So, never mind about those new FLSA regulations after all?
Federal Court in Texas issues nationwide injunction halting new FLSA salary increase regulations 10 days before they were to take effect.
Opponents of the new Fair Labor Standards Act (FLSA) regulations, more than doubling the minimum pay required for common “white collar” exemptions, will have much to be thankful for this Thanksgiving. On November 22, only 10 days before their December 1, 2016, effective date, a federal court in Texas has issued a nationwide injunction halting the new rules. Coupled with speculation that a new Republican president and congress might be planning to rescind the rules, the federal court decision may mark the end of efforts to update the minimum salary basis threshold under current FLSA regulations.
The November 22 decision, available at http://www.txed.uscourts.gov/d/26042, comes in a case filed in September in the U.S. District Court for the Eastern District of Texas, in which a combination of 21 Republican governors and states’ attorneys general sought to invalidate the new FLSA regulations. That case was later consolidated with a similar challenge brought by a number of business organizations. The final rules being challenged were introduced in May 2016, after more than two years of discussion. The new rules proposed to more than double the minimum salary basis for most the most common FLSA exemptions – the so called white collar exemptions of Executive, Administrative and Professional (EAP) personnel – from the current $455 per week ($23,660 per year) to $913 per week ($47,476 per year). (Interestingly, the Court’s November 22 decision misstates the proposed new salary amounts by $8 per week, or about $400 per year, relying on older DOL proposals that were revised downward in the final versions of the rules introduced in May 2016).
The challenge to the new FLSA regulations contended that the DOL had exceeded its authority in proposing the dramatically higher minimum salaries for exempt status, because although the minimum salary requirement has long been in FLSA regulations, it is not contained in the FLSA statute itself. The Plaintiffs also took issue with a feature of the new regulations where the new higher minimum salaries would be further automatically updated every three years, beginning in 2020.
Few observers put much stock in the plaintiffs’ likelihood of success in stopping the new FLSA regulations, even after the plaintiffs filed for injunctive relief in October and had a preliminary injunction hearing before the federal court on November 15. However, on November 22, Judge Amos Mazzant III, an Obama appointee, granted the relief the plaintiffs sought, issuing a nationwide injunction against the new regulations. In holding that the DOL’s new FLSA regulations should be halted, Judge Mazzant held that the DOL had created a “de facto” salary only test, even though “Congress did not intend salary to categorically exclude an employee with [Executive, Administrative or Professional] duties from the exemption.”
The result in the case has surprised employment law practitioners, not just because it came so close to the effective date of the new regulations – and after most employers had already taken steps to make necessary adjustments – but also because it may have the practical effect of stopping the updates to the FLSA minimum salary basis requirement altogether. As noted above, some observers wondered whether the incoming Trump administration might work with its Republican congress to undo the FLSA updates. Now, it is possible that the new administration might simply decline to further pursue the matter, although the precise contours of what will occur remain unclear at this early date.
All of this surprise and uncertainty begs the question, “What now?”
This practical question raises several issues. First and foremost, any employer that has raised employee compensation in anticipation of the new higher minimum salary basis requirement is not *required* to reverse those changes. Indeed, rescinding already given pay increases could have negative consequences separate and apart from employment law – for instance, employee morale – even if the employment law rationale for the changes no longer exists. However, in light of the federal court decision, an employer has a defensible basis to not implement the new higher, minimum salaries with its exempt staff. At this point, an employer would be well advised to hold off on implementing pay changes mandated by the new FLSA regulations unless that employer would be comfortable doing so even in the absence of a legal obligation to raise its employees pay.
Tueth Keeney employment law attorneys will continue to monitor this issue and report any additional developments here on this blog. In the meantime, feel free to contact the Tueth Keeney attorney with whom you work, for further practical advice about what this case means and the FLSA generally.