FLSA Update: Federal Judge Temporarily Blocks Increased Salary Requirement for Overtime Exemptions

December 2, 2016

In our last article, we advised employers to adjust the salary or exemption status for certain employees in order to comply with new FLSA overtime rules, which were set to go into effect on December 1 of this year. Days before that deadline came to pass, a federal judge in Texas unexpectedly took up several states’ invitation to block the rule from going into effect. What does this mean for you? If you already made adjustments to your employees’ salaries or exemption status in anticipation of these rules, you can probably take those adjustments back if you are careful to avoid some legal pitfalls. If you have not yet acted to adjust your practices to the new rules, you no longer need to do so, at least not for the time being.

The judge found that states would suffer irreparable harm if the Department of Labor’s (DOL) rule took effect as planned. Why? Because the judge determined the DOL lacked authority from Congress to impose the salary level requirements and automatically increase them. The applicable statute gives the DOL authority to ‘define and delimit’ the terms ‘bona fide executive, administrative, or professional capacity.’ The judge ruled that this authority plainly refers to defining and delimiting executive, administrative, or professional duties (or ‘EAP duties’), and does not give DOL the right to impose salary requirements that could ‘categorically exclude an employee with EAP duties from the exemption.’ While that ruling might sound logical, it was unexpected for at least two reasons. First, the DOL rules were implemented under an executive order from President Obama, and Obama appointed the judge who decided this case. Second, the DOL has included a salary requirement in some shape or form in their overtime rules since 1949. While the judge explicitly limited his ruling to the current rule and said he was ‘not making a general statement on the lawfulness of the salary-level test for the EAP exemption,’ the case will no doubt impact the DOL’s authority to include salary limitations in the EAP exemption rules in the future.

What’s next? The injunction is temporary but does not have a set expiration date—it will remain in effect pending a further order from the court. The injunction could be modified or dissolved by a further order from the court. In many cases, injunctions lead to lengthy appeals that could take months or years to resolve. The big question will be whether the Department chooses to appeal the decision in light of the impending Donald Trump presidency, or whether the Department will choose to abandon the new regulations altogether. We will continue to monitor the development of this case and will keep you updated.

In the meantime, many employers have already acted to comply with the new rules and made promises to employees. Going back on those promises now risks negatively affecting employee morale and might even result in employees bringing breach-of-contract type claims against their employers. Thanks to Oregon’s at-will employment stance, it is within Oregon employers’ right to change certain terms of employment at the employer’s will. Still, oral contracts are generally enforceable, so the changes must be carefully executed and communicated to employees so as not to take away a benefit that has already been promised. How you implement and communicate the change will ultimately depend on what promise was made, and attorney consultation is strongly recommended before a promised benefit is taken away. The bottom line is employers that already made or promised adjustments may have no choice but to honor them for some amount of time, but it is ultimately within employers’ rights to further adjust employment terms in the future. Providing careful communications about your pay decisions to employees should help guard against litigation.

Karianne Conway is an employment law attorney with the law firm Gleaves Swearingen LLP. If you have any questions regarding this article, she can be reached at 541-686-8833 or conway@gleaveslaw.com.

DISCLAIMER: The information in this article is offered for general information and educational purposes only. It does not constitute legal advice and does not create an attorney-client relationship. You should not act on the information in this article before seeking the advice of an attorney.