DOL Moves Closer to Finalizing New Regulations on Overtime Exemptions for 2020

The U.S. Department of Labor ("DOL") is one step closer to publishing final regulations on the FLSA's overtime exemptions for "white collar" workers in executive, administrative, and professional positions.  The DOL published its Notice of Proposed Rulemaking ("NPRM") on March 7, 2019, outlining its proposed final rule and inviting public comment.  That comment period is now closed, and the next step is the anticipated publishing of the final regulations.  If they become final, it is expected that the new regulations would go into effect sometime in calendar year 2020.

The proposed new regulations, like the failed 2016 proposed regulations, propose to update the so-called “white collar” or "EAP" exemptions applicable to executive, administrative, and professional employees.  However, the 2019 NPRM proposes more modest changes than the 2016 version.  The 2019 NPRM, if it becomes final, will increase the minimum salary level required for EAP employees to be exempt from overtime, and will increase the annual compensation level required for employees to be exempt as highly compensated employees.  No exception is made for small businesses.  Easing the compliance burden, the 2019 NPRM does not propose automatic cost of living increases for employers to keep track of, and will not change the duties tests that are currently in effect for the EAP exemptions.

As an executive summary, the key provisions of the 2019 NPRM are the following:

• The minimum salary level for the EAP exemptions will increase to $679 per week or $35,308 per year (which is a significant increase from the current level set in 2004 of $455 per week or $23,660 per year).

• For highly compensated employees, the total annual compensation level will increase to $147,414 per year (up from the current level of $100,000 per year).

• To meet the salary level, the proposed regulations will permit employers to include nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to ten percent (10%) of the salary level requirement.

• The DOL will review these levels periodically, but no automatic increases are proposed as part of the 2019 NPRM.

As businesses begin planning their budgets and thinking about salary increases for workers next year, they should keep an eye on the anticipated new regulations.  The DOL expects that the final rule will result in over one million workers that were formerly classified as exempt from overtime becoming eligible for overtime pay, unless their employers make a change to their pay or duties.  So, as a practical matter, the proposed regulations will mean that fewer employees will meet the requirements to be exempt from overtime, or that employers must pay higher salaries in order for many employees to remain exempt under the FLSA.

The DOL's helpful Fact Sheet on the NPRM can be found here, and its FAQs on the NPRM can be found here.

Proposed 2016 “White Collar” Regulations Struck Down; DOL Starts Work on New Regulations

The winding legal path of the 2016 “white collar” regulations has come to an end.  On August 31, 2017, the Honorable Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas struck down the U.S. Department of Labor’s (“DOL”) regulation that would have, among other things, doubled the minimum salary requirements for workers classified as exempt from overtime under the FLSA’s executive, administrative, and professional exemptions.  The court held that the DOL overstepped its rulemaking authority by increasing the salary threshold to a point that rendered employees’ duties irrelevant.

As widely reported and commented upon (including here), the new regulations were to have gone into effect on December 1, 2016.  However, a group of states and business groups challenged the rules in federal court, asserting that the DOL exceeded its rulemaking authority and that only Congress had the authority to so greatly change the regulations.  To the surprise of many, the federal court agreed, and issued a preliminary injunction that prevented the regulations from taking effect.  The DOL, under the President Obama administration, appealed the preliminary injunction to the United States Court of Appeals for the Fifth Circuit.  However, following the election of President Trump, the DOL changed course, ultimately informing the Court of Appeals that the DOL would not advocate for the higher salary level, but instead intended to undertake further rulemaking to determine the appropriate salary level.

While that appeal remained pending, the lower court issued its final decision on August 31, granting summary judgment to the states and groups, and striking down the new regulations.  The court based its holding on the fact that Congress defined the FLSA’s executive, administrative, and professional exemptions with a focus on employees’ duties.   As a result, the DOL’s “authority is limited to determining the essential qualities of, precise signification of, or marking the limits of those bona fide executive, administrative, or professional capacity  employees who perform exempt duties and should be exempt from overtime pay.”  For this reason, the court held that the DOL “does not have the authority to use a salary-level test that will effectively eliminate the duties test.”  The court clarified that the DOL “has the authority to implement a salary-level test,” but the rule’s “significant [salary] increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.” 

