On Tuesday, November 22, 2016, a federal court in Texas issued a preliminary injunction temporarily barring the Department of Labor from implementing the December 1, 2016 salary rate increase for the white collar overtime exemptions. What will happen next is not certain, and depends in part on the Trump administration reaction after the inauguration. Many employers are considering pulling back previously-announced salary increases and re-classifications. When evaluating this option, employers should consider not only the uncertainty of the law at the federal level, but also state-law limitations on an employer’s ability to change pay terms for at-will employees.1
The common law in all states requires that any reduction in pay rates must be communicated to the employee before the employee starts the work that will be covered by the new rates. In addition, many states require that any reduction in pay rates be communicated in writing and/or by the day before the change becomes effective. Taking these relatively common requirements into account, employers may want, at a minimum, to provide written notice of a pay rate reduction delivered to the affected employees by the day before the reduced rate goes into effect. Such notice will be sufficient to impose a salary rate reduction in most jurisdictions.
A few states have additional advance notice requirements or guidelines when pay is reduced:
- 30 days’ advance written notice: Missouri (Mo. Rev. Stat. § 290.100). The sole remedy for violations of this statute, however, is a penalty of $50 per employee.
- One pay period's advance notice: Maryland (Md. Code Ann., Lab. & Empl. § 3-504(a)(3)); West Virginia (W. Va. Code R. § 42-5-4.2); Seattle (Seattle Muni. Code 14.20.040(B)).
- Notice in advance of the pay period to which the change will apply, in writing: Connecticut (Connecticut Dept. of Labor “Frequently Asked Questions (FAQs) for Workers,” FAQ #9 (Department’s interpretation of Conn. Gen. Stat. § 31-71f)).
- Notice by the payday before the change becomes effective: Alaska (Alaska Department of Labor & Workforce Development, Employees’ Frequently Asked Questions, FAQ #13 (Department interpretation of Alaska Stat. § 23.05.160)); Pennsylvania (Pennsylvania Department of Labor & Industry, General Wage and Hour Questions, FAQ #11 (Department interpretation of 43 Pa. Stat. Ann. § 260.4)).
- Seven calendar days' advance written notice: Nevada (Nev. Rev. Stat. §608.100(3)); New York (N.Y. Labor Law § 195(2)); South Carolina (S.C. Code Ann. § 41-10-30(A)). In New York, the statute’s seven-day advance notice requirement, by its terms, does not apply if the change will be reflected on the normal pay stub (payroll wage statement), but New York DOL written guidance states that notice must be provided except for wage rate increases. In Nevada, advance notice is not required if the “employer complies with the requirements relating to the decrease that are imposed on the employer pursuant to the provisions of any collective bargaining agreement or any contract between the employer and the employee.”
- One working day’s advance notice: Maine (Me. Rev. Stat. Ann. tit. 26, § 621-A).
- 24 hours' advance written notice: North Carolina (N.C. Gen. Stat. § 95-25.13(3)).
- In California there is no requirement of advance notice sooner than the effective time of the change, but for nonexempt employees, an updated wage theft notice must be issued within 7 calendar days after the change becomes effective. Cal. Labor Code § 2810.5.
It should be noted that it is already too late to pull back any changes already in effect. An employer may not reduce an employee’s pay retroactively in any jurisdiction. For example, if an employer announced that a salary rate increase would become effective today, November 28, 2016, it is too late to pull the increase back with respect to today’s day of employment.
It is not too late, however, to reduce an employee’s salary rate prospectively. It is also not too late to prospectively reclassify an employee back to salaried exempt status, at least if the reclassification is effective as of the first day of an overtime workweek.
How do state law advance notice requirements affect this? If an employer has announced a change but the change has not yet become effective, it is at least arguable that the advance notice requirements do not apply to pulling back the change through notice given before the change becomes effective.
Finally, be aware that, in addition to advance notice requirements, some jurisdictions have adopted “wage theft” laws that require that changes in compensation be communicated in a particular format. These requirements exist in California, New York, the District of Columbia and the City of Seattle.