Employers have been granted a surprise reprieve from the onerous overtime regulations promulgated by the federal Department of Labor (DOL) scheduled for implementation on Dec. 1, 2016. Yesterday, a federal judge in Texas issued a nation-wide injunction against implementation of the new regulations. This action represents an historic victory for employers but also creates a serious conundrum for many companies who have already taken steps to comply with the new regulations.
The final new regulations created a firestorm of controversy because they would have increased the “salary level” for the so-called “white collar” exemptions from the overtime requirements of the Fair Labor Standards Act (FLSA) to $47,476 annually. This increase more than doubles the current salary level and has caused many employers to significantly raise the salaries of employees for whom an exemption was claimed. The impact was particularly acute for employees falling under the executive (supervisory) exemption but also impacted employees classified as exempt “administrative” employees. In addition to triggering a wholesale increase in pay for exempt employees, the new regulations prompted many employers to reassess, and in many cases, restructure their supervisory and administrative staffs.
In enjoining the implementation of the new regulations the federal judge concluded that the DOL was not privileged to impose a salary test at all for the exemptions, but instead was statutorily required to focus exclusively on the work performed by the putative exempt employee. The judge’s decision is preliminary; and the injunction remains in effect only until a hearing on a permanent injunction can be conducted. We cannot predict with confidence the ultimate outcome of this lawsuit; or how long this injunction may remain effective.
This surprise, but welcome decision, creates a dilemma for employers. Those employers who have already made salary adjustments and/or operational changes to comport with the new regulations, must decide whether to announce they are rescinding the raises and unwinding the operational changes; or maintaining the new status quo and await further developments. Those that have not yet implemented changes have available an additional alternative to merely suspend implementation and wait to see what happens next. Clearly, any precipitous action to rescind salary increases or postpone planned restructuring could have a deleterious impact on morale. However, rescinding scheduled raises could also ameliorate some of the more draconian aspects of the new regulations.
We urge all employers who have contemplated or already taken action to comply with the new regulations to immediately contact the experienced Wage and Hour attorneys at Lowenbaum Law so we can address these issues and work through the best solution for your business.