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Uncertainty Remains in Wake of Court Decision Blocking DOL Overtime Regulations

12.5.2016

Earlier this year, the U.S. Department of Labor issued a Final Rule increasing the minimum salary level for employees otherwise exempt from the overtime pay requirements of the Fair Labor Standard Act from $23,660 per year to $47,476 per year. This rule modifying the so-called “salary level test” was set to become effective December 1, 2016. In anticipation of this new rule, many employers have already announced to affected employees either a raise in salary in order to satisfy the new salary level test, or a reclassification of certain employees to non-exempt status. However, in the case of Nevada v. United States Department of Labor, a group of States and business groups filed suit to challenge the validity of the DOL’s Final Rule. On November 22, 2016, the Federal district court in that case issued a nationwide preliminary injunction temporarily precluding the Final Rule from taking effect. While this decision may be heralded by opponents of the DOL’s effort to change the salary level test for exempt employees, unfortunately there remains uncertainty for employers regarding the Final Rule and potential liability under the overtime pay provisions of the FLSA.

For employers who have not yet implemented changes to comply with the DOL’s Final Rule, they now face somewhat of a dilemma regarding whether to do so in light of last week’s preliminary injunction. Several circumstances should be considered by employers in weighing their options. First, the preliminary injunction is a temporary measure, and the district court must still make a decision regarding whether that injunction will become permanent. There remains the possibility that the court could reverse course and lift the injunction following a trial on the merits of the case. It should also be noted that the DOL has already filed a notice of appeal of the preliminary injunction to the Fifth Circuit Court of Appeals, which has the power to lift or modify the injunction. It remains to be seen whether the incoming administration under Donald Trump will allow that appeal to move forward or ultimately withdraw it. Therefore, employers should not view the preliminary injunction at this time as the last word on the DOL’s Final Rule.

Another significant question for employers, if the preliminary injunction is ultimately reversed, concerns whether the DOL’s Final Rule may have retroactive validity from its original December 1, 2016 effective date. For those employers which rely on the preliminary injunction as the basis for not increasing the salary of any exempt personnel in order to satisfy the DOL’s modified salary level test, that employer would not be liable for any unpaid overtime as to such personnel between December 1 and the ultimate injunction reversal date – provided that the DOL’s Final Rule were to become effective only on a prospective basis as of the date of the reversal. However, if the Final Rule were found to be effective retroactively to December 1, 2016, that would leave employers on the hook for overtime pay liability regarding any otherwise exempt personnel who did not meet the salary level test as of that date.

Unfortunately, federal court decisions are in conflict regarding the retroactive effect of DOL rules following the reversal of a preliminary injunction which delayed the implementation of such rules. For example, in January, 2015, the DOL issued a rule limiting an overtime pay exemption previously applicable to home health care workers. After a federal district court issued an injunction blocking that new regulation, an appellate court reversed the injunction. Several district courts have since issued decisions regarding whether the DOL regulation should be retroactively effective from the initial January 2015 implementation date. Those courts have reached different conclusions on this question.Therefore, and unless the Supreme Court were to resolve this growing split in authority, employers are left to guess whether they could be held liable for unpaid overtime premiums during a period of retroactivity (assuming that the preliminary injunction is lifted on the DOL’s Final Rule regarding the salary level test).

Given all of these uncertainties in the law, employers must carefully weigh their options as to whether to reclassify currently exempt employees who do not satisfy the DOL’s new salary level test. Factors to consider might include whether the classifications of such employees were already questionable under the DOL duties test, whether those employees are known to be working a significant number of overtime hours, and whether the employers’ operations are located in a jurisdiction in which the courts have already issued a decision on the question of retroactivity. For those employers which have already announced plans to either raise salaries of some employees under the new salary level test, or to reclassify lower-compensated employees to non-exempt status, they should also consider the potential impact which changing these plans could have on employee morale. Of course, any such decisions and the risks associated with them, and how they should be communicated to employees, should be reviewed in consultation with experienced legal counsel.

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