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E.D.Tex.: Texas Court Strikes Down DOL Overtime Rule
Texas v. United States Department of Labor
Last week, in a long-awaited decision, the U.S. District Court for the Eastern District of Texas struck down the 2024 Rule issued by the U.S. Department of Labor (DOL), which aimed to increase the salary threshold for the executive, administrative, and professional (EAP) exemptions under the Fair Labor Standards Act (FLSA). The rule which would have provided overtime for approximately 4,000,000 workers who do not currently receive it.
The case continued a back and forth in which Democrat administrations have sought to expand workers’ rights by increasing the salary thresholds required to maintain overtime exemptions, and Republican appointed judges have invalidated the rules, stripping workers of enhanced rights provided by DOL promulgated regulations.
Background of the Case
The FLSA mandates that most employees must receive at least the federal minimum wage and overtime pay for hours worked beyond 40 in a workweek. However, certain employees are exempt from these requirements, particularly those classified under the EAP exemptions. Historically, the DOL has set a minimum salary level to qualify for these exemptions.
In April 2024, the DOL announced the 2024 Rule, which significantly raised the minimum salary threshold for EAP employees—from $684 to $844 per week starting July 1, 2024, and further to $1,128 per week by January 1, 2025. Additionally, the rule included an automatic indexing mechanism for future salary increases based on contemporary earnings data every three years.
The Legal Challenge
Texas, along with a coalition of business organizations, argued that the DOL overstepped its statutory authority by effectively prioritizing salary over the actual duties performed by employees. They contended that the changes would displace the duties-based test required by the FLSA and improperly classify millions of employees as nonexempt from overtime pay, despite no changes to their job responsibilities.
The court’s analysis began with the text of the FLSA, which does not explicitly specify a minimum salary for the EAP exemption. The DOL has historically exercised its authority to define and delimit this exemption, but the court emphasized that such authority has limits—primarily that the focus should remain on the duties performed by employees rather than solely their salary.
The Court’s Ruling
Judge Sean D. Jordan ruled in favor of Texas and the business organizations, stating that the DOL’s 2024 Rule was an unlawful exercise of agency power. The court held that the rule’s changes effectively eliminated the consideration of job duties in favor of a predominately salary-based exemption test, contravening the FLSA’s intent.
The ruling detailed that the DOL’s increase in salary thresholds and the implementation of automatic indexing would improperly classify millions of employees as nonexempt, thereby violating the fundamental purpose of the EAP exemption, which is to protect workers who perform executive, administrative, or professional duties.
Implications of the Decision
This ruling has far-reaching implications for employers and employees alike. By vacating the 2024 Rule, the court has reinstated the previous salary thresholds and reaffirmed the importance of the duties test in determining exemption status.
This order effectively reverts the minimum weekly salary requirement back to the 2019 number, $684 per week (except in jurisdictions, such as California and New York, which have higher minimum requirements under state law). In the months leading up to the July 1 increase, many employers reclassified workers as nonexempt. In theory, employees who were converted to nonexempt due to the July 1 increase may now be reclassified to exempt, if desired.
It is anticipated that the DOL will appeal this decision to the Fifth Circuit. However, any appeal most certainly will not be resolved by the Jan. 1 effective date of the next planned increase, and the new administration may ultimately abandon the appeal at a later date if it is still pending. The 2019 rule, which is now once again in effect, was issued under the previous Trump administration.
Key takeaways at this time are:
- The minimum salary for exempt status under federal law is once again $684 per week, with limited exceptions.
- Employees who earned between $684 and $844 per week and were reclassified as nonexempt as a result may be reclassified as exempt, provided they continue to meet one of the applicable job duties tests.
- The anticipated increase to $1,128 per week on Jan. 1, 2025, will not occur.
- Any future revisions to the minimum salary will not face an uphill battle, ostensibly freezing wages for millions of Americans paid relatively moderate salaries.
Click Texas v. United States Department of Labor to read the entire decision.