Following the court’s decision, on September 5, 2017, the DOL filed an unopposed motion with the Fifth Circuit Court of Appeals asking it to dismiss its appeal of Judge Mazzant's preliminary injunction order invalidating the overtime rule, given that the lower court's new summary judgment decision rendered the preliminary injunction moot.  The Fifth Circuit granted the DOL’s motion and dismissed the appeal on September 7, 2017.  This leaves Judge Mazzant’s order striking down the regulations as the final legal word on the 2016 regulations.

However, that is not end of the story.  The DOL is committed to updating the white collar exemptions, and new regulations are in process.  This past summer, on July 26, 2017, the DOL issued started the rulemaking process anew with a request for information soliciting public comments on the overtime exemptions for certain executive, administrative, professional, outside sales, and computer employees.  The DOL’s Request for Information specifically acknowledges stakeholders’ concerns that “the new salary level [proposed in the 2016 regulations] inappropriately excludes from exemption too many workers who pass the standard duties test” and “would adversely impact low-wage regions and industries.”  The DOL hopes to receive comments regarding “whether the standard salary level set in [the final] rule effectively identifies employees who may be exempt, whether a different salary level would more appropriately identify such employees, the basis for setting a different salary level, and why a different salary level would be more appropriate or effective.”  The comment period closes September 25, 2017, and those interested in commenting can find the Request for Information in the Federal Register.

By:  John E. Pueschel and Patricia I. Heyen

Waiting Game: Future of Proposed "White Collar" Rules Remains Uncertain

There is still no decision on when—or if—the proposed “white collar” regulations will go into effect.  On November 22, 2016, a federal court in Texas issued an order that blocked the U.S. Department of Labor’s (“DOL”) proposed regulations that would have doubled the minimum salary for many “white collar” workers just before the regulations were to go into effect.   As expected, on December 1, 2016, the Department of Justice (then under the President Obama administration), on behalf of the DOL, filed a notice with the U.S. Circuit Court of Appeals for the Fifth Circuit to appeal the order. The DOL sought to fast-track the appeal, asking the Fifth Circuit Court of Appeals for an expedited schedule.  The Fifth Circuit initially granted the request, and issued an order to expedite the legal arguments, with the DOL's reply brief to be filed by February 7, 2017. 

However, on January 25, 2017, shortly after the inauguration of President Trump, the DOL asked the Fifth Circuit for an extension of time to file its legal arguments in order “to allow incoming leadership personnel adequate time to consider the issues.”  The Fifth Circuit ultimately agreed to extend the deadline for the DOL to file its legal argument until May 1, 2017.

It will be interesting to see what position that the DOL will take under the President Trump administration.  President Trump has endeavored to demonstrate that he is an advocate for American workers, while at the same time also espousing a pro-business agenda.  This issue of increasing the minimum salary under the FLSA is one where advocates for workers and business groups have sharply disagreed.  (For example, the AFL-CIO and the Center for American Progress previously argued the increased salary would allow adjustments for inflation, strengthen the middle class, and help Millennials attain financial stability.  On the other hand, business organizations, like the United States Chamber of Commerce and the National Retail Federation, have argued that the proposed regulations would hinder industry and job growth.)  In addition to the possible significant change in the law if the regulations are upheld, how the DOL navigates these differing viewpoints will likely provide important insight into the DOL’s approach to wage issues under the new administration.

Final "White Collar" Overtime Regulations Expected Soon

The final rule for the new "white collar" overtime regulations from the U.S. Department of Labor (“DOL”) is likely to be published in spring or summer of 2016.

