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Court Decision Blocks New Fair Labor Standards Act Salary Basis Rule

Court Decision Blocks New Fair Labor Standards Act Salary Basis Rule

By Randolph T. Barker, Esq.

The Fair Labor Standards Act (“FLSA”) establishes minimum wage, overtime pay and recordkeeping standards for covered employees who are not otherwise exempt from its requirements.  Under the FLSA, an employee is exempt from entitlement to overtime pay if they (a) earn at least $455 per week ($23,660 annually) – known as the “salary basis test”, and (b) perform performs job duties under one or more of the “white collar” exemptions (for example, executive, administrative, professional or outside sales exemption) – typically referred to as the “duties test.”  

The Department of Labor (“DOL”) previously published new rules more than doubling the minimum salary basis to $913 per week ($47,476 annually), with an effective date of December 1, 2016.  With the exception of a few allowable deductions, such salary would not be subject to reduction because of variations in the quality or quantity of work performed. Employers could include nondiscretionary bonuses, incentive pay and commissions toward the salary requirement, up to 10 percent of the minimum salary level (a maximum of $91.30 per week, or $4,747 per year), provided these forms of compensation are paid at least quarterly.

The change, which would have made millions of employees eligible for overtime pay, prompted multiple lawsuits. On November 22, 2016, in State of Nevada, et al v. Department of Labor, a Texas federal judge entered a nationwide preliminary injunction against implementation of this new salary basis rule.  

The Court found that the DOL was outside the scope of it’s allowable powers and could not enlarge this exemption through the rule making process. The Court the found that the rule change violates the statute because the FLSA has specific overtime exemption eligibility provisions, holding that on the face of the statute governing the DOL, duties are the only basis for determining whether an employee is exempt.

It remains to be seen how the DOL will respond to this ruling.  Although the ruling may be appealed, any challenge is unlikely to conclude before President Obama’s term ends.  New DOL leadership in the incoming administration will likely revisit the issue.

Employers who have scheduled a change in their payroll practices as of December 1, 2016 may continue to operate under the current regulations.  Until the court changes its ruling or is overturned by an appellate court, the status quo remains in effect and no additional employees have become eligible for overtime pay.  

For more information and to discuss ongoing and future payroll practices to comply with new rules as they are implemented, please contact a member of Berry Moorman’s Labor & Employment Law Practice Group at 313-496-1200.