Fifth Circuit Strikes Down DOL’s Tip Credit Regulation
Restaurant Law Center v. Department of Labor
Due to its conservative bent, the Fifth Circuit has long been a hotbed of litigation challenging regulations of all sorts, typically in cases brought by business groups. In a recent decision, the then-current Department of Labor (DOL) regulation setting limits on when a business can take advantage of the FLSA’s tip credit rules and pay less than the regular minimum wage was struck down, potentially opening the floodgates for restaurants and bars to pay sub-minimum wages to a much greater extent than previously, at least in certain parts of the country where the regulation had arguably displaced case law allowing restaurants free reign as long as a portion of employees’ work constituted “tipped” duties. Taking up the regulation, the Fifth Circuit vacated the regulation, voiding the provision nationwide.
Background
The Fair Labor Standards Act (FLSA) permits tipped employees to receive $2.13 per hour in a direct wage, so long as the combination of their direct wage and tips equals at least the $7.25 hourly minimum wage.
Consistent with relatively longstanding agency authority (save for the Trump DOL), in 2021, the DOL issued a final rule that codified earlier DOL guidance, often referred to as the “80/20” or “20%” rule. That rule, codified DOL agency position that first appeared in the DOL’s field handbook in 1988, and placed limits on the amount of time an employee could spend on non tip-producing work each week, to the extent the employer wished to take advantage of the tip credit and pay such a worker less than the regular minimum wage. Specifically, the regulation limited such non-tipped work to 20% of the employee’s hours in a given workweek, if an employer wished to take the tip credit.
The final rule distinguished between tip-producing work, such as waiting tables and bartending, and work that directly supports tip-producing work, such as setting and bussing tables. The final rule challenged also imposed a new “30-minute” restriction. Under the 30 minute rule, employers could not pay the tipped minimum wage for work exceeding 30 continuous minutes during a shift that a tipped employee may spend performing tasks that are “directly supporting” tipped work.
The Decision
In a decision directly contrary to that from at least 2 sister circuit courts that preceded the current rule, the Fifth Circuit held the 2021 tip rule is contrary to law and arbitrary and capricious because it draws an impermissible, arbitrary line between tip-producing and tip-supporting work, and conflicts with the statutory scheme that Congress established under the FLSA. Thus, the Fifth Circuit struck down and vacated the rule.
Where Does That Leave Us
The appellate court’s decision vacating the 2021 tip rule is a win for restaurant and hospitality industry employers who would prefer to pay sub-minimum wages for as many hours as they can, relying largely on the generosity of their patrons to ensure that their employees make a fair wage. It is unclear whether the DOL will seek en banc review before the full Fifth Circuit or petition the Supreme Court for review, given both Court’s currently overtly business and anti-regulatory bent.
In the meantime, the vacation of the 80/20/30 rule means that the rules in place prior will govern. However, because the case law differs in different places across the country, with some courts like the 8th and 11th Circuits signaling approval of the preceding 80/20 rule, it appears that the law might differ depending on where a business operates in the country. Moreover, the Fifth Circuit indicated that the “dual jobs” regulation notwithstanding its opinion. Thus, there is a likelihood that what was previously characterized as an 80/20 issue will morph to dual jobs litigation, where employees will contend that they are performing duties so untethered from their principal duties as servers that they are actually performing 2 distinct jobs (and the employer violated the law by taking the tip credit relative to the non-tipped job).
This sets up yet another election issue as well. While both Trump and Harris have signaled that they might be open to a change of tax law to cease taxing tips, the prior Trump DOL supported regulations which allowed restaurant/bar/club employers to pay significantly lower direct wages for many more hours of “non-tipped” work, whereas the regulation struck down was a product of the Biden/Harris DOL. Thus, it’s likely the Trump DOL would again fight to roll-back tipped employees’ rights, where as a Harris DOL would seek to protect workers and move towards new regulation similar to that which was struck down, but which might pass muster in the courts in the years ahead.
In the meantime, many states’ wage and hour laws will continue to provide more protections for tipped employees than the current federal laws.
