United States District Court Issues Nationwide Injunction Halting Implementation of New “White Collar” Exemption Regulations

by Hirschfeld Kraemer LLP
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On November 22, 2016, the United States District Court for the Eastern District of Texas blocked implementation of the Department of Labor’s rule that nearly doubles the minimum salary level for the “white collar” exemptions. This means that the rule is not going into effect as planned on December 1, 2016, unless a higher court lifts the injunction.

For many years, the minimum salary level for the so-called “white collar” exemptions – those covering qualifying executive, administrative and professional employees – has been set at $455 per week. In May 2016, the Department of Labor (DOL) issued new regulations increasing the minimum salary level to $913 per week ($47,476 annually), with scheduled increases every three years beginning January 1, 2020.

In October 2016, the State of Nevada and 21 other states filed an emergency motion for a preliminary injunction to halt the implementation of the new minimum salary regulations, arguing that the DOL exceeded the authority delegated by Congress in adopting the new salary level. The suit was filed in U.S. District Court in Texas, and consolidated with another lawsuit challenging the rule brought by over 50 businesses and the U.S. Chamber of Commerce. Yesterday, Judge Amos Mazzant, an appointee of President Obama, granted the states’ motion and imposed a nationwide injunction preventing the regulations from going into effect. The court agreed that although the FLSA gives the Department “significant leeway” to establish the job duties that may qualify an employee for a “white collar” exemption, it did not authorize the DOL to define the exemption with respect to a minimum salary or to limit it with respect to salary.

This is surprising reasoning, given that the DOL “white collar” regulations have imposed minimum salary levels since 1949 that have never been challenged. But the court cited a report issued in conjunction with the original 1949 regulations, explaining that the salary level had been “purposefully set low to screen[] out the obviously nonexempt employees, making an analysis of duties in such cases unnecessary.” Indeed, at that time the DOL admitted that it had no authority to create a test based on salary alone. Yet because the new salary level is set so high, the court explained, it “creates essentially a de facto salary-only test,” noting that the DOL itself has estimated that 4.2 million workers who are currently exempt will lose their exemption under the new rule. Because Congress did not intend that salary alone exclude employees from exempt status, the court held, the DOL had exceeded its authority and the rule was invalid.

The preliminary injunction stays the implementation of Department of Labor’s new “white collar” exemption regulations for all employers covered by the FLSA nationwide, pending further proceedings in the District Court. An immediate appeal to the Fifth Circuit Court of Appeals is almost certain. However, given the election results and certainty of a shift in direction and priorities at the Department of Labor, it is doubtful that the agency will seek to defend the rule after Inauguration Day.

In the meantime, employers who have previously announced salary increases to maintain exempt status under the new rule face the very real dilemma of whether to go forward with the increases or put them off, given employee morale issues as well as the fact that already-announced increases could constitute a contractual promise. Employers considering withdrawing such an announced increase should consider this issue carefully in conjunction with counsel.

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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