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Obama-Era FLSA Amendment DOA

The continuing saga of the Obama-era overtime rule now appears to be officially over.  This rule, if implemented, would have required employers to pay employees more than $47,000 annually to qualify under one of the Fair Labor Standards Act’s white collar exemptions.  As set forth in a previous post below, the rule was in serious limbo after a Texas federal district court judge temporarily prevented its enforcement just before Thanksgiving last year, and now that same judge has struck down the rule permanently.

In a nutshell, the court said the DOL exceeded the authority granted to it by congress by fashioning a rule that effectively doubled the salary employers had to pay employees to qualify under the white collar exemptions. Although the court didn't quite shut the door on whether the US Department of Labor ("DOL") has any authority to alter the salary basis test, the decision substantially limits DOL’s authority to implement a new salary basis test and dramatially alter the landscape of workers eligible for overtime compensation.




Anticipated FLSA Salary Requirements Blocked by Federal Judge

Late on November 22, a federal district court in Texas enjoined nationwide implementation of the Labor Department’s new overtime requirements that have been the subject of several articles posted below.  The new regulations were to go into effect on December 1.  Judge Amos Mazzant, ruling on a consolidated lawsuit brought by 21 states and a business coalition, concluded that the executive, administrative, or professional employee exemption contained in FLSA Sec. 13(a)(1) does not grant the Department of Labor the authority to utilize a salary-level test or an automatic salary updating mechanism under the rule. “With the Final Rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test. Consequently, the Final Rule does not meet [step one of the] Chevron [deference test] and is unlawful,” the court ruled (State of Nevada, et al v. Dept. of Labor, et al, Dkt. No. 4:16-CV-00731, Nov. 22, 2016.


Side-Stepping the New FLSA Requirements

In the article below, we informed readers that effective December 1, 2016, sweeping changes will be implemented with regard to the Fair Labor Standards Act ("FLSA") that will require employers to more than double the minimum weekly salaries of exempt employees in order to maintain the exemption and avoid paying overtime.  Under exising regulations, employers have to pay employees a weekly salary of at least $455 to maintain the exemption.  Under the new regulations, employers must pay a mimimum weekly salary of $913 to maintain the exemption.

As a practical matter, most employers probably won't face a doubling of salaries for their exempt staff as weekly salaries tend to be substantially higher that $455 for most exempt employees.  Yet, many employers will still face a substantial and sudden economic impact as of December 1st.  

There are a few ways to avoid or minimize the financial impact of the new regulations.  First, consider the fact that many exempt employees actually don't work overtime (more than 40 hours per week).  For these employees, there would be no need to increase their pay to maintain the exemption.  Exposure for occassional overtime work could be controlled by carefully managing overtime hours and requiring approval before overtime is worked.  Employers should therefore carefully analyze the hours actually worked by their exempt employees to determine if there is even a need to comply with the new regulations.

If your exempt employees actually do regularly work overtime, consider surrendering the exemption and paying hourly.  Consider this example.  An exempt employee making $455 per week is making $11.38 an hour based on a 40 hour work week.  After December 1st, this employee will be making $913 per week, or $22.83 per hour.  If this same employee is converted to hourly pay at $11.38 an hour and consistently works 10 hours of overtime each week, his weekly pay would be $625.70 -- far less than the $913 per week required by the new regulations. 


Significant FLSA Changes Looming

Under the Fair Labor Standards Act ("FLSA"), employees are entitled to minimum wage and overtime (i.e. time and one-half of the employee's regular rate of pay) for all hours worked over 40 in any given work week).  However, certain categories of employees are considered "exempt" from the FLSA's minimum wage and overtime provisions.  In this regard, employees that meet the definition of executive, professional, administrative, outside sales and computer employees are exempted from the FLSA's minimum wage and overtime requirement.  

In order to qualify as exempt under any of these categories, employees must perform certain duties defined in Department of Labor regulations and must be compensated on a salary basis at a rate of not less than $455 per week ($23,660 per year).  Employees who are not paid on a salary basis at the required rate are not considered exempt and must be paid overtime (and minimum wage).

Effective December 1, 2016, the minimum weekly salary required to maintain the exemption under the FLSA increases from $455 per week to $913 per week (or $47,476 per year) -- more than doubling the current minimum.  The Department of Labor will permit employers to satisfy up to 10 percent of the new standard salary requirement with nondiscretionary bonuses, incentive payments, and commissions, provided these forms of compensation are paid at least quarterly.  This regulation, 29 CFR Part 541, can be found here.  

Undoubtedly, unless employers are willing to dramtically increase the pay of exempt workers in order to avoid losing the exemption, this change will dramatically increase the number of employees eligible for overtime compensation.     



Court Upholds DOL Requirement For Paid Breaks

The Fair Labor Standards Act requires employers to pay their non-exempt employees for hours worked. The Department of Labor has a implemented a regulation that states: "Rest periods of short duration, running from 5 minutes to about 20 minutes, are common in industry . . . . They must be counted as hours worked." 29 C.F.R. § 785.18.

Courts are not bound to follow such agency regulations, but they do afford them some deference.

In Perez v. American Future Systems, Inc. the Eastern District of Pennsylvania adopted the DOL regulation, holding that employers in most circumstances must pay non-exempt employees for breaks not exceeding 20 minutes.