If you believe that your employer is not paying you in compliance with applicable federal and state laws, contact Andrew Frisch for a free consultation today.
Click Restaurant Law Center v. Department of Labor to read the entire decision.
DOL Issues Final Rule Raising Salary Threshold for Exempt “White Collar” Employees
After a lengthy comment period, the U.S. Department of Labor (DOL) issued its final rule on April 23, 2024, and raised the salary threshold for “white collar” employees to be exempt from federal overtime requirements under the Fair Labor Standards Act (FLSA). The new rule significantly increases the minimum salary requirement for executive, professional, and administrative employees, effective July 1, 2024. In other words, once the new rule goes into effect, an employer will have to pay such employees a significantly higher minimum weekly salary in order to legally classify them as exempt from overtime under the FLSA.
Currently, to be exempt from federal overtime requirements under the FLSA, a white-collar worker must receive a guaranteed base salary of at least $684 per week ($35,568 per year), in addition to satisfying the applicable “duties” test. The newly propagated rule increases this minimum salary threshold, initially to $844 per week ($43,888 per year) as of July 1, 2024, and then to $1,128 per week ($58,656 per year) as of January 1, 2025. Thereafter, the rule provides for an automatic update to the threshold every three years levered to statistical wage data.
The rule also raises the annualized salary threshold for white-collar workers to qualify under the “highly compensated employee” overtime exemption. As of July 1, 2024, this threshold would increase from $107,432 to $132,964, then on January 1, 2025, it would increase to $151,164, and thereafter the threshold would be updated every three years based on wage data.
The new rule does not modify the duties test for either the white-collar or highly compensated employee exemption, which also must be satisfied for an employee to properly be classified as exempt from federal overtime pay requirements. Likewise, the new rule does not impact employees subject to other overtime exemptions, for which the salary-basis test is not an element of the exemption (e.g. truck drivers or seasonal employees).
Click FINAL RULE to read the rule in its entirety. Click summary chart to see a chart of the applicable dates and thresholds.
11th Cir.: Nanny Who Worked Overnight Shifts Not Domestic Live-In Employee and Thus Overtime Eligible
In a reported decision issued on Wednesday, the 11th Circuit reversed the trial court seemingly applying clear law that a nanny who did not reside on her premises with the family whose children she took care of, and held that such an arrangement was not live-in domestic employment. As such, the court reversed the decision of the trial court, which had held that the nanny was exempt from the FLSA’s overtime provisions as a live-in domestic employee. In so doing, the court adopted much of the argument raised by the DOL in its amicus brief in the case. However, the 11th Circuit remanded for further findings regarding whether the parents of the nanny’s charges were here employer, finding that issues of fact precluded a finding on that issue.
Addressing the principal issue of whether the plaintiff was a “domestic” or not, the court found the issue to be clear-cut: “No doubt Blanco worked at the house and spent significant time there. But that alone does not mean she ‘resided’ there any more than firefighters who sleep in fire-station dormitories while on duty reside at a fire station,” the panel said.
The court further noted that the plaintiff’s job was “hardly a typical arrangement” of a live-in nanny.
The panel noted that while the plaintiff did sleep, at times, when she was on duty to take care of the children, the place she slept was not her own, as she shared the bed she slept in with other nannies, and the room in which she slept with 2 of the couple’s smallest children. Further, the court noted that if/when a child woke up in and/or cried in the middle of the night, she would “immediately respond”. Thus, “though Blanco may have slept sometimes while the children slept, her time was not hers,” the panel said.
The panel also noted as significant that the plaintiff lacked her own key to the house, adding that the mere fact that she had left personal belongings at the residence and some religious decorations, and occasionally had guests over didn’t make the house her own. Likewise, the court noted that the plaintiff maintained her own separate residence and paid rent to live in her aunt’s nearby apartment, where she typically returned at the end of her shifts, so that she could sleep in her own bed.
