Department of Labor’s New Overtime Rule – Delay and Future of New Salary Threshold

The implementation of the Department of Labor’s new overtime rule, which would have increased the Fair Labor Standards Act (“FLSA”) salary threshold for exemption from overtime pay from $23,660 to $47,476, was delayed by a preliminary injunction issued by the U.S. District Court for the Eastern District of Texas on November 22, 2016. The injunction’s immediate effect was preventing the new rule from going into effect as planned on December 1. At least for now, the existing salary threshold will remain in effect, but employers should be mindful of the fact that the salary threshold may still increase in the future.

Here, the court did not reach a final decision on the merits of the new rule’s validity. Rather, the court issued a preliminary injunction delaying implementation of the rule. In issuing the injunction, the court stated that the Department of Labor had no ability to raise the salary threshold through regulation. This conflicts with the Department of Labor’s practice of raising the salary threshold from time to time, most recently in 2004 under former President George W. Bush. This may be a basis for overturning the injunction on appeal and is likely to be an issue as the new rule is litigated further. Additionally, unless Congress acts to change the FLSA itself, the Trump administration cannot undo the regulation through executive order. Instead, a new regulation adopting a different salary threshold must proceed through the lengthy regulatory process.

Regardless of what happens with the new salary threshold, the other elements of the “white collar” overtime exemptions remain the same. Employers should consider whether employees are properly classified as exempt under the administrative, executive, or professional duties’ tests regardless of the amount of compensation these employees receive. In my experience working with clients in anticipation of the new rule, I found a number of positions were misclassified as exempt because they did not satisfy the duties test for administrative employees. This means that some employers may be in violation of the FLSA even though they pay their employees at or above the current salary threshold for the overtime exemption.

With the fate of the new overtime rule still uncertain, employers should exercise caution before entirely abandoning or rolling back plans to comply with the new rule. Barring significant changes to the FLSA, the other elements of the “white collar” overtime exemption – payment on a salary basis and the administrative, executive, and professional duties tests will still apply no matter what happens with the new salary threshold. For that reason, employers should carefully review existing and prospective positions that they currently or intend to classify as exempt to make sure that the job duties for these positions meet one of the three categories for exemption under the FLSA.