On May 17, 2016, the U.S. Department of Labor (“DOL”) announced the details of its final rule under the Fair Labor Standards Act, establishing new salary thresholds for millions of traditionally exempt white collar employees effective December 1, 2016. These changes would significantly impact many employers’ budgets in the coming months. The main points of the new rule are as follows.
- In order to be considered “exempt” from overtime, employers will have to pay professional, salaried and administrative employees $913 per week or $47,476 annually (a very significant jump from the current minimum of $23,660 annually). Employers will be allowed to meet 10 percent of these salary minimums with non-discretionary bonus payments, incentives and commissions as long as those payments are made at least quarterly.
- The new minimum for the special class of “highly compensated employees” would be $134,004 annually.
- The new rule would not change the duties an employee must perform in order to be considered exempt nor would the new rule change the salary thresholds for outside sales employees or computer professionals.
- Indexed adjustments to the new salary minimums would be made every three years beginning on January 1, 2020.
On September 20, 2016, 21 states filed suit in the Federal District Court in the Eastern District of Texas against the DOL seeking injunctive and declaratory relief in an effort to stop the new rule from being enforced against the states and all other affected public and private employers. Among other theories, the lawsuit alleges that the DOL enacted the new rule in violation of states’ rights, that the DOL exceeded its statutory authority in enacting the rule and that the rule’s indexing provision violates the Federal Administrative Procedures Act.
Of course, it is too early to predict how the Texas federal court will decide the case, let alone how an appellate court would decide the case on appeal. We do not believe that employers should assume the court will strike down the rule or postpone its effective date. Instead, given the long history of the white collar exemptions, employers are best advised to continue in their preparations for a December 1, 2016 effective date. We will keep you apprised of any significant developments in this case.