Insights / Employment Advisor
Nationwide Injunction Freezes New FLSA White-Collar Exemption Rule
By Michael J. Killeen and Paula C. Simon
11.23.16
A Texas federal court has issued a nationwide preliminary injunction preventing the key features of the controversial FLSA white-collar exemption rule from taking effect on Dec. 1. The USDOL can appeal to the conservative 5th Circuit; but, in the meantime, the rule is blocked and employers do not need to comply with it. As we described in our May 18, 2016 advisory, the salary threshold for the EAP exemption under the new rule would have risen from $455 per week ($23,660 annually) to $913 per week ($47,476 annually), and thereafter would see automatic increases every three years starting in 2020. The most important consequence was that millions of employees would have been reclassified as non-exempt because employers could not justify raising their salaries to the new threshold to maintain exempt status.
The preliminary injunction did not block a provision in the final rule that raises the salary threshold for the Highly Compensated Employee (HCE) exemption from $100,000 to $134,004. However, the HCE exemption applies to a very limited number of individuals and has no counterpart in many states; thus, the change will have little impact nationally.
Employers that have previously announced changes to their compensation methodology and worker classifications or had planned to announce such changes effective next week are scrambling to identify their options now that the new regulation is on hold.
Employers who have already communicated or implemented changes could revert to their prior practices but it would have to be done prospectively. Because the regulation is not in effect, employers have no legal obligation to comply with the regulation unless and until the injunction is lifted, which appears unlikely in the near term and may never occur. Thus, reverting to prior practices may create employee relations problems, potential breach of contract claims (if the announced or implemented changes can be characterized as a contractual promise), or benefit plan issues. Many employees may have already enrolled in specific plans based on changes announced regarding their new classifications. For those, it will be difficult to roll back classifications at this time, depending on where they are in the open enrollment process.
On the other hand, employers who have not communicated or implemented changes face fewer problems hitting pause and taking a wait and see approach as to whether the federal rule comes back to life in future. Consequently, it appears that this is the approach being taken by most of them.
The public comment period on these proposed regulations remains open through Dec. 3, 2016. Many New York employers will push the pause button in the wake of the FLSA injunction, but they may need to gear up again should the New York regulations be adopted as proposed. We will continue to monitor and provide an Advisory update for New York employers after Dec. 3.
The preliminary injunction did not block a provision in the final rule that raises the salary threshold for the Highly Compensated Employee (HCE) exemption from $100,000 to $134,004. However, the HCE exemption applies to a very limited number of individuals and has no counterpart in many states; thus, the change will have little impact nationally.
Employers that have previously announced changes to their compensation methodology and worker classifications or had planned to announce such changes effective next week are scrambling to identify their options now that the new regulation is on hold.
Here are Some Key Considerations:
There is no requirement that employers reverse or cancel changes that they have planned, announced, or implemented. The injunction simply gives employers leeway to reconsider how they want to structure their compensation and classification for various positions.Employers who have already communicated or implemented changes could revert to their prior practices but it would have to be done prospectively. Because the regulation is not in effect, employers have no legal obligation to comply with the regulation unless and until the injunction is lifted, which appears unlikely in the near term and may never occur. Thus, reverting to prior practices may create employee relations problems, potential breach of contract claims (if the announced or implemented changes can be characterized as a contractual promise), or benefit plan issues. Many employees may have already enrolled in specific plans based on changes announced regarding their new classifications. For those, it will be difficult to roll back classifications at this time, depending on where they are in the open enrollment process.
On the other hand, employers who have not communicated or implemented changes face fewer problems hitting pause and taking a wait and see approach as to whether the federal rule comes back to life in future. Consequently, it appears that this is the approach being taken by most of them.
Note for California Employers
California employers should remember that California’s minimum wage will be increasing from $10.00 to $10.50 per hour on Jan. 1, 2017, and with that increase California’s salary threshold for exempt employees will increase from $41,600 annually to $43,680 annually. Thus, even though the FLSA regulation is enjoined, California employers will need to begin paying the new $43,680 minimum salary on Jan. 1, 2017 to maintain exempt status of California employees.Note for New York Employers
New York employers need to keep an eye on a proposed new Wage Order which, if enacted, will increase the salary requirements for the Executive and Administrative exemptions (not Professional). The minimum thresholds will differ, depending on employer size and location within New York State, and they increase each calendar year. As written, the new threshold of $825 per week for employers with at least 11 employees will be effective Dec. 31, 2016.The public comment period on these proposed regulations remains open through Dec. 3, 2016. Many New York employers will push the pause button in the wake of the FLSA injunction, but they may need to gear up again should the New York regulations be adopted as proposed. We will continue to monitor and provide an Advisory update for New York employers after Dec. 3.