David I. Rosen
Employment and Labor
May 30, 2019
After the March 7, 2019 unveiling by the U.S. Department of Labor (“DOL”)
of its long-awaited proposed rule, which would make more workers eligible for
statutory overtime pay, the attorneys general (“AGs”) of 14 states and the
District of Columbia announced on May 21, 2019 that they oppose DOL’s proposed
rulemaking. Included among the states opposing DOL’s proposal are New Jersey
and New York.
The existing annual salary overtime exemption threshold under the Fair
Labor Standards Act (“FLSA”) is $23,600 for full-timers (or $455 per week). Employees who are paid below that salary must
be paid overtime if they work more than 40 hours per week. The FLSA salary threshold test has not
changed since 2004.
DOL’s newly proposed rule, characterized as an Executive Order 13771
“deregulatory action,” would, among other things, increase the qualifying
salary threshold for overtime exemption to $35,308 annually for full-time
workers (or $679 per week). In doing so,
the rule, if promulgated, would effectively convert an estimated one million
workers to hourly wage status and qualify them for time-and-one-half overtime
pay for hours they work in excess of 40 in a given workweek.
The newly proposed rule also would clarify the type of compensation (such
as payments made for vacations, holidays, illness, or failures to provide
sufficient work) which would be excluded from the definition of an employee’s
“regular rate” for purposes of calculating whether overtime pay is due, and
increase the total annual compensation threshold for “highly compensated
employees” (for whom overtime wages generally need not be paid) from $100,000
to $147,414 annually.
The proposed new rule stands in sharp contrast to the final rule
promulgated by DOL during the Obama Administration in 2016, which would have
raised the annual salary exemption threshold to $47,476 for full-timers (or
$913 per week) and require automatic adjustments to the salary threshold
standard every three (3) years. However,
on November 22, 2016, a federal district court in Texas held that that rule was
inconsistent with Congressional intent and issued a nationwide injunction
staying its implementation. On October
30, 2017, DOL appealed the district court's summary judgment decision to the Fifth
Circuit Court of Appeals. On November 6,
2017, the appellate court granted the Government's motion to hold the appeal in
abeyance while DOL reexamined the salary threshold test.
The AGs argue that the proposed rule does not go far enough, championing
instead the Obama-era 2016 Final Rule, which would have made roughly four
million workers newly eligible for overtime pay. In the May
21, 2019 letter signed by each of the AGs, they contend, among other
arguments, that the newly proposed rule would be arbitrary and capricious, and
therefore unlawful under the federal Administrative Procedure Act, because it
would unreasonably institute a markedly lower salary threshold level and
improperly eliminate mandated periodic reviews of the salary threshold
standard. Meanwhile, Congressional
Democrats have announced plans to introduce legislation that would revive the
Obama-era salary exemption threshold.
On March 29, 2019, DOL published its newly proposed rule, triggering a
60-day public comment period that expired May 28, 2019. Presumably, DOL will be reviewing the comments
it received and publishing its final rule, though the final rule’s promulgation
date is uncertain. Given the anticipated
political and judicial battles over what the new threshold should be, it is not
clear what overtime salary exemption threshold ultimately will emerge.
Takeaways for Employers:
- Employers should closely monitor administrative,
judicial and legislative developments relating to the proposed increase in the
salary exemption overtime threshold.
- An increase in the threshold is likely, though
the amount of the increase and the effective date of same remain uncertain.
- Once the threshold is increased, certain employees
previously exempt from overtime will be eligible for hourly overtime pay
depending on what dollar amount is established as the new salary threshold
standard, and employers will be required to maintain time worked records for
those newly converted hourly employees.
- In anticipation of the change in the threshold
amount, employers should begin the process of identifying job classifications
that potentially may be impacted by a change in the salary exemption standard.
This Client Alert has been prepared by Sills Cummis & Gross P.C. for informational purposes only and does not constitute advertising or solicitation and should not be used or taken as legal advice. Those seeking legal advice should contact a member of the Firm or legal counsel licensed in their state. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. Confidential information should not be sent to Sills Cummis & Gross without first communicating directly with a member of the Firm about establishing an attorney-client relationship.