Employers have spent the last six months preparing to comply with the Department of Labor's ("DOL") new minimum salary rule, which becomes effective on December 1, 2016. As we discussed here, this new rule roughly doubles the minimum salary for white collar exempt employees (under the executive, administrative and professional exemptions) from $23,660 ($455/week) to $47,476 ($913). In September, two separate lawsuits were filed in the Eastern District of Texas challenging the new rule. One lawsuit was filed by a group of 21 states (led by Texas and Nevada) and the other by a coalition of business groups, including the U.S. Chamber of Commerce. Despite these legal challenges, it appeared unlikely that employers would see a reprieve from the December 1 implementation date.
Donald Trump's November 8 surprise win caused many employers to question whether the new salary rule would go into effect at all. However, because the rule takes effect nearly two months before President-Elect Trump's inauguration, his administration is powerless to stop it even if it wanted to do so. However, with Republicans controlling the White House and both houses of Congress beginning on January 20, 2017, significant changes to the minimum salary rule appear likely.
Barring a hail mary victory in federal court in Texas (discussed below), the fastest road to modifying the DOL's new minimum salary rule goes through Congress. Indeed, multiple bills to lessen the significant effects of the new regulations have been introduced in the House and Senate. These bills introduced during the most recent legislative session appeared to be destined for veto by President Obama and would likely have faced a similar fate under President Clinton.
We anticipate the new Congress will hit the ground running with new proposals to gut the DOL's salary rulemaking. Although there could be some support for eliminating the new rule altogether, we believe the most likely changes would include one or more of the following: 1) reducing the minimum salary; 2) phasing in the increases over several years to reduce impact on employers; 3) excluding small businesses from rule coverage; and/or 4) eliminating the triennial automatic increases to the minimum salary set to begin in January 2020.
The timing of such changes will be impacted by numerous factors, the most significant being where such revisions rank on President-Elect Trump's legislative priority list. To date, the next President has not squarely addressed the new rule and how he would like it to be modified other than to say he would like to see a small business exemption. Accordingly, it is entirely possible that Congress and the new President will focus on other priorities on their collective legislative agenda during the initial weeks and months of the Trump presidency.
The next administration could also attack the new rule through the existing rulemaking procedures, but that is likely to require more time than a legislative approach. This approach would require the DOL to draft new rules, which would initiate the notice-and-comment process. Because of the protracted timeline associated with the rulemaking process, we expect that the new administration will explore this route only if desired changes fail to gain traction in Congress.
Given the likely changes to the rule in 2017, what should affected employers do? For now, employers should plan to implement the plans they have established to comply with the new rule, whether that includes salary raises or transitioning workers to hourly pay. If and when Congress and or the new administration changes the rule, employers will then need to decide whether they need to adjust (such as returning newly-minted hourly employees to their former exempt status).
As mentioned above, pending litigation over the new salary rule could potentially impact its December 1 rollout. On November 16, a federal judge in Texas heard arguments on a motion for a preliminary injunction to stop the implementation of this new rule. The Court indicated at the close of arguments that he would rule on the motion by November 22. Even if the court grants this injunction (which appears unlikely), it is unclear whether the injunction would be nationwide in effect. Of course, we'll keep monitoring this case and will let you know as soon as possible of any impact it has on the rollout of the new rule.