the client, (5) the workforce morale issues that may be implicated, (6) the temporary nature of the injunction and the fact that it could be appealed and, if so, potentially reversed on appeal.  This is an odd situation where those employers who planned ahead are faced with more issues than those companies that procrastinated and did nothing.


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Friday, November 18, 2016

RULING EXPECTED NEXT WEEK IN LEGAL CHALLENGE TO INCREASED SALARY REQUIREMENT FOR FLSA “WHITE COLLAR” EXEMPTIONS


Back in May 2016, the U.S. Department of Labor ("DOL") issued its final rule, bumping the minimum salary level for white collar exemptions under the Fair Labor Standards Act ("FLSA") from $23,660 annually ($455 per week) to $47,476 annually ($913 per week). With the new standard slated to go into effect on December 1, 2016, employers have spent the last six months scrambling on how to comply with the new rule, which makes millions of formerly exempt employees now eligible for overtime under the FLSA.
 

Options available to employers include bumping employee salaries to meet the new minimum (not feasible in many cases), paying employees’ current salaries with overtime after 40 hours (increased expense), reorganizing schedules and workloads to avoid overtime, or adjusting hourly rates of pay to essentially maintain the same pay level by estimating potential overtime hours. For a more detailed explanation of the final rule, click on this link to read an article by my colleague Jessica Coco Huffman in Phelps Dunbar’s Baton Rouge, Louisiana Office. For a discussion and explanation of the FLSA white collar exemptions, click on this link.
 

However, 21 states filed a lawsuit against the DOL, seeking to block the implementation of the new salary requirement prior to it going into effect, because of the heavy burden it would place on state budgets An injunction hearing was held November 16, 2016 in the United States District Court for the Eastern District of Texas. At the hearing, issues addressed included the DOL’s authority to make the change, the appropriateness of a nationwide injunction, and the impact on the incoming Administration. Following the hearing, the federal Judge in the case stated he was taking the matter under advisement, and expects to have a ruling on the requested injunction on Tuesday, November 22, 2016.
 

Reading the tea leaves, I think it is unlikely the Court will issue the injunction this late in the game. The federal Judge hearing the case, Amos L. Mazzant III, is an appointee of President Obama, who initially pushed for the change. However, after our tumultuous roller-coaster ride of a political season, the only sure bet is to see what happens next Tuesday.
 

If the unlikely actually happens, I expect an enormous sigh of relief from many employers, tinged with annoyance and aggravation over six months spent preparing for a rule that never went into effect.
 
 
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