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Federal Court Kills New Overtime Rules--For Now

November 23, 2016
Thomas B. Wassel
Garden City

As all employers know (or should know), the U.S. Department of Labor published a rule earlier this year that would have significantly changed overtime law nationwide starting on December 1, 2016. The new rule would have created a sea change in overtime law. On November 22, 2016, a Federal judge in Texas erected a dike against that sea change. However, the dike may already be springing a leak.

Current Law

Generally, employees who work more than 40 hours in a workweek are required to be paid overtime (one and a half times the regular rate of pay). When Congress adopted the law known as the Fair Labor Standards Act in 1938, it provided certain “exemptions” (i.e. types of employees who would not be covered). The main exemptions are known as the “EAP” exemptions (Executive, Administrative, and Professional). Congress did not define these terms, and left it to the Department of Labor to flesh out the details. Since 1941, the DOL has required that exempt employees be paid on a salary basis. Since 1949, the DOL has also mandated a minimum salary to qualify for the exemption. The current Federal minimum salary is $455 per week (the equivalent of $23,660 per year).

The Federal Court Ruling

The new rule would have raised the minimum salary to $913 per week (the equivalent of $47,476 per year). However, Judge Amos L. Mazzant of the United States District Court for the Eastern District of Texas has ruled, in response to a suit, that the new minimum salary test is unlawful, and has issued a nationwide injunction against the new rule. A copy of the opinion and order can be found at http://www.nylaborandemploymentlawreport.com/wp-content/uploads/sites/37/2016/11/Nevada-v.-USDOL-11_22_16.pdf. Judge Mazzant largely disregarded the fact that there has been a minimum salary component in effect for nearly 70 years, and found that Congress never intended to give the DOL the power to set a minimum salary (although he contradicted this very position in a footnote).

Effectively, this means the rule does not go into effect on December 1, 2016. Presumably, the DOL will appeal this decision to the 5th Circuit Court of Appeals and probably will seek a stay of the District Court's injunction (in other words, to reinstate the rule). Of course, all of this is complicated by the election results. In less than two months, under a new administration in Washington, the DOL could choose to drop any appeals and allow the rule to die. We’ll have to wait and see how that plays out.

New York State Goes Its Own Way

However, this decision does not affect the laws in individual states. In New York State, for example, the minimum salary for the executive and administrative exemptions has been $675. (For some reason, the professional exemption is not addressed and remains at the Federal minimum of $455.) But this, too, may change. The State has proposed increasing the minimum salaries as soon as December 31, 2016. In keeping with its recent move to apply different minimum wages in different areas of the State, the proposal calls for different minimum salaries for the executive and administrative exemptions. The areas and timelines are as follows:

Employers Outside of New York City, Nassau, Suffolk, and Westchester Counties

Employers in New York City

“LARGE” EMPLOYERS (11 OR MORE EMPLOYEES)

 “SMALL” EMPLOYERS (10 OR FEWER EMPLOYEES)

Employers in Nassau, Suffolk, and Westchester Counties

The public comment period on this proposed rule will close shortly, and it is expected that the rule will go into effect. We’ll keep you posted.

If you have any questions about wage and hour issues or any other issues in employment law please contact: Thomas B. Wassel at (516) 357-3868 or twassel@cullenanddykman.com; James G. Ryan at (516) 357-3750 or jryan@cullenanddykman.com; Cynthia Augello at (516) 357-3753; Richard Coppola at (212) 510-2250 or rcoppola@cullenanddykman.com; or Gary Fishberg at (516) 377-3703 or gfishberg@cullenanddykman.com