Federal Court Blocks Department of Labor

On November 22, 2016, the United States District Court for the Eastern District of Texas issued a Memorandum Opinion and Order in State of Nevada, et al. v. U.S. Dept. of Labor, Case No. 4:16-CV-00731 (E.D. Tex. Nov. 22, 2016), stopping the nationwide implementation of the Department of Labor’s (DOL) new federal wage and hour rule previously scheduled to go into effect on December 1, 2016. The DOL rule would raise the salary threshold from $23,660.00 annually ($455.00 weekly) to $47,476.00 annually ($913.00 weekly) for employees to be exempt from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime provisions as executive, administrative, professional, outside sales, and computer employees. The DOL rule would also provide later automatic adjustments to the salary amount.

In its opinion, the court concluded the FLSA’s statutory text does not give the DOL authority to utilize the salary-level test or automatic salary updating mechanism of its new overtime rule. The court found the DOL’s significant increase to the salary level creates essentially a de facto salary-only test and that Congress did not intend salary to categorically exclude an employee with qualifying duties from the exemption. The court held it has authority to enjoin the DOL’s rule on a nationwide basis, and it did so.

This order is preliminary, and later developments in the lawsuit could change the outcome. Also, the DOL can appeal this decision or seek reconsideration. But for now it means the expected regulatory updates will not take effect next week.

Each employer must decide how to proceed based on the court’s decision. To qualify for the exemption, an employee must be paid on a salary basis, must be paid a certain minimal amount, and must perform qualifying job duties. Some employers have already put raises into place for employees and may be reluctant to decrease morale by terminating those raises, particularly where employees have already received the raises.

Some employers have already decided that, rather than raising wages, they will reclassify to nonexempt all positions that earn less than $913.00 weekly. This remains permissible. Employers are permitted but not required to use the exemption. Employers can conservatively classify any position as nonexempt and pay overtime after 40 hours worked. Doing so avoids lawsuits or DOL audits that claim an employee was misclassified as exempt. Converting such employees to nonexempt is the conservative approach, given that the court’s ruling yesterday was preliminary and we do not know the final outcome.

For positions employers have reclassified from exempt to nonexempt because of concerns regarding whether their duties qualify for the exemption, the court order should not change those reclassifications.

If you have any questions about this article, contact a member of Yoder Ainlay Ulmer & Buckingham’s Employment Law Practice Group at (574)-533-1171.

Disclaimer: These materials are for informational purposes only and should not be construed as legal advice on any specific facts or circumstances. We recommend you consult a lawyer if you want professional assurance your interpretation of these materials is appropriate to your particular situation.

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