 

As we previously reported, the DOL issued proposed regulations in July 2015 announcing significant changes to the law governing certain “white collar” workers who are exempt from minimum wage and overtime pay.  The DOL’s proposed regulations more than double the current minimum salary level for exempt employees, significantly increase the salary level required for employees to be exempt from overtime as highly compensated employees, and automatically adjust the minimum salary level each year to account for the increase in the cost of living.  

The DOL’s Fall 2015 Semiannual Regulatory Agenda indicates that the timetable for publishing the final rule is July 2016.  However, there is reason to think that the final rule might come sooner.  In an interview with Bloomberg BNA on December 16, 2015, Labor Secretary Thomas Perez stated, “I'm confident we’ll get the final rule out by the spring of next year.” 

The final rule is expected to increase the minimum salary level for "white collar" exempt employees, and to add a mechanism for an automatic annual increase of that minimum level.  It is expected that fewer employees will meet the requirements to be exempt from overtime, and thus either will be entitled to receive overtime pay, or will have to receive a higher salary in order to remain exempt under the FLSA. 

Major Changes to Overtime Regulations for "White Collar" Workers

Authored by John Pueschel

On July 6, 2015, the U.S. Department of Labor (“DOL”) issued proposed new regulations that will significantly change the law governing certain “white collar” workers who are exempt from minimum wage and overtime pay.  All employers need to become familiar with these proposed rules, which may, if they become final, greatly impact wages and overtime pay to workers.  In addition, for those that want to have their voices heard, there is still time (until September 4, 2015) for the public to make formal comments to the DOL.

Under the Fair Labor Standards Act (“FLSA”), which is the federal wage and hour law, some employees may be classified as “exempt” from the Act’s minimum wage and overtime pay requirements.   The most well-known and commonly used exemptions are the so-called “white collar” exemptions applicable to executive, administrative, and professional employees.  The DOL’s proposed rules will change the current regulations to more than double the current minimum salary level for exempt employees, significantly increase the salary level required for employees to be exempt from overtime as highly compensated employees, and automatically adjust that minimum salary level each year to account for the increase in the cost of living. 

As a practical matter, the proposed regulations will mean that fewer employees will meet the requirements to be exempt from overtime (and thus will be entitled to overtime pay), or that employers must pay higher salaries in order for the employees to remain exempt under the FLSA.  Here are the specific changes proposed to the white collar exemptions, which are expected to become effective by 2016:

 

• Increase (by more than double) the current minimum salary threshold (currently    $455 per week, or $23,660 per year) to $921 per week, or $47,892 per year, which will be adjusted annually by DOL.  Assuming the rules become final, the salary level is estimated to be set at $970 per week, or $50,440 per year for 2016.

• Increase the minimum compensation for Highly Compensated Employees (HCE) from its current level ($100,000 per year) to $122,148 per year.

• Create an automatic, annual adjustment mechanism for the minimum salary thresholds for the standard exemption and that for HCE.  (The DOL is asking for public comments to guide its determination to use one or the other of two adjustment mechanisms.)

The DOL states that under the proposed regulations, approximately 4.6 million workers would lose their exemption under the proposed rules (and thus be eligible for overtime pay), unless employers increase their pay.  In terms of economic impact, these changes are significant.  The DOL estimates that the “average annualized direct employer costs will total between $239.6 and $255.3 million per year.”  In addition, the DOL also states that this “proposed rulemaking will also transfer income from employers to employees in the form of higher earnings. Average annualized transfers are estimated to be between $1.18 and $1.27 billion, depending on which of the two updating methodologies is used.”

After a period of public comment, the DOL will publish the final rules, which will be codified as final and binding federal regulations.  It seems all but certain, barring some sort of exceptional set of circumstances, that the proposed rules increasing the salary levels and adding a mechanism for automatic annual increase will become final.

For those who wish to have their voices heard on these proposed regulations, the DOL is accepting public comments until September 4, 2015.  Details for submitting comments are can be found here.