Federal Court Blocks Implementation of New DOL Exemption Rules

by Wilson Sonsini Goodrich & Rosati

At the proverbial eleventh hour, a federal court has blocked the implementation of the U.S. Department of Labor's (DOL's) new overtime exemption rules that were scheduled to go into effect on December 1, 2016. As detailed in our recent WSGR Alert on this matter, the DOL's new rules would have significantly increased the minimum salary for employees to qualify for the Fair Labor Standard Act's (FLSA's) so called "white-collar" exemptions (the executive, administrative, and professional exemptions) to $47,476 per year from the current $23,660, and also mandated an automatic mechanism for future increases of the minimum salaries.

In response to an emergency motion for a preliminary injunction filed by 21 states, a lower federal court judge in Texas ruled that the plaintiffs had established a prima facie case that the DOL exceeded its statutory authority in implementing the new rules raising minimum salary levels. As a result, the court issued an injunction with nationwide effect that prevents the implementation and enforcement of the DOL's new rules. The court's order means that—barring any further unanticipated legal developments—employers are no longer required to comply with the new rules by December 1, 2016.

Whether the DOL's new rules will ever go into effect is unclear. If the DOL continues to press the case, it is possible that the court (or a higher court) may one day reach a different decision on the merits, and permit the implementation of the new rules and the higher minimum salary. It is also possible that the new Trump administration will roll back the DOL's new rules and elect not to further defend them in court.

Employers that have not yet acted to bring their employee classifications in line with the DOL's new rules may be breathing a sigh of relief. Those employers that have already taken steps to comply with the new rules must now determine whether they will maintain the status quo or seek to unwind their recently initiated personnel actions, e.g. pay increases adopted to meet the requirements of the new rules. Employers should approach such decisions carefully, as they may have both legal and employee morale implications. Seeking advice from counsel as to how best to proceed is prudent.

Further, despite this news, employers should still take steps to ensure that their exempt employees are properly classified by confirming that the employees satisfy the federal—and state (where applicable)—minimum salary and duties tests to be eligible for exempt status. For example, while the current annual minimum salary for the executive, professional, and administrative exemptions remains at $23,660 ($455 per week) under the FLSA, California employers should be aware that California has a minimum salary threshold of $41,600 per year ($800 per week), which will be increasing to $43,680 per year ($840 per week) effective January 1, 2017, for employers with more than 25 employees (corresponding with the rise of the minimum wage to $10.50 for employers of that size). The minimum salary to qualify for the white collar exemptions in California will likely continue to increase every year through 2023 for both employers with more than 25 employees and employers with 25 employees or less, commensurate with the gradual statutory increases in minimum wage. As noted in our previous WSGR Alert, employers in California should also be aware of the increased minimum salary requirements for the computer software professional exemption effective January 1, 2017.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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