US DOL EAP Exemption Injunction - Practical Considerations

As an employer, you have by now heard that a Federal Court in Texas has prevented certain overtime rules from taking effect. In short, the federal judge issued an injunction preventing the U.S. Department of Labor from implementing regulations which increased the minimum EAP exemption salary level to $913.00 per week. This regulation was expected to go into effect on December 1, 2016, but will no longer do so pending the outcome of this litigation. Employers should note, however, that this does not finally determine the case. The injunction issued is a preliminary injunction, and therefore temporary. The injunction will only last until the termination of the case when a final order is issued, but it is a good indication of how the court will ultimately rule.

Specifically, the Court determined that the increased salary level was beyond the authority granted by congress to the DOL, and that the true test for whether the EAP exemption applies should be a test of duties, not income. This is consistent with several other federal decisions determining the status of an employee, but it discounts the fact that a salary requirement has been a part of the EAP exemption for nearly 80 years. The Court did not determine that the salary requirement was not a valid element of the EAP test, but they indicated they were uncomfortable with this being a more prominent factor determining whether the EAP exemption applies.

Although this is interesting in an academic sense, you need practical guidance on how this immediately effects your business.

[if !supportLists]1.) [endif]Although the final decision is likely to be consistent with the injunction, and a summary judgement motion is already being considered, there is no guarantee the law will be permanently prevented from taking effect. In the unlikely event that the Court changes course, you should be ready to quickly implement the regulations if you choose not to implement them pending the court’s final determination.

[if !supportLists]2.) [endif]It is likely safe for employers to hold back on implementing compliance with the regulations raising the EAP exemption threshold. However, there are countervailing considerations. If you are an employer who has already announced income or position changes to take management outside of the threshold, you are under no obligation to continue with those changes, so far as you follow your state income notification laws.

[if !supportLists]3.) [endif]If you have already announced or implemented plans to comply with the new wage requirements, before you change course, be advised that this type of disruption is the type that often causes employees to attempt to organize. If you are a union free school or charter school, you may safely consider that NYSUT and/or UFT have already contacted at least one of your employees, and they may have distributed cards to your employees with this event in mind. If you are concerned about unionization or other labor relations issues, you may have other options, such as offsetting the cost of this increase in reimbursement by a slowing or forgoing of future planned increases, or by only partially walking back the increase. If the change had the effect of making previously exempt employees non-exempt, several law firms have suggested you may want to consult with those employees as to their preference before changing their status back to exempt. However, there is a risk involved in implementing this plan. If the duties are truly non EAP, the employee cannot consent to unpaid overtime or other wage and hour law benefits. You must ensure that your employee is engaging in EAP activities before implementing this plan.

The next question is what the long-term stability of this area of law has in store. It will be difficult for the Federal appellate courts to affirm the Texas court’s decision considering the current make-up of the Supreme Court. The argument that the Texas court has, in effect, made, is that although congress delegated the authority to use income as a factor in determining the application of the EAP exemption, they do not think that congress would approve of the use of that authority. However, the Supreme Court, in its current membership, may overturn the Texas Court’s determination, and it may hold that congressional disapproval of the manner in which the DOL has used its grant of authority must be remedied by congressional action, not a judicial decision. If the current lame duck president’s nomination for Supreme Court does take the bench after the senate goes into recess, the decision stands an increased chance of being overturned. If the president elect has the opportunity to fill that vacancy instead, then the Texas Court’s decision stands its best chance of being upheld, but it will still require the support of at least one traditionally liberal judge to be affirmed.

More practically speaking, the likelihood is that the president elect’s administration will not pursue an appeal, and the Texas judge will have the final say in the matter. If that is the case, this would not prevent collateral challenges to the decision, and it would benefit employers if the president elect’s DOL changed the applicable regulations to reflect the court’s decision so as to create a more stable business environment. This should also serve as an opportunity for your business to review its compliance with New York’s changing wage and hour law, a discussion of which may be found here.

Specifically, for NYC employers of eleven or more employees, the state thershold outpaces the federal threshold on December 31, 2017. For small NYC employers, the state threshold outpaces the federal threshold on December 31, 2018. For Nassau, Suffolk and Westchester employees, the state threshold outpaces the federal exemption on December 31, 2019. For the remainder of New York State employers, the state threshold outpaces the federal threshold on December 31, 2020. This is a timeline you should consider when devising a plan to avoid labor relations issues as a result of the federal injunction and any announcements you may have made to your employees already regarding changes in pay or status.

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