In a widely publicized move, the U.S. Department of Labor on March 7 proposed an update to the Fair Labor Standards Act (FLSA) regulations governing employees who are exempt from overtime. The most significant change in the proposal is to raise the minimum salary an employee must earn to qualify as exempt from overtime. The existing minimum salary is $455 per week; the new proposed minimum salary is $679 per week, a 49 percent increase. An employee must also satisfy one of the “duties” tests to be exempt from overtime (e.g., executive, administrative, professional), but the proposed rule does not change any of those tests.
Most employers probably remember, with some chagrin, the DOL’s 2016 rule that more than doubled the salary basis to $913 per week. Businesses were scrambling to adjust their job descriptions and payrolls in anticipation of the new rule’s December 1, 2016 effective date. Then, eight days before, on November 22, 2016, a district court in Texas issued a surprise nationwide injunction preventing it from going into effect. For a refresher on the injunction and its aftermath, see our posts here, here, and here.
On August 21, 2017, the same federal judge, Amos Mazzant, issued a final ruling invalidating the $913 per week salary basis. Surprising to some, the Department, now with a Trump appointed Secretary, appealed the judge’s final ruling to the U.S. Court of Appeals for the Fifth Circuit. But, the Court of Appeals agreed to hold the appeal in abeyance while the DOL undertook further rulemaking to consider adjusting the salary basis to something lower than $913 per week in the 2016 Rule, but more than the $455 per week that was previously in effect (and remains in effect today). Perhaps not coincidentally, the proposed $679 per week proposed salary basis is almost exactly in the middle of $455 and $913.
So, what happens next? On the rulemaking side, the public will have 60 days to comment on the proposed rule. The Department will then consider those comments, and issue a final rule, probably sometime in 2020. More importantly though, what will happen if, as is likely, the DOL’s final rule maintains the $679 per week salary basis? If challenged, is a court more likely to find a 49 percent increase is valid because it is less of an increase than in the 2016 rule? Does the validity of the DOL’s rule depend upon something so arbitrary as a federal judge’s opinion about what persons in certain occupations should earn?
Many employers and business advocacy groups agree $455 is probably too low a salary basis given inflation that has occurred since it was established. They can probably also live with the proposed $679 per week (indeed, this salary level was chosen after considerable input from interested parties). But, despite the DOL’s effort to appease all interested stakeholders, there is a good chance some interest group will file suit to challenge the new rule. The issue is not so much the amount of the salary threshold, but whether the DOL has the right in the first place to use a minimum salary as part of the test to determine whether an employee is exempt from overtime. Commenting on Judge Mazzant’s ruling on the Obama era rule, I said in a September 12, 2017 post:
In the ruling on the preliminary injunction, Judge Mazzant questioned whether the DOL has the legal authority to establish a salary basis test. He reasoned the FLSA itself defines Executive, Administrative, and Professional exemptions only with respect to duties, and says nothing about the employee’s salary. Therefore, he ruled, Congress did not intend that the amount of an employee’s salary be a factor in determining whether the employee was exempt; only the duties are relevant. By including a salary basis test in addition to a duties test, Judge Mazzant concluded, at least preliminarily, that the DOL likely exceeded its statutory authority.
It is important to note that, in the final ruling, Judge Mazzant backed away from his initial opinion that questioned the DOL’s authority to use the salary test at all. Instead, he concluded merely that $913 per week too high because it likely would have the effect in many cases of eclipsing the duties test, essentially rendering the duties irrelevant. In other words, the salary was so high that many employees who satisfied the duties test for one of the executive, administrative, or professional exemptions would still be classified as non-exempt because their salary was less than $913 per week.
In addition to questioning the legal basis for the minimum salary, there are practical reasons the salary basis test should be abandoned. First, the salary basis applies to the entire country, and does not take into account regional and local economic conditions. A $679 per week salary means something different in Des Moines than it does in San Francisco or New York. Second, in the modern era the salary basis has become a political weapon used to benefit favored constituencies, depending upon the party in power. Third, the proposed rule contains a provision that allows the Department to change the salary basis every three years. But, the rulemaking process is so slow that it takes at least two years for a rule to get from the proposal to the final stage. Moreover, once the new salary basis is in place, it could once again be subject to legal challenge. Lawyers and lobbyists love this process, but whether it actually benefits ordinary employees is questionable. Finally, lawyer and blogger Jon Hyman makes an excellent point that I have not seen elsewhere, but is important: that is, the salary basis test simply does not matter. If an employer pays someone less than $679 per week, that person is probably not the sort of employee who exercises the type of discretion and judgment required to satisfy the duties part of the test. It is the duties test that employers should really be worried about.
So what’s the takeaway from all this? Employers, get ready for the new salary basis in 2020, but don’t be surprised if it never goes into effect.