In the Workplace 2018: Overtime Exemption Rules Invalidated: Now What?

In the Workplace 2018: Overtime Exemption Rules Invalidated: Now What?

This is part of a series of articles by Wright Lindsey Jennings' labor and employment team examining key trends for employers and the workplace in 2018. The series was featured in Arkansas Business

Although the U.S. Department of Labor's 2016 overtime exemption rules were invalidated this year, the DOL's next overtime exemption rules are in the works and could be issued sometime in 2018. 

The minimum annual salary level for the executive, administrative, professional, outside sales and computer exemptions — commonly referred to as the "white-collar exemptions" — is expected to be increased and set in the $30,000 to $35,000 range. Employers may want to get a head start on the new year by planning now for the DOL's next overtime exemption rules.

Court Challenges to the 2016 Overtime Exemption Rules

The DOL's 2016 overtime exemption rules were supposed to be effective Dec. 1, 2016. But in late November 2016, a Texas federal district court issued a nationwide preliminary injunction barring the DOL from implementing and enforcing the rules. 

Significant changes in the 2016 overtime exemption rules included: an increased minimum salary level for the white-collar exemptions (from $23,660 annually to $47,476 annually, or from $455 per week to $913 per week) an increased total annual compensation requirement for the highly compensated employee exemption (from $100,000 to $134,004) and an automatic adjustment to these salary levels every three years.

The DOL appealed the injunction ruling to the Fifth Circuit Court of Appeals in December 2016. Despite some speculation as to whether the DOL would continue to pursue its appeal after the presidential administration change, the DOL asked the Fifth Circuit in June to confirm the DOL's authority to set a minimum salary level for the white-collar exemptions but expressly abandoned its defense of the actual salary level set in the 2016 rules. 

The DOL informed the Fifth Circuit that it would initiate further rulemaking to determine the appropriate minimum salary level.

In August, while the DOL's appeal of the injunction ruling was pending, the 2016 overtime exemption rules were struck down as invalid by the same Texas federal district court that issued the nationwide injunction. The DOL dismissed its appeal of the injunction ruling the following week.

The DOL has appealed the Texas federal district court's order invalidating the 2016 overtime exemption rules, but the appeal was placed on "hold" indefinitely in early November while the DOL continues its rulemaking process to determine the appropriate minimum salary level for the white-collar exemptions. 

DOL's Rulemaking Process

In July, the DOL sought public comments on how it should change the 2016 overtime exemption rules. The DOL asked for input on, among other things, whether the minimum salary level should vary based on factors such as employer size or location, whether the salary level set in the 2016 rules effectively identified employees who may be exempt, and whether a different salary level would more appropriately identify such employees. 

The comment period closed on September 25, and the DOL is now reviewing the more than 214,000 comments it received. While the DOL has not provided a specific timeline, the next steps in the rulemaking process are for the DOL to issue a proposed rule and then a final rule following a comment period. 

While the DOL's ultimate position may be influenced by the comments, Secretary of Labor Alexander Acosta has publicly indicated that he considers an appropriate minimum annual salary level to be somewhere around $33,000 (about $635 per week), which is in line with the recommendation by the Society for Human Resource Management (SHRM) to increase the salary level to nearly $32,000. 

Now What?

With the DOL working through its rulemaking process, an increased minimum salary level for the white-collar exemptions is on the horizon. For the employers that made classification or pay changes in anticipation of the 2016 overtime exemptions rules, maintaining those changes is probably the best way to proceed when considering employee morale, administrative resources/efficiency factors, and the fact that rollbacks of already-implemented classification or pay changes could lead to discrimination claims — especially if the rollbacks are applied inconsistently.

Employers that did not change their practices in connection with the 2016 overtime exemptions rules, or that rolled back already-implemented changes after the rules were put on hold, will likely benefit from starting (or restarting) their planning for the DOL's next overtime exemption rules sooner rather than later.