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On September 24, 2019, the United States Department of Labor announced a new final rule regarding eligibility for overtime pay. The rule requires employers to revisit their classifications of employees as exempt in order to ensure compliance.
As I discussed in previous articles (Texas Federal Judge Blocks New Overtime Rules and Speaking of Overtime Rules and One Final Overtime Update) the DOL announced rules in 2016 to dramatically increase the salary threshold in order for certain categories of employees to meet the standards for exemption from federal overtime requirements. The rules were met with litigation and a stay of their enforcement.
The new final rule raises the salary threshold from $455 a week to $684 a week, or $35,568 a year. Employers may now use nondiscretionary bonuses and incentive payments, such as commissions to satisfy up to 10% of the salary level. Employees will still have to meet requirements related to their duties in order to meet the standards of exemption for the overtime requirements.
This final rule will become effective on January 1, 2020. As we advised in 2016, employers should take steps to ensure compliance by the end of the year. The first step is to identify any employees who are classified as exempt but are making less than $422 a week, and develop a plan to reclassify those employees, or revise their compensation. This is a good time to revisit the job duties of those employees to ensure that they meet the applicable standards for exemption in terms of their duties as well as their salary. This is also a good time to review overtime policies to ensure appropriate recordkeeping, efficient use of overtime and compliance with applicable law.
AMM can help employers navigate these new rules and review their employee classifications to ensure compliance and minimize risk.
Reprinted with permission from the April 18th, 2018 issue of The Legal Intelligencer. (c) 2018 ALM Media Properties. Further duplication without permission is prohibited.
The Supreme Court’s decision in Encino Motorcars, LLC v. Navarro interprets a very specific exemption to the overtime rules imposed by the Fair Labor Standards Act, 29 U.S.C. 201, et seq. (“FLSA”), but the Court’s language and reasoning have game-changing ramifications. The Court’s rejection of the principle that courts should narrowly construe exemptions to the FLSA turns decades of FLSA caselaw on its head.
The facts of Encino Motorcars are deceptively narrow. Employees classified as service advisors for a car dealership challenged the car dealership’s classification of the service advisors as exempt from the FLSA. The FLSA requires that employers must pay overtime to employees who work more than 40 hours in a week. 29 U.S.C. § 207(a). The dealership claimed the exemption under a statutory exemption that applies to car dealerships. 29 U.S.C. § 213. Specifically, the section in question exempts from overtime pay requirements:
Any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.
…At least until there is another overtime update.
Let’s review the history of these regulations. Prior to leaving office, President Obama’s Department of Labor significantly revised the salary requirements in order for certain classifications of employees to qualify for exemptions from overtime pay under the Fair Labor and Standards Act (“FLSA”). The DOL increased the salary minimum to qualify for an exemption from approximately $23,000 to approximately $47,000. Small employers and nonprofits scrambled to find a way to comply with the new regulations by the compliance deadline of December 1, 2016.
On November 22, 2016, the United States District Court for the Eastern District of Texas issued an injunction against the implementation of those rules. Small employers and nonprofits breathed a sigh of relief and tabled their new policies and employee classification changes.
Between November 22, 2016 and August 31, 2017, much happened in the Eastern District of Texas and the Fifth Circuit. Appeals were filed, extensions of time to file briefs were granted, and the Department of Labor, now led by President Donald Trump, revised its position on these rules. President Obama’s DOL had argued that the new regulations were a proper exercise of DOL’s rule making, and the President’s executive, powers. President Trump’s DOL argued that while the DOL and the President were within their rights to establish and revise a salary requirement, they would not defend this particular salary requirement.
On August 31, 2017, the Eastern District of Texas agreed, essentially, with the Trump DOL. The Court found that while the DOL is free to set and revise a salary requirement, this particular salary requirement was not enforceable.
The good news is that the salary requirement set by the Obama DOL was so high as to present a significant financial and operational burden for small employers and nonprofits, and this ruling eliminates that concern. However, the ruling leaves this DOL, or any DOL, free to revisit the salary requirement. In other words, we will all take this ride again sometime in the future.
Employers should continue to ensure compliance with the existing rules, and check back in with AMM for any future changes to the salary requirement.
Let’s check in with the January 2017 case filed in the United States District Court for the Eastern District of Texas challenging the Obama Administration’s proposed changes to overtime regulations. Those regulations would have required employers to reclassify many employees considered exempt from overtime rules to non-exempt status, requiring the employer to now pay overtime to those employees. The rule was widely considered a boon to employees, but a burden for small businesses and nonprofits.
Those rules would have required that in addition to meeting certain requirements with regard to an employee’s duties, the employee must also earn a minimum salary of $47,476 to qualify for “exempt” status. The current rule requires that the employee earn a minimum salary of $23,660. The dramatic increase in the salary requirement caused employers to reevaluate classifications and to generate new policies regarding overtime and work hours in advance of a December 1, 2016 deadline.
As previously discussed on this blog, on November 22, 2016, the Eastern District of Texas entered an injunction prohibiting enforcement of the new rules. Many clients have asked me, dreading the answer, whether that injunction remains in place. On December 1, 2016, the United States Department of Labor appealed the injunction order, and sought a stay of the Court’s order prohibiting enforcement. The Court denied the stay, and the matter is now on appeal. During the appeal, the Department of Labor cannot enforce the new rules. The appeals court granted a request submitted by the Department of Justice to extend time to file appellate briefs while “incoming leadership personnel” considered the issues. That brief is now due on June 30.
The Trump Administration has three choices: defend the rule, withdraw the rule, or rewrite the rule. Labor Secretary Alexander Acosta has telegraphed that a review of the rule was necessary, but that the salary increase was too dramatic. However, the Department of Labor’s repeated requests for extensions to file a brief indicate that it is not necessarily an easy call. For example, because the Eastern District’s order granting the injunction called into question the rulemaking authority of the Department of Labor, there may be good reason for the administration to challenge the court’s injunction order, even though it does not necessarily agree with the rule.
The overtime rules will remain in limbo until at least June 30, 2017. We will continue to monitor the situation. In the meantime, employers are not required to change their overtime policies or the classifications of their employees.