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FLSA overtime rule effective December 1 blocked by court

November 22nd, 2016  |  David Stephanides  |  7 Comments

Late on November 22, a federal district court in Texas enjoined nationwide implementation of the Labor Department’s final overtime rule. The rule was 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 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).

the Department exceeds its delegated authority and ignores Congress’s intent by raising the
minimum salary level such that it supplants the duties test.4 Consequently, the Final Rule does
not meet Chevron step one and is unlawful

In 2014, President Obama urged the Labor Department to review severely outdated regulations related to exempt employees. In response, on May 18, 2016, the DOL released the final rule updating overtime eligibility that will automatically extend protection to over four million workers.

Background. The FLSA, passed in 1938, provided equity and fairness to workers by establishing the required minimum wage and overtime regulations. In general, the regulations applied to most employees. However, the FLSA also provided an exemption from these regulations for executives, administrative, and professional employees, commonly referred to as white collar workers. Exempt employees are not entitled to overtime wages. To qualify as exempt, the employees must meet certain tests regarding their job duties (duties test) and must be paid on a salary basis at not less than a “minimum specified amount” (salary level test).

The white-collar exemption was originally intended to apply to highly compensated individuals. But due to inflation, the salary threshold failed to provide protection to an increasing number of workers over the years. In 2004, the weekly salary amount was raised for the first time since the 1970’s, when it was set at $455 ($23,660 annually). The test for exemption was also modified. However, critics argued that even for 2004 standards, the adjustment to the exemption rules remained too low to provide adequate coverage for low-income workers.

Updated rule. The final rule updated the executive, administrative, and professional workers salary and compensation levels as follows:

  • The standard salary level was set at the 40th percentile of earnings of full time salaried workers in the lowest-wage Census Region, currently the south ($913 per week; $47,476 annually for a full-time worker).
  • The total annual compensation requirement for highly compensated employees subject to the minimal duties test was set to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  • In order to ensure useful and effective tests for exemption and continued worker protection, the salary and compensation levels were to be updated every three years at the above percentile levels.

The final rule also amended the salary basis test to allow employers to satisfy up to 10 percent of the standard salary level with nondiscretionary bonuses and incentive payments such as commissions.

Responses

  1. David Pate says:

    November 26th, 2016 at 8:14 pm

    My employer cut my pay by 55% and told me the reason was because of this new law that was going into effect. I was changed from salaried to hourly and went to $13 an hour for 34-38 hours weekly from a salary of 52K annually. I asked three times if the reason for this change was because of the new law going into effect and was told yes all three times. I have witnesses to this fact. Does this make any sense to anyone of you? What if any anything could I do? Thank you. David

  2. Victor says:

    November 28th, 2016 at 9:26 am

    Hi David,

    This law change resulted in employers having to raise the salaries of individuals so that time tracking and OT pay could be avoided. At my company, we identified a handful of individuals that fell below the $47k salary test, and set in motion requisite salary increases to be in effect for Dec 1, so that we would not have to switch anyone to an hourly, bi-weekly payroll scheme (everyone at our company is salaried, exempt, paid semi-monthly). Maintaining dual payroll schemes would be an administrative headache.

    In your situation, is it possible that your company has many more employees than just a handful that would fail the $47k salary test, and so perhaps it made sense to your company’s management to move everyone to an hourly, bi-weekly payroll scheme? In other words, while the law change on the surface would not appear to have an impact on an individual with a $52k annual salary, it would seem that your pay reduction is an unintended consequence of the law change.

    The pertinent question now is, will your employer reinstate your former salary now that the law change has been put on hold? My guess is that it’s likely too late. My company had to communicate pay increases to that handful of employees assuming this law was in fact going to be effective Dec 1, and of course, we cannot take back a pay increase that was already communicated.

  3. Gary Goyette says:

    November 28th, 2016 at 12:26 pm

    If you did not work more than 40 hours per week (or eight hours per day in CA) that answer by your employer is BS. Why? Because if you had to be classified as non-exempt hourly under the new law, instead of salaried exempt, the new law would not affect your employer UNLESS you worked overtime hours for which time and a half overtime pay must be provided to non-exempt hourly employees (overtime does not have to be provided to salaried exempt employees). Absent overtime hours worked there is no effect – -your employer could have simply divided your annual salary by 2080 hours to come up with an equivalent hourly rate no different than your prior salary, and at no additional cost to your employer. There is an additional cost for you as a non-exempt hourly employer, as opposed to a salaried exempt employee, ONLY if you work overtime hours.

  4. Mandi says:

    November 30th, 2016 at 9:56 pm

    I was given. A salary raise above the threshold to avoid being switched to hourly. I was happy becausr i can be flexible with my schedike instead of recording everytime and got a nice sized raise in the meantime. Because when i was hourly i was workon lots of ot and i got burned out even tho my paycheck was great. Now my raise has been taken away since the halt. Kind of unfair why even bring it up to employers unless they had to put in place now we are granted a raise and now its being taken away

  5. Debbie says:

    December 2nd, 2016 at 6:43 am

    I was given a letter by my company on November 11th telling me my pay rate had been raised. Then I was given a generic letter from my manager regarding the injunction stating I will no longer be getting the raise on November 28th. Since they had originally gave me paperwork saying I would be getting the raise December 1st is there anything I can do? Legally are they responsible to uphold the letter the originally gave me?

  6. Kimberly says:

    December 5th, 2016 at 6:55 pm

    @Debbie,the same happened to me. I’m assuming there is nothing you can do about it. To my understanding, a company can give a raise and legally take it back.
    I was emailed by my company’s corporate office explaining the fsla new rule and because of this new rule, my salary would increase. Then a few days before December 1st my manager explained that everything was put on hold and that I will not recieve a raise.

  7. Shirley says:

    December 24th, 2016 at 10:07 am

    My company told me that my pay raise would go into effect beginning 11/13/2016 because of the new law. However when I got my first paycheck that it was supposed to be on, it was not there. It took me a week to find out that I was now not going to get it because the new law was put on hold. Is that legal to quote me an increase and then not give it to me?

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