New Exemption Rules Blocked - Now What?

Posted in *New Exemption Rules

Yesterday, the United States District Court for the Eastern District of Texas dealt employers yet another surprise in this season of upsets with its decision in State of Nevada v. U.S. Department of Labor, halting the implementation of the DOL’s new FLSA overtime exemption rules, which were set to take effect December 1, 2016. The rules would have increased the minimum salary for exempt executive, administrative and professional employees from $455 per week to $913 per week, or about $47,476 per year. The court issued a nationwide injunction prohibiting the enforcement of the new salary threshold for exempt employees. As a result of the court’s ruling, the new rules will not take effect on December 1, the prior rules will remain in effect, and the timing of a change in the rules, if any, is completely up in the air.

While the new rules already faced an uncertain future under the Trump administration and the Republican-controlled congress, most legal observers gave this lawsuit a low probability of success. The complaint, filed on September 19, 2016 by a coalition of 21 states, claims that the DOL exceeded its authority under the FLSA and unlawfully infringed upon states’ budgets by enacting the new rules. A coalition of business groups led by the U.S. Chamber of Commerce also filed a parallel lawsuit, which was later consolidated with the states’ case. The states asked the court to grant a preliminary injunction blocking the rules from taking effect until a final ruling in the case. For their part the business groups asked the court to skip the preliminaries and expedite its final ruling on the merits.

Although the court declined to issue a final decision for the time being, it granted the states’ motion for a temporary nationwide injunction blocking the new rules from taking effect and prohibiting the DOL from expending any resources to enforce them. The court found that Congress intended for the executive, administrative, and professional exemptions to be based on an employee’s actual duties and responsibilities, rather than the employee’s salary. By issuing a rule that “categorically excluded” employees who performed exempt job duties from exemption based on a “de facto salary-only test,” the court determined that the DOL exceeded its authority and violated the unambiguous intent of Congress to exempt employees based upon the type of work they perform. While the Court’s ruling seems to suggest that the low $455 per week salary threshold in the existing rules might be permissible because it screens out only “obviously non-exempt employees,” the court did not address whether a smaller increase in the current minimum might have been permissible. It also did not rule on whether that lower minimum salary threshold could be subject to automatic increases as the DOL had proposed, finding instead that “because the Final Rule is unlawful, the Court concludes the Department also lacks the authority to implement the automatic updating mechanism.”

Importantly, this ruling is not limited to the States that filed the lawsuit. The Court’s ruling is nationwide in scope and applies to all employers covered by the FLSA. However, much uncertainty remains. Rulings on preliminary injunctions are subject to immediate appeal. While it is rare for the Fifth Circuit Court of Appeals to overturn a preliminary injunction, this is an unusual and unexpected decision, and the Obama Administration may well try its luck in a bid to preserve the new rules. While its ruling on the preliminary injunction likely forecasts the district court’s final ruling on the merits of the case, it is also possible that the court may reach a different result upon final review and lift the injunction.

We also do not know at this time exactly what President-elect Trump will do on this issue when he takes office in January. He may well simply order a halt to further government efforts to defend the Obama administration rules, in which case the current injunction will likely remain in effect and the rules will be dead. But the President-elect is nothing if not unpredictable, and it is at least possible (if unlikely) that his populist side may win out over business interests and lead him to defend the new rules. It is also possible that Congress may step into the fray, either by voting to block the new rules under the Congressional Review Act, or by enacting legislation that either does away with the salary increase or phases it in over several years.

This leaves employers with a difficult question: What now? Unfortunately we are still waiting for a definitive answer.

Employers who are contemplating changes to comply with the new rules but have not yet announced them should consider waiting to see what happens before they act. Employers that have already announced or implemented adjustments will need to decide whether to roll them back, and if so whether to do that now or wait for the dust to clear. Employers who do announce further changes based on this ruling should be clear with employees that further changes might follow depending on the final resolution of the lawsuit and the response of Congress and the new administration. Obviously those communications will need to be handled carefully, particularly if they mean rescinding pay increases or other changes that employees may have seen as favorable.

