Last week, a federal judge in Texas issued a nationwide injunction preventing the U.S. Department of Labor from implementing its new overtime rules that were scheduled to go into effect on December 1, 2016.
Among other things, these new overtime rules would have required employers to pay “exempt” employees at least $47,476/year beginning on December 1, 2016 in order to qualify them under the professional, executive, or administrative exemptions. The Court struck this new salary test requirement because the Court concluded that historically the overtime exemptions were supposed to be focused on the employee’s duties and not the amount of salary they were paid.
You can read the court’s full opinion here.
For now, this injunction will have little impact in California because we already have a very high minimum salary required for an employee to be considered exempt. As explained in my blog post here, starting on January 1, 2017 the minimum salary required for an employee to be exempt at an employer with 26 or more employee will be $43,680/year. The minimum salary required for an exemption at an employer with 25 or fewer employees will be $41,600/year.
Many California employers were already beginning to implement the new U.S. Department of Labor rules. For example, many employers were already beginning to increase their exempt employees’ salaries to the new $47,476/year threshold.
If you are one of those employers, and if you’ve already announced this salary increase to your exempt employees, you should proceed carefully before rolling back those increases. Many employees will be unhappy with what they perceive to be a pay decrease, and they won’t understand the legal wrangling that has resulted in this action. Therefore, employers should carefully weigh the “costs” to employee morale against the savings achieved before making a final decision.
For those employers who had not, yet, made any changes, you are no longer required to increase the pay of your exempt employees to $47,476/year. However, you will need to increase the pay of exempt employees to meet the new thresholds announced above (either $43,680/year or $41,600/year, depending on the size of your company) starting on January 1, 2017. Thereafter, employers should carefully monitor the federal court cases in Texas to see if it is appealed by the U.S. Department of Labor. Even if it is appealed, the new incoming Trump administration may rescind the new rules entirely, which would render the appeal moot. Stay tuned!
Update: On December 1, 2016, the U.S. Department of Labor appealed the decision to the U.S. Court of Appeals for the Fifth Circuit.