Department of Labor (DOL) Final Rule for White Collar Employee Overtime Exemptions Delayed

November 2016

The United States District Court in Texas entered a nationwide injunction blocking the U.S. Department of Labor from implementing and enforcing its final overtime rule related to white collar employee exemption status. This means that the imposed increase of the salary level threshold from $455/week to $913/week, which was scheduled to take effect on December 1, 2016, is delayed until further notice. As such, employers may delay implementing the salary level increases planned for December 1. However, employers still need to make sure employees are otherwise properly classified as exempt or non-exempt notwithstanding the salary level threshold.

The final rule increased the salary level threshold required to classify an employee exempt from overtime from $23,600 to $47,476 a year. The final rule, among other things, also allowed an automatic update to that threshold amount every three years. A consolidated lawsuit including 21 states, departments of commerce, and other business groups, sought a preliminary injunction to block the Department of Labor’s final rule from taking effect on December 1. The federal judge indicated that the states bringing the action had satisfied all of the prerequisites for a preliminary injunction. The court found that the state plaintiffs established a prima facie case that the salary level and the automatic updating mechanism in the final rule are without statutory authority. The main argument in the court’s order questioned the Department of Labor’s authority in creating the rule because Congress intended the white collar exemptions to apply based on the tasks an employee actually performs. Although the judge found that only the states met the preliminary injunction requirements, the court nonetheless implemented a nationwide preliminary injunction enjoining the Department of Labor from implementing and enforcing the final rule.

The preliminary injunction will temporarily stay in place to preserve the status quo while the court determines the Department of Labor’s authority to make the final rule, as well as the validity of the final rule. In the meantime, employers should continue to analyze its workforce classifications and determine which employees will be impacted by the final rule if it is upheld. Employers may delay implementing the employee changes impacted by the new salary level threshold, but should be prepared to implement the changes required once and if the final rule is upheld.

Employers should still be aware of the prevalence in misclassification of exempt verses non-exempt status. The test as to whether an employee is exempt from overtime includes three steps:

  1. The primary duties must qualify the employee as a bona fide executive, administrative, professional or outside sales employee;
  2. The employee must be compensated on a salary basis (subject to regulations), and
  3. The salary level must meet the threshold of $455 per week. The final rule applied changes mainly to the salary level threshold.

Accordingly, any changes employers have made to their employees’ exemption status based upon the examination of the employees’ duties are not affected by this ruling. For example, if, while conducting an employee audit, an employer determined that an employee previously classified as exempt does not meet the duties qualification, the employer should promptly proceed with implementing that change.

To see the final rule changes, click here. If you have questions about this topic or wish to have FMJ assist in your company audit, please contact  Heather Kaiser, an attorney with our HR & Employment group.