Finally, as employers plan to respond to these issues, they should watch not only the courthouse in Texas and politicians in Washington D.C., but their state legislatures and city councils. New York already has a higher minimum salary for exempt white collar employees ($675 per week), and has recently proposed increases even greater than those in the now blocked federal rules. If the federal rules are declared dead, other state and local governments may be inspired to take similar action.

DOL Exemption Rules Enjoined

Posted in *New Exemption Rules

Well folks, looks like all that work we did to get ready for the new exemption rules taking effect 12/1 was just for fun. A federal court just blocked the rules from taking effect nationwide. This is just in so we haven’t had a chance to digest the opinion yet, but here it is if you want to read it for yourself. We will provide more analysis soon.

Order Enjoining Exemption Rule

What Will The Trump Administration Mean for Wage and Hour Law?

Posted in *New Exemption Rules, Trump Administration

This is a post I certainly didn’t expect to be writing even 12 hours ago, but now that the results of the election are clear, it’s time to give some thought to what lies ahead under the forthcoming Trump administration. Details will of course start to emerge over the next couple of months, but I have a few early predictions about what employers should and should not expect.

  1. An eventual repeal of the new FLSA overtime rules just became much more likely. While it would take time for President Trump’s labor department to go through the process of issuing new regulations to replace those set to take effect December 1, it is highly likely that Congress will address the issue through legislation now that the likelihood of a veto by a Democratic president has been removed. The real question is whether such legislation would simply roll back to the old minimum salary level of $455 per week, or, as some in Congress have proposed, phase in a more gradual increase over the next few years.
  2. We don’t know what will happen with the new exemption rules between now and January when Trump takes office. There are a few different possibilities. One is that the Obama administration will stay the course and move forward with the rules as if nothing has changed. Employers (at least, those who want to be in compliance with the law) will have to move forward with reclassifying employees and making other necessary changes to their compensation structures and payroll practices by December 1. If the law later changes, those employers will need to make some decisions about whether to roll any changes back or just leave well enough alone. A second possibility is that the Obama administration might delay any DOL enforcement actions under the new rules in anticipation of legislation under the new administration. I have no inside knowledge here, but that seems unlikely. The current DOL is strongly committed to the new rules and likely wants to see employers implement changes in the hopes that they will stick even if Congress enacts legislation lowering the salary level once again. Also, even if the DOL does not itself take action to enforce the new rules, the rules remain law unless they’re overturned either by a new rule (which must go through an extensive rulemaking process, just as the current rule did) or by an act of Congress. So even if the DOL does not go after employers who are not in compliance with the new rules, that does not stop private litigants, or for that matter state labor departments in states that (like Illinois) mirror the federal rules in their state overtime laws. There are a couple of other outside possibilities. One is that the current Congress strikes a deal with the lame-duck Obama administration to enact legislation preserving some increase in the minimum salary but phasing it in over time. If done quickly this might save employers from having to make changes now and reverse course later. While that might be the sensible approach to the problem, I’m not holding my breath. The other wild card here is the pending lawsuits seeking to overturn the new rules. While most legal experts don’t give them a high likelihood of success, stranger things have happened.
  3. The DOL’s posture toward employers is likely to change – eventually. Under the Obama administration, it seems fair to say that the U.S. Department of Labor has become much more aggressive in pursuing enforcement action against employers and in using administrative action to impose new restrictions on employers. The DOL has hired more investigators and field staff, and anecdotally I can certainly report that more of our clients are being visited by DOL agents in the last couple of years than was previously the case. But that did not happen overnight when President Obama took office. The federal government is a huge ship, and it takes a long time to change direction. It seems likely that the Trump administration will seek to rein in the Department of Labor, particularly in its more aggressive initiatives to change (or, as the DOL would probably put it, fill in the gaps) in existing law through “Administrator Interpretations” and rulemaking. It’s also likely that the DOL will see its enforcement budgets cut, meaning fewer audits. However, just as it took time for the Obama administration to change the DOL’s course from the relatively business-friendly one set under President Bush, employers should not expect to see these changes until the new administration has had time to put its own team in place, establish budget priorities, and make the other policy changes needed to effect their vision for the agency.
  4. State and local governments will continue to ramp up their regulations. While employers may welcome some of the changes that they are likely to see at the federal level under the new Trump administration, those changes are likely to accelerate the recent trend of state and local governments enacting their own regulations on employers, at least in the remaining “blue” strongholds around the country. This may further complicate the lives of HR professionals whose organizations operate across multiple jurisdictions.