The court also rejected the defendant-parents’ argument that Blanco would be overtime-exempt under a 2013 U.S. Department of Labor rule that aimed at expanding FLSA protections. While the language of the preamble to the rule seemed to signal that five consecutive nights is the appropriate measuring stick to determine whether a nanny lived at someone’s residence, the court noted that such language was contained in the preamble to the rule and not the text of the actual rule’s text, and thus not a proper source of interpretive guidance.
The court also noted that the defendant-parents’ arguments regarding application of the rule/preamble ignored the context in which the five consecutive nights phrase is included, reasoning that such argument failed to consider the plaintiff’s four off-duty days that preceded the five days on-duty.
As such, the court concluded that the plaintiff was not an exempt domestic service employee as a matter of law. However, the court held that issues of fact regarding application of the “economic realities” test to plaintiff’s employment, required further findings by the trial court as to whether the defendant-parents were plaintiff’s employers under the FLSA.
Among the factual issues the court cited were the fact that: (1) one defendant testified she didn’t give any directions to the nannies on how to care for her children or control or supervise the plaintiff; (2) the defendants’ testimony that they didn’t know how much the nannies received in wages, as the mother testified that she paid about $2,400 per week to Amazing Gracie LLC, one of the two companies the parents used to hire the nannies that was managed by one of the nannies who worked for the family; and (3) the defendant-mother’s testimony that she didn’t know how plaintiff had started working for the family. In light of these factual issues, the court held that the defendants presented enough evidence to show that “they had minimal oversight over the nannies’ care for their children” and thus there remained a question of fact as to whether they were the plaintiff’s employer, upon application of the “economic realities” test.
Click Blanco v. Anand Samuel to read the entire opinion.
Click DOL Amicus to read the DOL’s amicus brief.
DOL Seeks to Raise Salary Threshold for White Collar Exemption to Overtime
On August 30, 2023, the U.S. Department of Labor (DOL) released a Notice of Proposed Rulemaking (NPRM) that would significantly raise the minimum weekly salary to qualify for one of the Fair Labor Standards Act’s (FLSA) three white-collar exemptions. If the changes go into effect, they would have a significant impact on how employers pay their employees and who is or is not entitled to overtime pay.
Specifically, the DOL proposes raising the weekly salary by over 50 percent from $684 per week to $1,059 per week (which is the equivalent to an annual salary of $55,068). The DOL also seeks to increase the annualized salary threshold for the exemption for “highly compensated employees” (HCE) from $107,432 per year to $143,988 per year. Finally, the DOL proposes automatically updating these earnings thresholds every three years.
The Proposed Rule
According to the DOL’s press release, the proposed rule seeks to accomplish four (4) primary goals:
- Restore and extend overtime protections to low-paid salaried workers. Many low-paid salaried employees work side-by-side with hourly employees, doing the same tasks and often working over 40 hours a week. Because of outdated and out-of-sync rules, however, the DOL believes these low-paid salaried workers are not getting paid time-and-one-half for hours worked over 40 in a week. The DOL’s proposed salary increase would help ensure that more of these low-paid salaried workers receive overtime protections traditionally provided by the DOL’s rules.
- Give valuable time back to workers who are not exempt under the executive, administrative or professional exempt classifications. By better identifying which employees are executive, administrative or professional employees who should be overtime exempt, the proposed rule will better ensure that those who are not exempt will gain more time with their families or receive additional compensation when working more than 40 hours a week.
- Prevent a future erosion of overtime protections and ensure greater predictability. The rule proposes automatically updating the salary threshold every three years to reflect current earnings data.
- Restore overtime protections for US territories. From 2004 until 2019, the DOL’s regulations ensured that for US territories where the federal minimum wage was applicable, so too was the overtime salary threshold. The DOL’s proposed rule would return to that practice and ensure that workers in the US territories subject to the federal minimum wage have the same overtime protections as other US workers.
The DOL further stated in the FAQs that “[a]utomatically updating the salary level and HCE total annual compensation requirement using the most recent data will ensure that these tests continue to accurately reflect current economic conditions.” The FAQs further noted that the proposed rule includes a provision that would allow “the Department to temporarily delay a scheduled automatic update where unforeseen economic or other conditions warrant.”
