Last month, a U.S. District Judge suspended the December 1 implementation date of changes to overtime rules in the Fair Labor Standards Act. While many businesses may be breathing a sigh of relief because they were in danger of non-compliance, the judge’s order may be merely a temporary reprieve.
What led to this ruling? Texas U.S. District Judge Amos Mazzant wrote that “due to the approaching effective date of the Final Rule, the Court’s ability to render a meaningful decision…is in jeopardy." The changes to the revised overtime provisions of the FLSA would have extended overtime pay eligibility to more than 4 million additional U.S. workers. But those changes had been challenged by more than 50 business groups, including the U.S. Chamber of Commerce. And in September, Attorneys General from 21 states – including Indiana – filed a joint lawsuit against the DOL, challenging the constitutionality of the rule. Arguments against the rule included claims it would force many businesses to significantly increase their employment costs, disrupt state budgeting processes, and deplete state financial resources.
In citing the looming implementation deadline, Judge Mazzant acknowledged the pressure of the ticking clock. Despite a longer than normal lead time between the issuance of the Final Rule and its original implementation date, many business owners remain unprepared. For now, however, Judge Mazzant notes that his "preliminary injunction preserves the status quo while the Court determines the [Department of Labor’s] authority to make the Final Rule as well as the Final Rule’s validity."
What’s next? Congress may choose to move forward with a Congressional Review Act disapproving the rule, or the Trump Administration may also act on the rule once in office.
In the meantime, in preparing for the new overtime provisions, many employers found they had a large number of their employee positions misclassified, as they could not pass the "job duties test" regardless of their salary. So, regardless of the status of the rule changes, this is a good time for employers to remember that the DOL considers every employee non-exempt; and it is the employer’s responsibility to prove whether individual positions can be legitimately classified as exempt. This is done via several exemption tests that apply to executive, administrative, learned professional, creative professional, outside sales, computer-related occupations, and highly compensated employees.
The most challenging exemption test to prove is the administrative exemption. This exemption is for employees whose primary duty is performing office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers. All job duty test criteria must be met for this exemption which, typically, is used for key individual contributors. These criteria include the exercise of discretion and independent judgment with respect to matters of significance, regularly and consistently applied, with little time devoted to activities not directly and closely related to exempt work. The "exercise of discretion and independent judgment" entails comparing and evaluating possible causes of action, and then making a decision after considering them. "Matters of significance" refers to the level of importance and or consequence of the work. An employee who might meet this exemption typically formulates, interprets, or implements management policies and practices; can deviate from established policies and procedures without prior approval; carries out major assignments in the operations of the business; and can commit the employer in matters that have significant financial impact to the business.
If you found your company had previously used the administrative exemption for a position but you now realize the position cannot pass the job duties test regardless of the salary level, you might find it prudent to move forward with the changes as originally ruled. Additionally, if there are other employment practices you found in working through the proposed overtime rule that need changed to be in compliance, don’t delay your implementation of those needed changes.
What’s more, some employment law experts recommend that employers make sure all employees who would have become eligible for overtime under the new rules begin tracking their time. Why? Because there is a chance the new overtime provisions ultimately will be upheld – and that the implementation date could be reset to December 1 after all. Stay tuned to see what happens next!
Cassandra Faurote is President of Total Reward Solutions, a compensation consulting firm.