When a federal court in Sherman, Texas issued a nation-wide injunction on November 22nd that blocked the Department of Labor's new overtime regulation, thousands of employers across the country breathed a sigh of relief. The DOL's new rule was to have gone into effect on December 1st and would have more than doubled the minimum salary employers would have to pay employees to qualify them for "white collar" exemptions from the FLSA's overtime and minimum wage requirements. Specifically, the new regulation, issued in May, gave employers just 6 months to either meet a new minimum salary of $47,476, annualized, or $913 per week. Employers unable or unwilling to meet this new salary for executive, administrative, or professional employees, would have had to reclassify them to non-exempt status, track all time worked, and pay overtime for all hours worked over 40 in a work week. Because the trial court's injunction came just days before the new rule was to take effect, many employers had plans in place and some had already communicated, or actually implemented, drastic changes to their pay practices to comply with the DOL's mandate. As a result, these employers still face tough decisions either to stick with or rescind changes already made or communicated to their workforces. To make matters worse, on December 1st (the day its new salary regulation was to have begun) the DOL filed an appeal to overturn the trial judge's order. If successful, the appeal would reverse the injunction and allow the DOL's overtime salary regulation to go into effect at some unknown date.
As employers scramble to make sense of this mess, our advice to management is to avoid following the crowd. Instead, each individual employer is best served to determine what course of action is best for their organization based on their particular circumstances. For example, employers with few employees impacted by the new DOL rule, should it ever take effect, have far less to concern themselves with than an employer with dozens of impacted employees. By contrast, employers who already implemented or communicated changes designed to comply with the new rule before the Texas court blocked it, face more serious issues. So while there is no "one-size-fits-all" solution, here are some helpful steps employers can take to decide how best to cope with what might wind up being a rocky road ahead.
STEP I - ASSESS WHERE YOUR ORGANIZATION CURRENTLY STANDS: Practically speaking, there are five different categories of employers when it comes to the political mess that is the DOL overtime salary regulation:
1) The unaffected - those with no employees classified as exempt from overtime under any of the affected "white-collar" jobs, or those that are already receive salaries of $47,476 or more;
2) The already changed - those with affected employees and that already implemented changes necessary to comply with the new rule, either by increasing salaries to the new minimum or by "reclassifying" employees from exempt, to non-exempt status;
3) The already announced - those with affected employees and that, while not yet implementing changes, have prepared necessary changes and communicated them to employees before news of the court injunction hit just before Thanksgiving; or
4) The prepared - those with affected employees and that had compliance plans in place prior to December 1st, but had neither implemented nor communicated them to employees; or
5) The unprepared - those with affected employees that either were not aware of the new regulations, or that procrastinated on addressing any changes that may have been presented by the DOL's overtime salary regulations.
STEP II - IDENTIFY OPTIONS BASED ON YOUR ORGANIZATION'S SITUATION
Clearly employers who fall into the first of the above categories, whether by conscious planning or by sheer luck, have it the easiest - there is no reason to do anything. Employers who are certain they have no employees who would be impacted by the new DOL rule, are worry-free. However, while ignorance is said to be bliss, this generally does not apply when it comes to the law. Therefore, employers who wrongly assume the new overtime rule would not impact any of their employees may be in for a big surprise if the regulations ever take effect. For example, many employers have mistakenly assumed that they satisfy the DOL's new minimum salary because they "pay," or "compensate" white collar exempt employees well in excess of $47,476.00. However, with only limited exceptions for nondiscretionary pay, at least 90% of the minimum must be in the form of a salary. Consequently, the "unaffected" may wish to use the additional time they are afforded due to the court battle, to seek counsel to ensure that they truly would be unaffected if the new rule eventually is implemented.
