Under the Fair Labor Standards Act (“FLSA”), minimum wage and overtime requirements do not apply to any employee covered by the “white collar” exemption. To be considered a white collar worker under that exemption, the FLSA requires the employee to be employed in a bona fide executive, administrative, or professional capacity. Although the FLSA does not set a minimum white collar salary level, the Department of Labor (“DOL”) previously issued regulations requiring, among other things, that an employee meet a minimum salary threshold to qualify for the exemption.
In a well-publicized move designed to boost employee earnings, the Obama administration promulgated a new regulation, which would have increased the minimum salary threshold from $23,660 to $47,892, effective December 1, 2016. The new regulation also would have increased the minimum annual salary for “highly compensated employees,” from $100,000 to $134,000, and would have increased both salary thresholds every 3 years beginning in January 2020.
The new rule was expected to have a significant impact on businesses across the county. Approximately 4 million workers would have become eligible for overtime overnight. As such, many companies increased the salaries paid to white collar employees prior to the December 1st effective date . For example, Walmart increased manager salaries to $48,500 across the country.
In a case that was closely followed by employers across the nation, several states joined together and filed suit to block the rule. Just days before the effective date of the new rule, on November 22, 2016, the U.S. District Court for the Eastern District of Texas preliminarily enjoined the new rule, reasoning that the FLSA clearly and unambiguously exempts workers employed in an executive, administrative, or professional capacity regardless of their salary. In other words, Congress defined the white collar exemption with regard to the duties performed by the workers, not their salary level. Accordingly, the Court held that the FLSA did not empower the DOL to create the new salary requirement. The Court issued a preliminary nationwide injunction against the rule.
Following the Court’s decision, the Obama administration’s DOL appealed to the Fifth Circuit Court of Appeal. The DOL requested and received an expedited briefing schedule, but it ran out of time to get a ruling before Donald Trump’s inauguration. The DOL’s reply brief was still outstanding at the time of Trump’s inauguration.
Since taking power, the Trump administration has stalled while it considers its options. First, on inauguration day, the President issued a memorandum ordering the heads of all agencies to delay the effective date of regulations that had not yet taken effect for sixty days. Five days later, the DOL requested and later received an extension to file its reply brief. It later received another extension, so its brief is currently due on May 1, 2017.
Although the Trump administration has not announced its intentions, the general consensus seems to be that the new administration will not defend the regulation as written. Beyond that is anyone’s guess, especially since there is no DOL Secretary to date. President Trump’s first nominee for DOL Secretary, Andrew Puzder, a fast-food executive who had spoken out against the new rule, withdrew from consideration after he lost Republican support. The President’s new nominee, Alexander Acosta, is a former member of the National Labor Relations Board and U.S. attorney for the Southern District of Florida. Unlike Puzder, Acosta has support from both the industry and labor communities, so he likely has a better chance of confirmation. He appeared before the Senate on March 22, 2017, which is scheduled to vote on his confirmation soon (most likely before this article is published).
Unfortunately for employers and their advisors, it is difficult to predict how Acosta would handle the preliminary injunction on the new salary requirement. Neither he nor President Trump have made any definitive public statements regarding the issue. When Acosta appeared before the Senate, he was noncommittal about the white collar overtime rule. He opined that it was “unfortunate” that the rule has not been updated in over a decade, but his reasoning suggested he thought it was unfortunate because failing to update dollar amounts in a rule can place “stress on the system” when they are belatedly updated. It is hard to read between the lines, but Acosta’s comments suggest that he recognizes an increase in the minimum salary level is at least logically, if not legally, appropriate.
Assuming the Trump administration chooses not to fully defend the Obama administration’s new rule, it could withdraw its appeal and let the District Court’s ruling stand. Alternatively, the DOL may settle with the state plaintiffs and attempt to promulgate a new rule with a lower salary requirement. However, if the District Court’s reasoning is correct, then any DOL white collar overtime regulation containing a salary threshold is subject to challenge.
Although some employers, like Walmart, have announced that they are keeping their higher salary levels despite the current injunction, others are likely still trying to decide what to pay their white collar workers given the uncertainty around this issue. Interested parties should continue to follow Acosta’s confirmation process to hopefully get a better glimpse into his plans for the white collar overtime rule.
The legal information provided in this article is general in nature and should not be construed as advice applicable to any particular individual, entity or situation. Except as otherwise noted, the views expressed in this article are those of the author(s). This article may be considered a solicitation for certain purposes.
Jonathan M. Turner is a partner through his professional corporation at Mitchell Silberberg & Knupp LLP in Los Angeles. Jonathan represents management in all aspects of labor and employment law. For more information about Jonathan, click here.
Stephen A. Rossi is an associate at Mitchell Silberberg & Knupp LLP in Los Angeles. Stephen represents employers in all aspects of labor and employment law. He has extensive experience in drafting summary judgment briefs, appellate briefs and settlement agreements. For more information about Stephen, click here.