Companies could have unfinished business despite uncertainty of overtime regulation

As most companies are now well aware, just before Thanksgiving a Texas federal judge issued a nationwide preliminary injunction against the implementation and enforcement of regulations proposed by the United States Department of Labor (DOL) to update exemptions from the Fair Labor Standards Act’s overtime requirements for executive, administrative and professional employees (the EAP exemptions). The DOL’s proposed rule, which would have doubled the salary level for employees to qualify for the basic EAP exemptions, was scheduled to take effect on Dec. 1, 2016. Prior to the court’s ruling, employers across the country had spent months devoting significant time and money to prepare for the changes.

Pending further order of court, the existing EAP exemptions remain in effect. The injunction has provided a welcome breather for employers who had planned to make changes to their employee classifications based on the requirements that had been proposed by the DOL.  

The ultimate fate of the rule remains in flux. The DOL quickly appealed the injunction ruling. Even though the federal appeals court granted the DOL’s motion to expedite the appeal, under the court’s order, the final brief is not due until Jan. 31, 2017, 11 days after the inauguration of President-elect Donald Trump. The court of appeals is not expected to hear oral arguments until sometime in mid-to-late February. 

The DOL has also filed a motion to stay the district court proceedings, which would ultimately decide the merits of the case, pending resolution of the appeal. As of Dec. 21, 2016, the Texas federal court had not yet ruled on the DOL’s motion to stay. 

Employers should also recognize that the DOL’s strategy regarding the overtime rule may change with the new administration. President-elect Trump has announced his intention to nominate fast-food executive Andrew Puzder to serve as Secretary of Labor. Puzder has been openly critical of the DOL’s proposed rule. In an op-ed published by Forbes shortly after the DOL finalized the rule, Puzder wrote that it would “add to the extensive regulatory maze the Obama Administration has imposed on employers,” and would serve as “another barrier to the middle class rather than a springboard” for employees.

Despite the uncertainty surrounding the DOL’s proposed rule, employers should bear in mind that both the rule amendment and the Texas federal court’s injunction focused solely on the salary level test for the EAP exemptions. Salary level, however, is only one piece of the EAP exemption puzzle. Each of the EAP exemptions also has an associated job duties test that must be met in order for an employee to be eligible. The DOL’s proposed rule did not make changes to the duty requirements for any exemption.

In anticipation of the Dec.1 rule change, many employers also took the opportunity to reevaluate whether their employees met the duty requirements for an EAP exemption. If particular employees were found not to meet the duties test for an EAP exemption, employers should follow through with re-classifying such workers as non-exempt and pay appropriate overtime, despite the injunction of the DOL’s proposed rule. 

If an employee meets the duties tests for an EAP exemption and is being paid a salary at or above the current threshold ($455 per week, or $23,660 annually), the company does not need to make any change to the employee’s classification or compensation at this time. However, given the potential for salary requirements to change quickly based on future decisions in the pending case, employers should be prepared to re-classify such employees or to adjust their compensation to comply with any changes to the EAP exemptions.

The temporary reprieve provided by the Texas federal court’s decision surely came as welcome news to many employers, and future decisions by the courts or the DOL under the Trump administration could seal the demise of the proposed overtime rule. Nevertheless, employers still have work to do if their employees do not meet the duties test for their EAP exemption and are thus not exempt even under the current rules.  

Andrew P. Sherrod and Angela R. Matney are attorneys at Hirschler Fleischer. Sherrod is a partner in the Richmond office and co-chair of the Employment Law Practice Group. Matney is based in the firm's Fredericksburg location and counsels employers on information privacy compliance.