The Department of Labor’s (DOL) “Final Rule,” which has caused uncertainty and confusion for many employers since its May 2016 publication, has been invalidated by a federal judge. Originally slated to take effect December 1, 2016, the Final Rule more than doubled the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). It also contained an automatic updating mechanism that would have adjusted (and presumably raised) the minimum salary level every three years. Many employers took steps to review and reclassify employees in advance of the December 1, 2016, effective date.
The Rule’s Path Through the Courts
Before the Final Rule’s effective date, numerous states and business groups filed an Emergency Motion for Preliminary Injunction challenging the Final Rule. In November, 2016, days before the Final Rule’s effective date, Judge Amos Mazzant, a federal judge in Texas, granted the request for preliminary injunction and — temporarily — blocked the DOL from implementing and enforcing the Final Rule. Shortly after, the DOL’s leadership changed along with the new presidential administration, leaving it uncertain whether the DOL would defend, revise or withdraw the Final Rule. Under President Trump, the DOL did appeal the preliminary injunction, asking the U.S. Court of Appeals for the Fifth Circuit to reverse the preliminary injunction, but in an unusual and specific way. Specifically, the DOL asked the appeals court to affirm its ability to use some minimum salary level as part of the test for exempt employee status but not to rule on the specific $913-per-week level established by the Final Rule.
On August 31, 2017, with the appeal of the preliminary injunction still pending, Judge Mazzant issued a final order invalidating the DOL’s Final Rule, finding that both the $913-per-week minimum salary level and the automatic updating provision exceeded the DOL’s authority. In an 18-page opinion granting the plaintiffs’ Motion for Expedited Summary Judgment, Judge Mazzant reasoned:
- Congress has the authority to impose the Fair Labor Standard Act’s (FLSA) minimum wage and overtime requirements to the States, and its intent to do so through the FLSA is “unmistakably clear.”
- Congress unambiguously intended employees who perform “bona fide executive, administrative or professional capacity” duties to be exempt from overtime pay.
- The FLSA itself does not provide for a salary requirement, but the DOL’s authority to use a minimum salary level — as part of a broader exemption test — was valid and permissible.
- Even though some salary test is permissible, the updated salary level under the Final Rule did not give effect to Congress’ unambiguous intent. By increasing the minimum salary level from $455 per week ($23,660 annually) to $913 per week ($47,476 annually), the DOL made an employee’s duties and functions irrelevant if the employee’s salary fell below the minimum salary level (i.e., white collar employees earning less than $913 per week would not qualify for the exemption and would be eligible for overtime irrespective of their job duties and responsibilities).
Next Steps for the DOL and Employers
While employers are wise to continue watching this case, the DOL under Secretary Alexander Acosta has already strongly indicated that it does not intend to defend the “new” minimum salary rule in its current form. Judge Mazzant’s order affirmed the DOL’s ability to use some minimum salary level rule (just not the dramatically increased level that the prior administration set in the now-invalidated rule). Since the DOL does not need to defend its ability to use a salary level rule overall, it has far less reason to appeal in this particular case (and its pending appeal of the preliminary injunction will likely be dismissed as moot). This will make it much easier for the DOL to “start from scratch” in developing a new minimum salary level (and in thoroughly revisiting the other aspects of the rule, such as the automatic updating provision). Employers should, of course, monitor that process too, though it will likely wind up taking an extended period of time.
In all likelihood then, the “original” regulation — the $455 per week minimum salary level — will remain the law of the land for the foreseeable future. Employers who made no salary changes prior to Judge Mazzant’s preliminary injunction on November 22, 2016, and adopted a “wait and see” approach are most likely to sigh in relief and maintain their status quo. Those who raised employee salaries solely to comply with the anticipated increased levels can always opt to leave those raises in place, or, if budget or other reasons warrant, return them to their lower amounts (though the likely impact on morale should be thoroughly considered and communications to affected employees should be planned carefully).
In addition, it’s important to remember that Judge Mazzant’s opinion has no impact on the basic FLSA principle that an employee’s duties must meet the requirements of “bona fide” executive, administrative or professional work to qualify as exempt (independent of any salary level issues). This latest development once again affirms the importance of regularly auditing positions to ensure that the work actually performed day-to-day is properly classified under at least one of the FLSA’s recognized exemptions.