Of course employers should take all of these predictions with a very large grain of salt because, frankly, we don’t know what is going happen now. For the time being, the best advice that we can give to employers is to stay the course, keep preparing for the new FLSA exemption rules set to take effect on December 1, and wait to see where the dust settles. But also be prepared for further changes that may well be on their way.

Thirty Days to Go – Are Your Employee Classifications In Order?

Posted in DOL News, Exemptions, Overtime

As we have reported over the last couple of months, there have been recent attempts by business groups and states to block the U.S. DOL’s new overtime exemption rule from taking effect on December 1, 2016. Despite these efforts, no court has yet to issue any ruling.  With just 30 days to go, employers should not pin all of their hopes on a last minute reprieve from the new minimum salary threshold requirement.  Instead, employers must continue to prepare to comply with the new rule.  With states having various state notification requirements, please keep in mind that a change in classification may require advance notice to employees before December 1.  Employers should consult their applicable state laws and plan accordingly.

We will continue to provide updates on this pressing issue.

Business Groups Ask Court To Expedite Ruling On Overtime Exemption Rules

Posted in *New Exemption Rules, Litigation

In our last post we reported that the U.S. Chamber of Commerce and fifty-plus other business groups suing to block the U.S. DOL’s overtime  exemption rule from taking effect had not yet moved to expedite the court’s ruling on the case, making it unlikely that the court would issue any sort of ruling before the rules take effect on December 1, 2016. Well, now they have. In a motion for expedited summary judgment filed Friday October 14, the business groups are now asking the court to rule on the merits of their case on the same timetable as is set for its hearing of the motion for preliminary injunction in the parallel lawsuit being pursued by a coalition of 21 states. On Monday, the business groups followed up with a motion asking the court to consolidate their case with the parallel state lawsuit. According to the motion, the states and the DOL do not oppose consolidating the cases.

The Court’s docket indicates that the DOL’s response to the motion for summary judgment is due on October 31, 2016. The DOL’s response to the states’ parallel motion for a preliminary injunction is likewise due on October 31, with the states’ reply due on November 10 and any sur-reply by the DOL due on November 15. The motion is set for hearing on November 16, 2016 at 9:00 a.m.

Both cases are pending before District Judge Amos L. Mazzant. Mazzant was nominated to the bench by President Obama in 2014. He previously served as a United States Magistrate Judge from 2009 to 2014, and as a justice of the Court of Appeals for the Fifth District of Texas from 2004 to 2009.

It is conceivable that these combined cases could offer employers some relief from the new rules before the effective date. But we’re not holding our breath. While employers might sensibly delay announcing any changes while these lawsuits play out, they should still be preparing to comply by December 1.

States Seek Preliminary Injunction Blocking New Overtime Rules

Posted in *New Exemption Rules, Litigation

On September 20 we reported about a lawsuit by 21 states seeking to block the U.S. DOL’s new overtime exemption rules. This week, the states followed up their complaint by filing an Emergency Motion for Preliminary Injunction, asking the court to block enforcement of the new rule pending a final ruling on the states’ claims. According to the court’s docket no hearing date has been set.

There have been no further developments in a similar lawsuit filed on the same day by the U.S. Chamber of Commerce and a coalition of business groups. To date, the business groups have not filed a motion for a preliminary injunction. The court’s docket reflects that the Labor Department’s answer to the complaint is not due until November 21, 2016.

At this point, we cannot recommend that employers pin their hopes on these lawsuits to relieve them from having to comply with the new FLSA exemption rules effective December 1, 2016.