As with the most recent 2019 rule, which increased the salary and total annual compensation requirements for the EAP and HCE exemptions, the DOL has not proposed any changes to the duties tests, which outline the types of primary duties an employee must perform in order to be classified as exempt (in addition to receipt of a salary at or above the threshold).
Read more about the NPRM in the DOL’s official press release.
Supreme Court Confirms That a Day Rate is Not a Salary
Helix Energy Solutions Group Inc. v. Hewitt
In a widely anticipated opinion, on February 22, 2023, the Supreme Court of the United States ruled that an employee who was paid a daily rate more than $684 per day, who received a total of more than $200,000 per year, was not paid on a “salary basis” as required for application of the highly-compensated employee (HCE) exemption. As such, the court held that he was entitled to overtime pay under the Fair Labor Standards Act (FLSA) notwithstanding his high total annual earnings.
The ruling will have wide-ranging implications the oil and gas industry, the nursing field, and other industries which often rely on “day rate only” pay schemes and pay schemes which pay high hourly rates (but no overtime) to attract workers to remote locations, often on short notice.
Relevant Facts
The case concerned an employee who alleged he had been misclassified as exempt from the FLSA’s overtime provisions, and improperly denied overtime premium compensation. He worked twenty-eight day “hitches” on an offshore oil rig where he would work daily twelve-hour shifts, often seven days per week, totaling 84 hours a week. Throughout his employment, the plaintiff was on a daily-rate basis, without overtime compensation, earning between $963 and $1,341 per day, an amount that equated with more than $200,000 annually.
Helix had argued that the plaintiff fell under the DOL’s exemption for highly compensated employees found in 29 C.F.R. §541.601. At the time of the toolpusher’s employment, the highly compensated employee (HCE) exemption applied to employees whose primary duties included performing office or non-manual work; who customarily and regularly performed at least one duty of an exempt executive, administrative, or professional employee; and who were paid at least $455 per week on a “salary or fee basis”; and who earned at least $100,000 annually. (Currently, the threshold salary and total compensation amounts are $684 per week and $107,432 annually, respectively.)
Opinion of the Court
In its decision, the high court stated that the “critical question” in this case was whether the plaintiff was paid on a “salary basis” pursuant to 29 C.F.R. §541.602(a). That regulation states that an employee is paid on a “salary basis” when the “employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation.”
Helix had argued that in any week in which the employee performed any work, he was guaranteed to receive an amount above the $455 weekly threshold, such that his compensation met the requirements of the salary basis test.
The court rejected this argument, holding that §541.602(a) “applies solely to employees paid by the week (or longer)” and the test is “not met when an employer pays an employee by the day.” The court noted that a companion regulation, 29 C.F.R. §541.604(b), allows an employee’s earnings to be computed on an hourly, daily, or shift basis without violating the salary basis requirement, that regulation states that the arrangement must include a guarantee of at least the minimum weekly required amount paid on a salary basis and that there be a reasonable relationship between the guaranteed amount and the amount actually earned. However, the parties in this case agreed that the plaintiff’s compensation failed the reasonable relationship test, such that the sole issue was whether his admitted day rates qualified as a “salary basis” within the meaning of §541.602(a).
Writing for the court, Justice Elena Kagan stated that “[i]n demanding that an employee receive a fixed amount for a week no matter how many days he has worked, §602(a) embodies the standard meaning of the word ‘salary’” which generally refers to a “steady and predictable stream of pay.” Justice Kagan stated that even a “high-earning employee” who is compensated on a “daily rate—so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on” is “not paid on a salary basis, and thus entitled to overtime pay.”
Key Takeaway
The court’s decision will likely have wide-ranging impact. Employers have long-argued that the FLSA was not intended to protect highly-compensated employees, notwithstanding the unambiguous language of the statute itself and the DOL’s regulations. The majority squarely rejected this reasoning, adopting a typically conservative textualist approach and holding that the regulations mean precisely what they say and must be strictly construed to protect employees, both low-wage and higher-wage.
