Texas Federal Judge Holds Department of Labor’s White Collar Exemption Final Rule Unlawful

Whether perceived as a reason to give thanks or an early act of “Grinchdom,” on Tuesday, November 22, 2016, just eight days before the effective date of the U.S. Department of Labor’s Final Rule on White Collar Exemptions (‘Final Rule”), a United States Federal Judge in Texas held the Department of Labor’s Final Rule was unlawful.

Judge Amos Mazzant entered a Preliminary Injunction Order blocking implementation of the Final Rule. The Court held the U.S. Department of Labor (“DoL”) exceeded the authority granted by Congress in the plain language of Section 213(a)(1) of the Fair Labor Standards Act (“FLSA”). According to the Court, the Executive, Administrative, and Professional exemptions (“white collar exemptions”) carved out by Congress in Section 213(a)(1) of the FLSA refers to duties, not salary. The DoL admitted that it cannot create an evaluation of the white collar exemptions based upon salary alone. However, the Court found that the Final Rule created a de facto salary only test due to the significant increase in the salary level. In part, the Court relied upon the DoL’s published findings that 4.2 million workers would be re-classified from exempt to non-exempt based upon the Final Rule. In addition, the Court held the automatic salary indexing system in the Final Rule unlawful.

The Preliminary Injunction Order entered by Judge Amos is applicable nationwide. As a result, the Final Rule will not go into effect unless the DoL immediately appeals Judge Amos’ Preliminary Injunction Order and the United States Fifth Circuit Court of Appeals overturns the Preliminary Injunction Order. The likelihood of an appeal being heard and ruled upon in the near term is not likely.

It is unknown what President-Elect Trump and his yet to be appointed Secretary of Labor will do, if anything, about changes to the white collar exemptions.

The timing of the Court’s ruling creates a dilemma for many employers who have already implemented changes in employees’ compensation to ensure compliance with the December 1 deadline.

For employers, each situation is unique, so we recommend that you contact your employment law counsel if you have already announced compensation changes within your workforce.

Below are a few considerations to keep in mind:

• If an employee’s salary has already been increased to $47,476, this is “promised” and/or “earned” wages under the North Carolina Wage & Hour Act. There are state law implications (as well as morale issues), in reducing an employee’s earned compensation. Contact your employment law attorney for additional guidance.

• Most employees know about the December 1 change in the rules. Consider your messaging to employees if your organizations decides to keep the status quo in place. For example, let employees know that the long-discussed DoL Final Rule is no longer effective and your organization is awaiting further word from the courts or the Department of Labor before making changes.

• Continue to review all positions to determine whether they should remain exempt or non-exempt, and what pay grades are applicable to avoid pay discrimination claims.

• The Texas Court previewed that “duties” will be the most important factor in determining exemptions. Review job duties to ensure that jobs are properly classified, especially jobs classified as administrative and executive. For example, ensure that management employees are performing primarily “management” functions, and are supervising at least 2 full-time equivalents. Closely review “administrative” designative jobs to ensure they meet the duties tests, and examples of administrative exempt jobs recognized by the DoL.

We will continue to keep you updated with new developments. In the meantime, feel free to contact us with additional questions.

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