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Employers have spent months preparing for the unprecedented changes to the minimum salary level required to exempt an employee from the new Federal overtime law, the Fair Labor Standards Act (“FLSA”). Memos were prepared, handbooks were rewritten, and employees notified of their change in status. But hold on a second. It looks like the change is unlawful. Here’s some LegalEASE to help you understand why the new overtime rules are on hold for now.
LegalEASE – New overtime rules on hold for now
On Tuesday, November 22, 2016, just days before Department of Labor’s (“DOL”) new FLSA rule that would double the salary required to qualify for the overtime exemption (the “Rule”) would take effect, a Federal Court in Texas put a halt to the process.
The new Rule would have reclassified 4.2 Million workers, who were previously exempt from Federal overtime requirements, as non-exempt. Or it would have given them a significant pay raise if their companies wanted to keep the exemption. The rule would touch nearly every business and have the greatest impact on nonprofit groups, retail companies, hotels, restaurants, professional organizations, and many management or professional workers whose salaries were below the new threshold.
The Court’s opinion makes my grammarian’s heart beat faster. They focused, in part, on the plain meaning of the words “executive,” “administrative,” “professional,” and “bona fide” as defined by the Oxford English Dictionary to determine if the DOL went too far. The law allowed the DOL “significant leeway to establish the types of duties that might qualify an employee for the exemption. However, the Court found the final rule was unlawful because the DOL didn’t have the authority to make the changes.
More problems for the DOL
The Court also found fault with the DOL’s automatic updating of the minimum salary level every three years. For the DOL to issue new guidance it must engage in an administrative procedure of a notice and comment period. The new Rule’s automatic salary adjustments violate this administrative process and were also unlawful.
The Court issued a nationwide ban (also known as an “injunction”) on the new regulation. This injunction prevents the new rule from taking effect on December 1, 2016. This means the minimum annual salary level will remain at $23,660. It’s unknown if the Government will appeal the ruling or wait and determine what the new administration’s guidance is on this issue.
What does this ruling mean for employers and employees?
Many businesses have shuffled staff and raised pay for some employees to plan for the new rule. These companies face the unpleasant task of deciding whether to roll back those pay raises and undermine employee morale, or keep the increases and manage the financial impact of those raises. Other companies still sorting out the effect of the rule on its employees can put that process on hold, for now.
What the Court’s ruling means for most American workers is their Federal overtime and salary status on December 1, 2016, will be the same as it was on November 30, 2016. No change for the time being.