Click Helix Energy Solutions Group Inc. v. Hewitt to read the entire opinion of the court and the dissents.
Trump DOL Announces Proposed Rule for Tip Credit Provisions To Permit Restaurants to Indirectly Retain Portion of Employees’ Tips Under Certain Circumstances and Pay Reduced Minimum Wage for Virtually All Hours Worked
Although it has long been the law that the owners and managers of restaurants, bars and other businesses employing tipped employees may not keep or share in any portion of tipped employees tips, the Trump DOL has proposed new rules to change that under certain circumstances. Under the new rules, neither the owners or the management of restaurants may share in tips directly. However, if the rules go into effect, the owners of restaurants could share in the tips indirectly by diverting tips from the employees who earned them to employees who do not normally earn tips (i.e. back of house staff like cooks, dishwashers, etc.), as long as the tipped employees are paid a direct wage of at least the regular minimum wage in addition to tips.
The U.S. Department of Labor (DOL) announced a proposed rule for tip provisions of the Fair Labor Standards Act (FLSA) implementing provisions of the Consolidated Appropriations Act of 2018 (CAA).
In its Notice of Proposed Rulemaking, the DOL proposes to:
- Explicitly prohibit employers, managers, and supervisors from keeping tips received by employees;
- Remove regulatory language imposing restrictions on an employer’s use of tips when the employer does not take a tip credit. This would allow employers that do not take an FLSA tip credit to include a broader group of workers, such as cooks or dishwashers, in a mandatory tip pool.
- Incorporate in the regulations, as provided under the CAA, new civil money penalties, currently not to exceed $1,100, that may be imposed when employers unlawfully keep tips.
- Amend the regulations to reflect recent guidance explaining that an employer may take a tip credit for any amount of time that an employee in a tipped occupation performs related non-tipped duties contemporaneously with his or her tipped duties, or for a reasonable time immediately before or after performing the tipped duties.
- Withdraw the Department’s NPRM, published on December 5, 2017, that proposed changes to tip regulations as that NPRM was superseded by the CAA.
While an email from the DOL contends that “[t]he proposal would also codify existing Wage and Hour Division (WHD) guidance into a rule.” In fact, it would change long-standing WHD guidance to legalize certain practices currently deemed wage theft by the DOL.
New Rule Would Allow Restaurants to Require Tipped Employees to Subsidize Pay of Non-Tipped Employees
The CAA prohibits employers from keeping employees’ tips. DOL’s proposed rule would allow employers who do not take a tip credit (i.e. those who pay tipped employees direct wages at least equal to the regular minimum wage) to establish a tip pool to be shared between workers who receive tips and are paid the full minimum wage and employees that do not traditionally receive tips, such as dishwashers and cooks.
The proposed rule would not impact regulations providing that employers who take a tip credit may only have a tip pool among traditionally tipped employees. An employer may take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (currently $2.13 per hour) and the federal minimum wage. Establishments utilizing a tip credit may only have a tip pool among traditionally tipped employees.
New Rule Would Allow Restaurants to Pay Reduced Minimum Wage More Hours Performing Non-Tipped Duties Where Employees Are Unable to Earn Tips
Additionally, the proposed rule reflects the Department’s guidance that an employer may take a tip credit for any amount of time an employee in a tipped occupation performs related non-tipped duties with tipped duties. For the employer to use the tip credit, the employee must perform non-tipped duties contemporaneous with, or within a reasonable time immediately before or after, performing the tipped duties. The proposed regulation also addresses which non-tipped duties are related to a tip-producing occupation.
If adopted, this rule would do away with longstanding guidance from the DOL which requires employers to pay the regular minimum wage for hours of work spent performing non-tipped duties, to the extent such duties comprise more than 20% of an employee’s time worked during a workweek.
