In May of this year, the U.S. Department of Labor (DOL) issued a new rule that raises the federal salary basis for exempt employees to $47,476 per year, effective December 1, 2016. The rule also increases the salary threshold level for the highly compensated employee exemption from $100,000 per year to $134,004 per year, and adjusts salary levels automatically every three years. The Office of Management and Budget estimates the new rule will extend overtime coverage to more than 4 million employees nationwide. While some employers have begun to take measures to evaluate the impact of the new rule on its pay practices, other employers have pushed back, using the courts and Congress to challenge the new DOL rule.
A Judicial Fix?
On September 20, 2016, two federal lawsuits were filed in the Eastern District of Texas against the DOL seeking to overturn its new rule. The lawsuits – one filed by a coalition of twenty-one states (State of Nevada et al. v. U.S. Department of Labor) and the other filed by a coalition of business groups (Plano Chamber of Commerce et al. v. U.S. Department of Labor) – advance numerous legal theories to challenge the rule, including that the DOL failed to follow proper procedures when adopting the new salary threshold and that the automatic indexing for upward adjustments runs contrary to the terms of the Fair Labor Standards Act (FLSA). The lawsuit filed by the states (California is not a party to the lawsuit) also argues that the rule is unconstitutional because the DOL does not have the power to dictate how state governments pay their employees and spend state resources. The states’ lawsuit argues further that the FLSA delegates too much power to the DOL and that the 1986 decision extending the FLSA to the states, Garcia v. San Antonio Metro. Transit Authority, should be overruled. The lawsuits also ask the courts to block enforcement of the rule.
Congress to the Rescue?
On the legislative front, the U.S. House of Representatives voted 246-177 on September 28, 2016, to delay implementation of the DOL’s new rule by six months. The bill, H.R. 6094, was brought as an emergency measure by Rep. Tim Walberg (R-MI). A companion bill was introduced by Sen. James Lankford (R-OK) in the U.S. Senate on September 29. The White House has publicly stated that if the President were presented with H.R. 6094, he would veto the bill. Another Congressional bill has been introduced that would, according to Sen. Tim Scott (R-SC), “nullify” the new DOL rule.
What Should Be Done Now?
Employers who pay their exempt workers less than the proposed new salary threshold are truly between a rock and hard place. December 1 is less than two months away. Taking a “wait and see” approach is risky as there is no assurance that the courts or congress will overturn the rule or delay the implementation date. Indeed, it is extremely difficult to predict how or when a judge will evaluate the merits of the federal lawsuits. Moreover, even if both the House and Senate pass emergency measures to delay the new DOL rule’s implementation, the Obama administration has threatened to veto any such bill. With no clarity that the new DOL rule will be overturned or stayed, employers should prepare for implementation while monitoring for new developments on the judicial and legislative front. Any decision to “wait and see” should be made after careful consideration and in consultation with legal counsel.