Earlier this year, the U.S. Department of Labor issued a rule requiring employers to pay most employees a minimum of $913 per week in order for them to be exempt from overtime under federal law. This rule more than doubled the existing salary threshold of $455 per week and was slated to go into effect December 1. The threshold applies to those exempt under the executive, administrative, and professional exemptions.
A federal district court in Texas just issued an emergency injunction blocking the rule from going into effect. Moreover, the decision questions the validity of a salary minimum in general, calling into question not just the new rule, but the existing rule as well. The emergency injunction preserves the status quo by blocking the rule from going into effect on December 1, and based on the court’s declaration that the rule is “unlawful,” a permanent injunction can be expected. The court determined that the rule, in various respects, exceeded the authority granted by Congress to the Department of Labor under the Fair Labor Standards Act. The Department of Labor could appeal the ruling, but given the short time remaining in the current presidential administration, it is unlikely that the rule would be defended. In other words, the rule is likely dead.
What does this mean for employers? If you have not already increased salaries or restructured pay to comply with the rule, you do not need to do so and can maintain the status quo. If you already made changes, it can be hard to roll them back with current employees due to the effects on employee morale. Some employers may choose to do this anyway, some employers may choose to make the effects permanent, and some may choose to return the pay structure to its previous status for future employees. Collective bargaining agreements should be consulted before altering pay arrangements. Any plans to reduce an employee’s pay must be communicated to the employee in writing before any work is performed under the new arrangement.
Future developments are difficult to predict, but it is possible we will see courts or the Trump Administration eliminate the existing salary threshold of $455 per week. Many states, including Connecticut, have their own thresholds. Connecticut requires a minimum salary of $400 per week for executive, administrative, and professional employees; a simplified analysis of the employee’s duties applies if a threshold of $475 is met. Since 2004, when the $455 threshold went into effect nationally, the $400 threshold became irrelevant. If the existing $455 threshold is eliminated, Connecticut employers may be able to pay salaries of as little as $400 per week in some cases without being subject to overtime obligations. It is quite possible that Connecticut will pass legislation to increase the salary threshold statewide in light of the (apparently) failed effort on the federal level.
For now, the takeaway for employers is that the December 1 deadline is on hold. What will follow remains to be seen. Our team of labor and employment attorneys can assist employers in ensuring compliance with all applicable labor and employment laws. Contact us to arrange a wage-and-hour self-audit for your organization.