Note: This post has been corrected. The original post stated that the Chamber of Commerce lawsuit does not challenge the base salary increase included in the new rule. It does. 

House Votes to Delay OT Rule But Employers Are Not Out of the Woods Yet

Posted in DOL News, Overtime

Yesterday, the United States House of Representatives passed a bill, H.R. 6094 (the “bill” referred to as the Regulatory Relief for Small Businesses, Schools and Nonprofits Act), that would delay the effective date of the Department of Labor’s new overtime rule by 6 months, from December 1, 2016 to June 1, 2017.  The Vote passed the House 246-177, with 5 Democrats voting in favor of it.  This is just the latest challenge to the DOL’s doubling of the minimum salary threshold for the white collar exemptions (executive, administrative, and professional) under the Fair Labor Standards Act.  Business groups, congressional Republicans and State Officials have all criticized the drastic economic impact such a measure would have on businesses.

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21 States File Suit Challenging the DOL’s New Overtime Rule

Posted in DOL News, Overtime

US-Department-of-Labor-logo.jpgYesterday, a group of 21 states filed a lawsuit in the United States District Court for the Eastern District of Texas challenging the Department of Labor’s new overtime rule, which is set to take effect on December 1, 2016.  The group challenging the rule is led by Texas and Nevada, and includes the following states:  Alabama, Arizona, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, New Mexico, Ohio, Oklahoma, South Carolina, Utah, and Wisconsin. The lawsuit names as Defendants the DOL and its Wage and Hour Division, Secretary of Labor Thomas Perez, and Wage and Hour Administrator David Weil, and Assistant Administrator for Policy Mary Ziegler.

As most know by now, in May 2016, the DOL issued its final rule establishing a new minimum salary threshold for the white collar exemptions (executive, administrative, and professional) under the Fair Labor Standards Act (FLSA). This new threshold of $913 per week ($47,476 annualized) more than doubles the current minimum weekly salary threshold of $455 per week ($23,660 annualized), and is scheduled to increase every three years.

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What Is The Section 7(i) Exemption And Does It Apply To Auto Dealer Service Advisers?

Posted in Exemptions

Over the summer, the U.S. Supreme Court punted on the question of whether “Service Advisers” or “Service Writers” at auto dealerships fall within the Fair Labor Standards Act’s exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” For those outside of the auto industry, these are the people who greet you when you pull into the service department and communicate with you about what work your car might need. Since the question of whether service advisers count as “salesmen” may not be definitively resolved for some time yet, many auto dealers find themselves looking for other overtime exemptions that may apply to these positions.

The Section 7(i) Exemption

The “white collar” exemptions for executive, administrative, and professional employees don’t fit because service advisers don’t perform the sorts of job duties that fall under those exemptions, and many of them are paid mostly on commission rather than on a salary basis. There is, however, another exemption that may apply to at least some service advisers. Section 7(i) of the FLSA creates an exemption that applies when all three of the following conditions are met:

  1. The employee must be employed by a retail or service establishment.
  2. The employee’s regular rate of pay must exceed one and one half times the minimum wage for every hour worked in a workweek in which any overtime hours are worked.
  3. More than half of the employee’s total earnings in a “representative period” must consist of “commissions.”

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Have you updated your FLSA and EPPA posters?

Posted in Minimum Wage

FLSA Poster imageRegular readers may have noticed that this blog took a bit of a hiatus over the summer while the authors spent some time away from work, and then working to catch up from the time away. Now that summer is winding down, the kids are heading back to school and life is starting to return to a more normal routine, it’s time to catch up on some wage and hour developments over the last month or so.

One of those developments is the release of a new FLSA minimum wage poster by the U.S. Department of Labor. The poster can be downloaded in .pdf format from the DOL website. Print copies will, according to the DOL, “be available for order soon.”

The DOL has also issued an updated poster under the Employee Polygraph Protection Act (EPPA), also available for download from the DOL website in .pdf form.

If you haven’t done so already, you should immediately print or obtain a copy of the new posters and post them in a “conspicuous place” in your establishment so that employees can readily read them.