Similarly, the unprepared employers described in the above category five should use the extra time to get up to speed on the requirements of the DOL's regulation and prepare a compliance plan that is ready to implement on short notice. The Texas trial court's injunction has been appealed to the U.S. Court of Appeals for the Fifth Circuit. The DOL has petitioned the appellate court to expedite its appeal. The appellate court can (a) affirm the order, (b) reverse it, or (c) modify it to any extent it deems appropriate. The appellate court could take months to render a decision in the case or it could be expedited in response to the DOL's request. To complicate matters, there is a real possibility that Congress could address the salary issue next spring, through legislation, regardless of whether or not the court of appeals has ruled in the pending litigation. Employers thus have to be ready for anything. Imagine, for instance, if the appellate court were to rule in December to reverse the trial court and ordered the DOL salary regulation to go into effect on January 1, 2017. Then imagine a new Congress and new administration passing a new law to take effect February 1st that essentially reversed the court of appeals' decision. Legislation has already been introduced in Congress that could wind up doing anything from making the Texas court decision statutory law, to changing the minimum salary to something less drastic than what the DOL has attempted to do through regulations. Bottom line, whatever additional time employers now have to prepare for change, they ought to use it.
For these same reasons, employers in category number four - i.e. "the prepared" - are right where they want to be. Stay prepared. Stay informed for any updates or modification to what may be required in order to continue to treat employees as exempt from overtime pay. Be ready to act, even on what might again be short notice.
Our final categories of employers who probably face the most difficult decisions, are those who unfortunately went ahead and either implemented or communicated changes necessitated by the now stayed DOL overtime salary regulations. What to do? Stay the course even though the regulations no longer apply, may never apply, or may again apply at some unknown future date? Rescind implemented or announced changes? Much has been discussed about how rescinding changes already implemented or announced, may impact employee morale. This may be the case in some instances; however, in many cases some employees may actually welcome the news. For example, many employers report that employees whose jobs were "reclassified:" from exempt to non-exempt on account of the DOL, are upset at having to report their time and see their new status as akin to a demotion (even if through overtime they stand to make more, because overtime or even a 40-hour week is less certain than a salary). This is why it is best to avoid following the crowd and instead do what works best for your organization and your workforce.
STEP III - DO WHAT IS BEST FOR YOUR ORGANIZATION AND ITS EMPLOYEE RELATIONS
The problems for employers who already have hiked salaries or announced increases to meet the DOL's new minimum, may face the toughest decisions of all. Still, each employer's situation may differ and call for a different response. For example, if Employer A had only 2 employees impacted by the new rule and gave only small increases to get the employees to $47,476 because their existing salaries were close to that figure to begin with, it may make the most sense to stick with these changes. This course of action would be even more sensible if Employer A had taken advice from our previous webinars and articles and assigned additional responsibilities to these 2 individuals to coincide with their raises. However, for Employer B who for example had far more affected employees - say 20 instead of 2 - and reclassified 10 to non-exempt status and gave raises (in some cases, substantial raises) to the other 10 to keep them exempt, the decision of what to do is much harder. Frankly, however, employers should not feel shy about rescinding raises, announced or implemented, and simply communicating to employees: "It's the DOL's fault!" While some blame the Texas judge for the mess by blocking the regulations just days before December 1st, it was the DOL that pushed its new rule to take effect during an election year. Wessels Sherman attorneys proposed that the DOL's implementation date was too soon and did not give employers adequate time to prepare for what for some where sweeping changes. Doesn't this seem prophetic now?
A couple of legal thoughts: (1) despite the state of the regulations, it is never unlawful to treat a potentially exempt employee as non-exempt and paythem overtime pay; therefore, even if the DOL rule never takes effect, eplyers may lawfully reclassify exempt employees (or keep them reclassified)tonon-exempt status, so long as they track all hours worked, pay overtime, etc. (2) If the decision is made to rescind raises already given, unlessand until the DOL rule survives, some state laws require that written notice be given to employees in advance of implementing changes in their compensation.
In conclusion, given the circumstances employers currently have no way of knowing what awaits them around the next bend when it comes to their white collar exempt employees. However, one thing seems fairly clear - the DOL's new regulations, even while blocked, are drawing an incredible amount of attention to employee entitlement to overtime pay and to whether those who do not receive it in fact qualify as exempt from the requirement. As a result, whether or not and/or to what extent the minimum salary is eventually changed, employers should expect more scrutiny in 2017 - from employees, their attorneys, and definitely from the DOL - over whether employees treated as exempt from overtime actually meet all the requirements. This of course will include whatever salary applies, but employers should expect more challenges on whether their exempt employees perform the job duties necessary to the exemptions of executive, administrative or professional status. Any employer that has not had a thorough audit done, recently, on the duties their exempt employees perform would be well advised to address this issue, too. The exponential growth in wage and hour overtime class action lawsuits should only get worse in 2017.