No doubt you have heard the news. On May 23, 2016 the US Department of Labor issued its final rule modifying the overtime regulations of the Fair Labor Standards Act (FLSA). Last Tuesday, November 22, 2016 Judge Amos L. Mazzant, United States District Judge for the US District Court of the Eastern District of Texas, Sherman District issued a
effectively blocking the new wage and hour overtime regulations, commonly referred to as the "white collar" or "EAP" regulations from going into effect as scheduled on December 1, 2016.
Simultaneously, the impact of the new regulations was already making its mark on employers and employees alike. Employers were scrambling, crunching numbers and communicating with affected employees as to just what that impact would be to each. Some employees were grumbling and pushing back as they received the news that they would be converted from exempt to non-exempt, what that meant and how that would impact them. For some employees it was going to mean their paid meal period would be reduced or become wholly unpaid. For some it meant abolishing or modifying certain alternate or compressed work schedules (AWS/CWS). Yet for others it meant a reduction in certain other tangible benefits (subsidies for health care coverage or educational/tuition assistance) or intangibles (reduced flexibility, having to record all time worked).
And, yes a few employees were pretty excited as they learned they were about to get a pay increase for doing nothing and with no strings attached. The pay raise was for no reason other than to bring the employee up to the new, scheduled minimum salary threshold of $47, 476 to maintain their FLSA exempt status.
In the short time since the decision we have considered lots of questions and generated some of our own, right? Here's a quick Q & A of just some of the more popular questions:
How did this happen?
A: In September two lawsuits were filed challenging the new rule. One was filed the Plano Chamber of Commerce and more than 50 business associations. The other was filed by the State of Nevada and 21 other states. The lawsuits asserted the DOL violated the Constitution and/or exceeded its regulatory authority when it issued the final rule. In October both groups of plaintiffs moved for emergency preliminary injunctive relief in light of the new rule's looming implementation date of December 1, 2016. The court then merged the two suits so it could consider and assess overlapping issues simultaneously. The hearing was held November 16, 2016 and the decision was issued November 22, 2016.
Why did this happen?
A: The judge explains that in order for the court to issue a preliminary injunction the Plaintiffs need not prove their entire case but among some other requirements must demonstrate there is a "substantial likelihood of success on the merits." The judge did not find grounds on tenth amendment or any other Constitutional violations. The judge did find grounds for the claims that the DOL exceeded its regulatory authority. I find this portion of the judge's ruling most interesting
...[i]t is clear Congress intended the EAP exemption to apply to employees doing actual executive, administrative, and professional duties. In other words, Congress defined the EAP exemption with regard to duties, which does not include a minimum salary level...Supreme Court precedent, affirms the Court's conclusion that Congress intended the EAP exemption to depend on an employee's duties rather than an employee's salary...nothing in the EAP exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level...Directly in conflict with Congress's intent, the Final Rule states that "[w]hite collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities.
What does this mean? Who is affected? Will the rule still take effect just later? When?
A: Lots of "ifs" and "it depends" here. The preliminary injunction is temporary until the next hearing to determine if a final and permanent injunction will be issued. The preliminary injunction applies nationally. In the interim, the DOL may also file an appeal challenging this preliminary ruling. As of this writing the DOL's
reads that they are considering "all of our legal options."
We have not yet told any employee what we were going to do. Should we proceed with our plan or wait and see what happens next?
A: You should consult with your company's legal counsel to assess your specific situation. A key consideration may focus on the reason as to why you were going to make a change.
- If you were going to make a change to an employee's FLSA status solely because of the new regulation (increase to the minimum salary test) then you might decide to hold off on implementing any change until we see what happens next. The risk? If the preliminary injunction is overruled if an appeal is filed employers could face liability for non-compliance retrospectively.
- If you were going to make a change because in the process of reviewing the new rule you found that one or more employees were not properly classified under the existing rule you may want to proceed, make the change and ensure you are compliant with FLSA classifications today under the existing regulations.
- If you make a change under Item #2 above, consider in advance how you might address any questions that arise regarding back pay from an employee who was classified as exempt and is now being reclassified as non-exempt under the existing rules.
If we have already told one or more employees that their pay will be increased or they will be converted from exempt to non-exempt. Can we put that decision on hold or tell them they will not be receiving a pay increase?
A: There are certainly associated risks. You should consult with your company's legal counsel to assess your specific situation with each employee who may be affected. Here are a few considerations:
- Breach of contract - Put simply, a contract is a promise for a promise. When an employer unilaterally tells an employee that it will do something and then rescinds that statement it may not constitute breach of contract because the employee had not made any promise as a condition of getting the pay increase. Consider the reverse, would an employer be liable if it told an employee it was going to decrease the employee's pay and then rescinded that statement? Not likely.
- Detrimental reliance - the odds of success on this claim might hinge on the employee's ability to show that he reasonably relied on the employer's statement to his detriment. So if your employee went out and bought a new car in reliance on your statement that you were going to raise the employee's pay effective December 1, 2016 the question would be whether his action was "reasonable." Some might say it would be reasonable for the employee (and the financial institution that extended the financing) to wait until the raise was actually implemented. If the action was reasonable the employee would then need to show damages to which he was subjected as a result, such as having to default on the auto loan, which damaged his credit rating.
- State law - many states require an employer to give an employee advance notice of a decrease to an employee's pay, usually at least one pay period in advance. Some may require advance notice of any change in pay and some may require notice of more than one pay period. Be sure you following the law of the state(s) in which you operate and where your employee works.
- Use this time foster and maintain positive employee relations. We are all in this together. None of us really knows what shoe might drop next. We are all doing the best we can with the information we have. We try to balance being proactive and keeping employees well informed in advance. Sometimes this is the price we pay; danged if we tell you too early and danged if we wait until the last minute. So let's hang in there and watch this play out together. Stay tuned. There are likely to be many more steps before we get to the final resolution of this matter.
- Use this time to advocate. We still have at least eight (8) bills pending before Congress to modify the DOL's final rule. While that rule is on hold take this opportunity to continue to talk to your Senators and Congressmen to help shape this important public policy.
- H.R. 5813 - Overtime Reform and Enhancement Act would phase in new rule 4x in 3 years (2016 - 2019) and nullifies the auto-increase every three years. As of this writing this bill has bi-partisan support with 17 Co-Sponsors.
- S. 233 and H.R. 465 - Working Families Flexibility Act would permit private sector employers to offer their non-exempt employees compensatory time off from work in lieu of overtime pay just like our Senators and Congressman can provide to their employees. As of this writing H.R. 465 has 157 Co-Sponsors; S. 233 has 28 Co-Sponsors.
- Stay tuned!