On the last day of August a federal judge, Judge Amos Mazzant, seemed to settle the Obama administration’s attempt to alter the salary levels necessary to consider an employee exempt from being paid overtime. Or did he?
A bit of history
As you may recall, about this time last year companies were gearing up for a massive salary change that was scheduled to go into effect on December 1, 2016 that would have required employers to pay exempt level employees $913 per week, or $47,476 per year in order to remain classified as exempt employees. This caused a great deal of gnashing of teeth and companies scrambling to determine what they needed to do in order to comply with the new regulation. It also resulted in two lawsuits, which in turn resulted in the implementation of the new regulation being enjoined, which put a halt to the change just a couple days prior to the effective date.
Of course during that time we had a change in administration and delays ensued as a new Secretary of Labor took office. Several other parties, most notably the AFL-CIO appealed and wanted to have some input, at a minimum as a “friend of the court.”
Judge Mazzant put an end to much of the speculation with his ruling on August 31st. In essence he said:
- The DOL exceeded its power in setting a salary level so high as to not follow the intent of Congress. He said “Because the final rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress’s unambiguous intent.”
- The automatic update that was included also was invalid.
- The court’s ruling concerned only the 2016 rulemaking, finding the heightened salary level under the revised rule goes too far, thus opening the door to different actions by the DOL, which they have already proceeded with actions as I described in Here is your chance to impact the FLSA. Act now!
- The AFL-CIO had no standing in the case, but the original parties did.
- The FLSA does indeed apply to state’s governments, despite their protests.
What does all this mean?
The biggest outcome is that this means that the 2004 definitions of exempt employees and the associated salary levels stand. If you are defining someone as exempt and you are paying them at least $455 per week you are in good standing. Those of you that made changes last year are certainly in good standing. In fact you can reduce salaries and not be in danger, not that I recommend that. That might result in some turnover. But finally we have some closure to this! Or do we?
In reality we will not return to the 2016 proposed salary levels. But appeals can be made by the parties involved. It is unlikely that the DOL will appeal, but they are already working on new salary levels that will be more acceptable and palatable to the courts and industry. So we will in all likelihood see a changed salary level for exempt status. It is also questionable whether the AFL-CIO will appeal since what they do may be made irrelevant by new DOL rules. An appeal now would be a waste of time and money.
For now employers can breathe a sigh of relieve, but as all the law firms said everyone needs to keep an eye on this for future developments.