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Federal Court Issues Injunction Blocking DOL Salary Rule

November 23, 2016

Overview

On November 22, 2016, a federal district judge in Texas issued a ruling that preliminarily bars the Department of Labor from enforcing its new rule that increased the salary required for exempt employees from a floor of $23,660 to $47,476 until the legal action that challenged the rule is finally resolved.  It held that the DOL had not proven a likelihood of success on the merits.  The Court has motions for summary determination pending before it and a final decision within the next thirty days appears probable.  The preliminary injunction is nationwide in scope and is thus directly applicable in the Northwest. 

The plaintiffs in the action convinced the court that Congress intended to exempt employees from the requirement to pay overtime based on whether they performed executive, administrative, or professional duties, and not based primarily on the salary that they earned.  The court found that the DOL’s new rule that raised only the salary level essentially supplanted the duties test, which should be the primary focus to determine exempt status.  Under the new rule, employees who legitimately met the duties test were nevertheless determined nonexempt because they did not meet the salary test.  This was contrary to congressional intent.  In addition, the court found that the DOL exceeded its rulemaking authority in raising the salary level without addressing the duties test.

This decision means that the new rule will not be enforced and employers are not currently required to make any changes to the salaries of their exempt employees to raise them to the $913 per week required by the rule.  The reprieve provided by the Texas federal court will allow it to consider and decide the motions for summary decision.  Additionally, it will allow Congress an opportunity to review changes to the FLSA.

In the meantime, it is suggested that employers review any reclassification decisions made in anticipation of these enjoined rules. If reclassification was based on a factor other than the salary floor, they should either make the necessary duties changes or reclassify the employees as nonexempt.  For employees who would have lost exempt status only because they did not meet the new salary requirement, employers should put a halt on any decision to increase the salary level until there is additional clarification regarding changes to the FLSA.

If employers already informed employees that they would be receiving a salary increase because of the new rule, then employers can explain to employees that there is a challenge to the rule that required the increase and until further clarification, employers will continue to pay at the former salary levels.

This ruling is not the last word on changes to the FLSA exemptions.  If you have questions regarding this ruling, or how to explain the changes to your workforce, the Schwabe employment group can help you work through your options.

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