Federal Judge Issues Injunction Temporarily Preventing Enforcement of New, Much Higher, Minimum Salary Requirement for “Exempt” Employee Status

November 28, 2016

By Dan Block

A U.S. District Judge in Texas has issued a nationwide preliminary injunction temporarily preventing the effectiveness of the new final rule of the U.S. Department of Labor (“DOL”) under the Fair Labor Standards Act (“FSLA”).  The new rule would set a much higher minimum salary requirement under federal law for an employee to qualify as being exempt from minimum wage and overtime.  The injunction was issued in a case brought by 21 states challenging the new rule, which case was consolidated with a case brought by business groups challenging the new rule.

The judge stated that the new rule was unlawful because it would have the effect of eliminating the “duties test” from the “white collar” exemptions under the FSLA; which he said only Congress can do.

Under the new rule, the minimum salary level for the “executive employees,” “administrative employees,” “professional employees,” and “computer employees” exemptions (with some exceptions) would have increased from $455 per week, or $23,660 per year, to $913 per week, or $47,476 per year. That minimum salary amount would be adjusted every three years on January 1st, beginning on January 1, 2020.

The new rule was to become effective on December 1, 2016.

Not a Final Decision about the New Rule

Unfortunately, the preliminary injunction is not a final decision by even the U.S. District Court in Texas on whether the new rule is lawful.  That means uncertainty exists for employers.

The preliminary injunction only stops the new rule from becoming effective until either the U.S. District Court in Texas makes the preliminary injunction permanent, or the trial occurs and the judge makes a final decision that the new rule is unlawful.  In addition, the DOL could appeal the issuance of the preliminary injunction now; or it could wait and appeal the permanent injunction, if issued by the judge, or the final decision of the judge after the trial, if he determines that the new rule is unlawful.  Alternatively, the DOL could decide to withdraw the rule; which would have seemed unlikely if Hilary Clinton had won the election, but more likely because Donald Trump won.  Or, if the injunction is not made permanent, or after a trial the rule is deemed lawful, the states and business groups could appeal that decision.

What’s an Employer to Do?

So, what is an employer to do if the employer raised an exempt employee’s salary, or already informed the employee of the increase to take effect on December 1st; or if an employer converted an exempt employee to non-exempt status rather than increase the employee’s salary, or already informed the employee of the change to take effect on December 1st?

Employers who had exempt employees with salaries that were not close to the minimum salary under the new rule might have converted those employees to non-exempt status, rather than giving the employees large increases in their salaries.

However, if an employee’s salary was already increased or is scheduled to be increased on December 1st to comply with the new rule, presumably because the employee’s salary was already close to the minimum salary under the new rule, the employer might decide to just leave the employee at the higher salary.

Or, particularly if the salary increase was, or would be, large the employer could decide to return the employee to his or her former salary, or not increase the salary; at least unless and until the new rule becomes effective.  However, that change might not be good for the employee’s morale; and the employer might have to reinstate the increase if the injunction is lifted and the new rule becomes effective.

If an employer has already converted an exempt employee to non-exempt status, or if the employer already informed an employee that change would occur by December 1st (to avoid having to raise an employee’s salary), the following situation might exist for the employee:

It is common that an exempt employee is paid a salary regardless of the hours worked by the employee; and the employee does not have to complete and submit timesheets to an employer.  In addition, exempt employee status is typically associated with a higher-level or more prominent position within a business or other organization as compared with non-exempt status.  Conversely, a non-exempt employee should be required to submit timesheets, so that the employee is properly paid for all hours worked; and the employee is commonly paid an hourly wage, rather than a salary.  Therefore, a formerly exempt employee might prefer to go back to exempt status with his or her former salary and no timesheet requirement.  Or, the employee might like to remain as a non-exempt employee and be paid, at the higher wage rate, for the overtime he or she works.

The employer could leave the employee in the non-exempt status.  Or, the employer could return the employee to exempt status at the employee’s prior salary. But, the employer might have to convert the employee back to non-exempt status if the injunction is lifted and the new rule becomes effective; so that might not be a good situation for the employer.

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If you have questions or want more information about the final rule, the injunction, other employment matters, contact Dan Block at Robinson Waters & O’Dorisio, P.C., at 303-297-2600 or at dblock@rwolaw.com.

The information contained in this article is for informational purposes only, and it does not constitute legal advice for any specific situation.  The invitation to contact an attorney at Robinson Waters & O’Dorisio, P.C. is not intended as a solicitation in any jurisdiction in which that attorney is not licensed to practice law.

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