With the Department of Labor’s (DOL’s) Final Rule updating the Fair Labor Standards Act (FLSA) overtime regulations scheduled to take effect barely two months from now on December 1, two lawsuits have just been filed seeking to stop the Rule from being implemented as planned. Both lawsuits, one of which was filed by 21 primarily Republican led states, and the other of which was filed by a consortium of business groups including the U.S. Chamber of Commerce, the National Association of Manufacturers and the National Retail Federation, were filed in the same federal court in the Eastern District of Texas. While each group of plaintiffs makes legal arguments specific to its own circumstances, both groups essentially attack the wide-scale workforce restructuring compliance with the New Rule will require along with the potential for hardship they argue could result from new labor costs and decreased workforce flexibility, particularly for smaller employers or organizations with budgetary constraints.
Shortly after the lawsuits were filed, the DOL issued a statement in which Secretary of Labor Thomas E. Perez stated, “We are confident in the legality of all aspects of our final overtime rule.”
As discussed in a prior blog post, the Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional (“white collar”) workers to be exempt. Key provisions of the Final Rule include:
1. It sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, which is currently the South, at $913 per week or $47,476 annually for a full-year worker;
2. It sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally, which is currently $134,004; and
3. It establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
The Final Rule also amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new salary level.
Even though it is highly likely that the lawsuits were filed in Texas because the court there is viewed as both potentially favorable to the plaintiffs in these cases and known to move quickly, employers should not stop preparations they may have already begun, if any, to comply with the new regulations, as there has been no change as yet in the December 1 effective date of the Final Rule. For specific questions you may have regarding ongoing compliance efforts, consult counsel.
Debbi Cohen is Counsel to Benton Potter & Murdock, P.C.
