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DOL Signals That It Will Not Support Obama Era Salary Basis Test

7.5.2017

Employers across the country received some good news last week when the U.S. Department of Labor (DOL) filed its Reply Brief in the Texas lawsuit that halted implementation of the $913 per week salary requirement for exempt status under the Fair Labor Standards Act (FLSA). As everyone recalls, in March 2014, President Obama directed the DOL to update and modernize the regulations setting forth the requirements for administrative, executive, and professional employees to be exempt from the FLSA’s minimum wage and overtime requirements. In response, the DOL issued a new Final Rule on May 23, 2016, which made three significant changes to the salary basis test:

  • It increased the minimum annual salary level from $23,660 to $47,476 — a rate based on the 40th percentile of average salary for full-time workers in the lowest census region. The rate previously had been set at the 20th percentile.
  • It created automatic increases every three years with salary level increases based on the average salary levels for full-time workers as reported by the Bureau of Labor Statistics.
  • It permitted commissions and other non-discretionary incentive pay to satisfy up to 10% of the minimum salary level.

The new salary requirements were set to go into effect on December 1, 2016. Twenty-one states and a group representing businesses sued, claiming that the new rule was unconstitutional, arbitrary, and capricious, and beyond the DOL’s authority. Commentators were nearly unanimous in predicting that the cases would not be successful. Stunningly, on November 22, 2016, a Texas District Court Judge (an Obama appointee) granted a nationwide preliminary injunction blocking implementation of the Final Rule. Nevada et al. v. U.S. Department of Labor et al., No. 4:16-CV-0073. The court held that the DOL did not have the authority to set a salary level as a requirement for exempt status, but could only define exempt status requirements by the duties being performed by the employee. The DOL appealed that injunctive ruling during the waning days of the Obama administration, but the final briefs on the matter had not been filed when President Trump was inaugurated. In late April, Alexander Acosta, who had been the Dean of Florida International University College of Law in Miami, was confirmed by the Senate and sworn into office as the new Secretary of Labor.

In the brief filed last week, the DOL stated that it does not intend to implement the $913 per week salary basis test. Instead, it indicated that it will pursue further rulemaking to determine what the appropriate salary level should be for exempt status. The DOL stated that it intends to publish a request for information seeking public input on several questions that will aid in the development of a proposed substitute rule. Thus, it appears that the mandatory salary level for exempt status will go up in the future, but will not double. Prudent employers should monitor this issue to ensure they have plenty of time to plan for the increase that is no doubt coming.

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