Two lawsuits filed to stop DOL's new white collar regulations

On May 17, 2016, the U.S. Department of Labor (“DOL”) announced details of a final rule under the Fair Labor Standards Act (FLSA).  The final rule establishes new salary thresholds for traditionally exempt white collar employees. The changes are currently scheduled to become effective December 1, 2016.

On September 20, 2016, 21 states (acting either through the state’s attorney general or the state’s governor), filed suit against the DOL in Federal District Court for the Eastern District of Texas. The State of Iowa, acting through Governor Terry Branstad is one of the named plaintiffs. The states’ litigation seeks injunctive and declaratory relief in an effort to stop the new rule from being enforced. Among other allegations, the lawsuit states that the DOL enacted the new rule in violation of states’ rights, exceeded its statutory authority in enacting the rule, and violated the Federal Administrative Procedures Act with its indexing provision.

Also on September 20, 2016, a coalition of more than 50 business groups, including the U.S. Chamber of Commerce, the National Association of Manufacturers, and the National Federation of Independent Business, filed a separate lawsuit in the same court also challenging the DOL’s final rule on the white collar exemption.  The suit charges that the rule sets an excessively high salary threshold for determining who qualifies as executive, administrative and professional employees, and departs from the intent established by Congress in the FLSA and administered by DOL for over 75 years. The suit also argues that the provision to automatically update the salary threshold every three years without rule-making or public comment is not authorized by the FLSA.

The new DOL White Collar Exemptions rule has four major points:

• In order to classify employees as exempt from FLSA overtime, employers will be required to pay executive, administrative, and professional employees $913 per week which would be $47,476 annually (the current minimum salary is $455/week which is $23,660 annually). 
• The new salary minimum for the special class of “highly compensated employees” would be $134,004 annually, up from the current level of $100,000/year.
• Employers may take credit toward salary for certain bonus payments: non-discretionary bonuses, incentive pay and commissions, if paid at least quarterly, may account for up to 10% of the minimum salary. 
• Automatic, indexed adjustments to the salary thresholds would be made every three years beginning on January 1, 2020.

The new rule would not change the duties employees must perform in order to be considered exempt.

With less than 70 days before the final rule is to take effect, employers should not assume that courts will delay the December 1 effective date.  And our experience at Dickinson is that many employers, in considering how to structure compensation in light of the announced changes, have discovered that they are not fully in compliance with the current White Collar exemption duties tests. The clock continues to move forward:  It is not too late to review current compliance with requirements and consider how to respond to the changes.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

- Mike Staebell