On September 24, 2019, the United States Department of Labor (“DOL”) published a Final Rule (the “2019 Final Rule”), which, among other changes, will increase the salary threshold for executive, administrative, and professional employees to $684 per week (the equivalent of $35,568 per year) when it goes into effect. This means that such employees must make at least that amount each year in base salary to be exempt from federal overtime laws (the prior minimum salary amount was $23,660).
This is not the DOL’s first attempt to raise the salary threshold—employers will likely remember scrambling in late 2016 to prepare to comply with the DOL’s previous attempt to raise the salary threshold, only for a federal court in Texas to declare it invalid. Despite the feeling that history may be repeating itself, employers need to take note of the 2019 Final Rule and plan accordingly; employers should not assume that this is another false alarm. Below are some questions we have received about the 2019 Final Rule and our thoughts with respect to each issue.
Absent court intervention or a change in the DOL’s plans, the 2019 Final Rule will become effective on January 1, 2020.
The 2019 Final Rule makes some important changes to DOL’s regulations concerning the exemptions to overtime requirements for certain categories of employees under the Fair Labor Standards Act (“FLSA”). Here is a roundup of the changes that will have the biggest impact on employers:
Like they did in 2016, employers should review their current and prospective workforces and determine what—if any—changes they should implement, whether that is increasing or decreasing the size of the workforce, redefining certain jobs, increasing salaries or simply retooling internal budgets to accommodate more overtime payments.
No, the 2019 Final Rule does not address the job duties necessary to satisfy the exemptions. The duties tests remain unchanged.
Probably not. The DOL made certain adjustments in the 2019 Final Rule that specifically respond to the United States District Court for the Eastern District of Texas’s decision that invalidated the DOL’s previous final rule (the “2016 Final Rule”). Specifically, in Nevada v. U.S. Dep’t of Labor, a federal court in Texas determined that the FLSA unambiguously defined the executive, administrative, and professional exemptions based on job duties—as opposed to on an employee’s salary. Based on that determination, the court invalidated the 2016 Final Rule—challenged by local and national business groups—essentially determining that the Obama administration had improperly supplanted the job duties tests for executive, administrative, and professional employees with a minimum salary level test by making the exemptions based “predominantly” on the $47,476 threshold.
Now, under the Trump administration and mirroring the rationale from the Nevada v. U.S. Dep’t of Labor decision, the DOL expressly recognized that increasing the salary threshold to $913 per week in the 2016 Final Rule was “inappropriate” because that salary threshold effectively replaced the role of the duties test in determining overtime eligibility. By contrast, according to the DOL, most employees who qualify for exempt status under the duties test will also meet the new salary threshold of $684 per week. The DOL estimates that 1.2 million workers will be affected (i.e., entitled to either overtime pay or a salary adjustment) as a result of the increase to the standard salary level, as compared to the 4.2 million workers it estimated were affected by the 2016 Final Rule.
It may be difficult for a court to invalidate the 2019 Final Rule based on the court’s reasoning in Nevada v. U.S. Dep’t of Labor without nullifying the salary level test altogether. The DOL determined the $684-per-week minimum salary threshold in the 2019 Final Rule by applying the same methodology that it previously used to reach the $455 per week salary level in 2004. In particular, like in 2004, the DOL set the standard salary level in the 2019 Final Rule at the 20th percentile of the combined subpopulations of full-time salaried employees in the lowest wage region of the country (the South) and full-time salaried employees in the retail industry nationwide. By contrast, the 2016 Final Rule’s $913 salary threshold was based on the 40th percentile. As a result, the DOL’s adjustment to the salary level appears to reflect a statistical change in the weekly earnings of workers between 2004 and 2019 (likely based primarily on inflation and cost-of-living adjustments), as opposed to an overhaul of the overtime exemption. It will be difficult to invalidate this new salary threshold of $684 per week without also determining that the 2004 threshold of $455 per week was inappropriate.
Unless a court holds otherwise, employers should expect that the 2019 Final Rule will take effect on January 1, 2020. What is more, groups who challenged the Obama-era rule may be less inclined to challenge this one, because of the potential for a more employee-friendly administration after the 2020 election. Conversely, those who favored the 2016 Final Rule no doubt support the minimum salary increase in the current iteration and will likely want to see some increase go into effect, even this more moderate increase. Although we’ve learned to “never say never,” employers should determine whether to prepare to convert employees from exempt to non-exempt status or to adjust employees’ salary to meet the new threshold as of January 1, 2020.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.
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