Late Tuesday afternoon, a federal district court judge in Texas granted a preliminary injunction to a number of plaintiffs who sued the United States Department of Labor, challenging the new overtime rules that were expected to take effect next Thursday, December 1.
The highly publicized rule would increase the salary threshold required for determining whether or not an individual is exempt from the Fair Labor Standards Act’s overtime rules. The new rule was applauded by the Obama administration and and workers’ rights groups, who cheered the fact that millions of workers would now be entitled to overtime compensation. The rules likewise was opposed by many business owners for the same reasons.
A number of states and private plaintiffs sued, claiming that the Department of Labor either had no authority to make salary a part of the exemption test or at least that the DOL exceeded whatever authority it did have. The court consolidated a number of the cases and recently considered a request to grant a preliminary injunction that would halt or delay the new rules until the court could consider the full merits of the case. The Court today granted the preliminary injunction, noting that delaying the implementation of the new rule while the case is pending would be wise, since it will be less disruptive than allowing the rule to go into effect and then potentially invalidating it after the fact.
The temporary delay places in jeopardy the final implementation of the rule, as it is expected that the final decision on the merits will not come until after January 20, 2017, when Donald Trump is sworn in as President. Some observers anticipate that President Trump and his new Labor Secretary will not defend the Obama Administration’s rule, allowing the overtime expansion to be invalidated.
We will continue to monitor this matter, but for now, it remains to be seen when, if or how these new overtime rules actually will take effect.
Tuesday morning, June 28, 2016, Attorney Aimee Willett addressed a packed room of business leaders at the Altoona Grand Hotel, to talk about what the new overtime regulations will mean for businesses. The new regulations will change the status of many employees as it pertains to exempt and non-exempt status, so the Legislative Action Committee of the Blair County Chamber of Commerce organized the seminar in order to help employers understand in greater detail just how they will need to comply and how they should prepare for the new rules to take effect later this year.
Aimee regularly practices in the area of labor and employment law and has represented employers in matters before state and federal trial and appellate courts in Pennsylvania, arbitrations, local agency hearings and other administrative proceedings before the Pennsylvania Human Relations Commission, Equal Employment Opportunity Commission, and Pennsylvania Labor Relations Board.
Last year, the US Department of Labor published a proposed rule expanding overtime entitlement for millions of workers. The Department received a significant number of comments since then, both in favor of and opposed to the proposed rule, and today the Obama administration announced a final version of the overtime exemption rule.
The rule, which will go into effect December 1, 2016, will expand the class of people who will be eligible for overtime compensation. The Fair Labor Standards Act currently requires employers to pay employees one and one half times their regular rate for all hours worked in excess of 40 hours in a workweek. Some employees, however, are exempt from this requirement if they meet certain criteria. Specifically, in order to be exempt the employee must perform certain types of duties and must be paid a certain minimum salary. It is that minimum salary threshold that is altered by the new rule.
Under the current rule, in place since 2004, that minimum threshold has been $455 per week, or $23,660, per year. The new rule would double that, to $47,476, per year.
If an employer has any employee that currently is exempt, but who is paid less than $47,476, then starting December 1, the employer has several options if he or she wishes to maintain the exemption and avoid paying the overtime premium. For example, the employer can increase the employee’s salary to some amount above that threshold, to maintain the exemption. Of course, that is most feasible for those exempt employees who already are paid some amount close to that threshold.
What is more likely, however, is that many employers will reduce the number of hours worked, to limit the likelihood of overtime compensation. Alternatively, some employers may reduce the base pay for some employees, so that the same total compensation is paid after accounting for the new premium pay.
The new rule requires perhaps the most significant change in overtime rules in more than a decade, and employers now have about six months to plan and prepare.
In a unanimous decision today, the United States Supreme Court ruled that employers do not need to pay employees for the time spent in post-shift security inspections. In this case, an employer operated a warehouse and shipping facility for Amazon.com, and given the employee access to the large inventory in the warehouse, the employer required its employees to undergo an inspection after the conclusion of their shift and before they could leave the job site.
The employees argued that the time spent going through these security checks – as much as 25 minutes each time – was compensable under the Fair Labor Standards Act, which requires that working time be compensated at a minimum wage.
The 9th Circuit Court of Appeals ruled that the employees were entitled to paid for this time, since they were required by the employer to be there. A unanimous United States Supreme Court, however, reversed that decision, making clear that this kind of time is not compensable.
Under the Fair Labor Standards Act, all hours worked must be compensated, but certain preliminary and postliminary activities are not compensable. For example, the time spent putting on protective gear or uniforms is not compensable. The test for determining whether or not the time is compensable includes a requirement that the activity performed during that time be the type of duties the employee was hired to perform or that the activity be integral to those duties the employee was hired to perform.
Here, the Court wrote:
“To begin with, the screenings were not the principal activities the employees were employed to perform—i.e., the workers were employed not to undergo security screenings but to retrieve products from warehouse shelves and package them for shipment. Nor were they ‘integral and indispensable’ to those activities.”
There have been a series of cases all holding the same thing, so this result was expected. The good news is that the unanimous decision shows the court considers this concept to be well settled. Employers always should consult with counsel to make sure they are considering the correct hours to be compensable and non-compensable, but this provides more good news for employers as a confirmation that these kinds of postliminary activities need not be considered compensable.
President Obama is expected today to expand his economic agenda by announcing an effort to increase overtime for a large number of American workers. According to a report from the New York Times, President Obama will direct the Labor Department to amend regulations implementing the Fair Labor Standards Act.
The Act requires that overtime be paid for hours worked in excess of forty in a workweek, but it also exempts certain “white collar” positions held by executive, administrative and professional employees. In order for an employer to take advantage of the exemption, and not pay overtime compensation, the employee currently must be paid on a salary basis in an amount of at least $455 per week. It is that $455 threshold that President Obama will seek to change, for the first time since it was raised to that level by the Bush administration in 2004. By increasing that threshold again, President Obama can increase the overtime entitlement to millions of workers.
Employers, of course, will worry about the increased cost of employing workers, while experts warn of unintended consequences like employers cutting back on their numbers of employees.
When considering the exemptions, it is always important to remember that, despite common misconception, it is not sufficient that an employee be paid on a salary basis in order to be exempt from overtime requirements. It also is necessary that the employee’s job consist of certain duties, determined by the particular exemption sought.
The process of amending the regulations is not necessarily a fast one, so even if a chance is made to the exemptions, it will not take effect for quite some time. Stay tuned for more updates as this matter develops.