Proposed Rule Will Be Available for Review and Public Comment
After publication this NPRM will be available for review and public comment for 60 days. The Department encourages interested parties to submit comments on the proposed rule. The NPRM, along with the procedures for submitting comments, can be found at the WHD’s Notice of Proposed Rulemaking (NPRM) website.
The proposed rules along with the recent selection of a notorious anti-worker/pro-business advocate Eugene Scalia to Secretary of Labor signal that the Trump administration’s effort to erode workers’ rights is likely to continue if not accelerate for the remainder of his presidency.
DOL Publishes Final Rule Increasing Salary Thresholds for White Collar Exemptions
Following a court decision which struck down the prior regulations promulgated by the Obama administration, which would have rendered for more employees overtime eligible, the Trump has now increased the salary threshold for white collar exemption. This marks the first increase since 2004.
In addition to limiting the number of workers who will now receive overtime (versus the more expansive Obama-era rule), the current DOL rejected a provision automatically increasing the salary threshold over time, to ensure that another 15-20 years does not pass before the thresholds are re-examined and increased again.
The updated and revised the regulations issued under the Fair Labor Standards Act (FLSA) to allow 1.3 million workers to become newly entitled to overtime by updating the earnings thresholds necessary to exempt executive, administrative or professional employees from the FLSA’s minimum wage and overtime pay requirements.
The DOL has updated both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees” or HCEs to reflect growth in wages and salaries. The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004.
Key Provisions of the Final Rule
The final rule updates the salary and compensation levels needed for workers to be exempt in the final rule:
raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
raising the total annual compensation level for “highly compensated employees (HCEs)” from the currently-enforced level of $100,000 to $107,432 per year;
allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
revising the special salary levels for workers in U.S. territories and in the motion picture industry.
Standard Salary Level
The DOL set the standard salary level at $684 per week ($35,568 for a full-year worker).
HCE Total Annual Compensation Requirement
In addition, the DOL set the total annual compensation requirement for HCEs at $107,432 per year. This compensation level equals the earnings of the 80th percentile of full-time salaried workers nationally. To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of nondiscretionary bonuses and incentive payments).
Special Salary Levels for Employees in U.S. Territories and Special Base Rate for the Motion Picture Producing Industry
The DOL is maintaining a special salary level of $380 per week for American Samoa. Additionally, the Department is setting a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.
The DOL also is maintaining a special “base rate” threshold for employees in the motion picture producing industry. Consistent with prior rulemakings, the Department is increasing the required base rate proportionally to the increase in the standard salary level test, resulting in a new base rate of $1,043 per week (or a proportionate amount based on the number of days worked).
Treatment of Nondiscretionary Bonuses and Incentive Payments
The DOL’s new rule also permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.
If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the Department permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.
When Will the Current Thresholds Be Updated?
Although initially proposed, the Trump DOL inexplicably rejected a provision of the rule, overwhelmingly supported by workers and workers advocates which would have automatically raised the thresholds over time without the necessity of further rulemaking. As a result it is possible if not likely that there will be no further increase to the current thresholds for another 15 years if not more. In its final rule the DOL reaffirms its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking, but given the anti-worker sentiment of the current DOL, including the recent confirmation of a steadfast anti-worker advocate as the head of the DOL, this is most-likely best viewed as lip service.
The DOL’s final rule is available at Final Rule to Update the Regulations Defining and Delimiting the Exemptions for Executive, Administrative, and Professional Employees.
Budget Bill Limits Circumstances Under Which Employers Can Use Tip Pools; Clarifies Damages Due If Employers Improperly Retain Employees Tips
After contentious negotiations and threatened government shutdowns, on March 23, the President signed the 2018 Budget Bill into law. Of significance here, the bill resolved several longstanding regulatory issues.
The spending bill, includes an amendment to the Fair Labor Standards Act (FLSA), which now prohibits employers—including managers and supervisors—from participating in tip-pooling arrangements, even where the employer does not seek to take the so-called tip credit and pays the employees the regular minimum wage rather than the tip-credit minimum wage, sometimes referred to as the “server’s wage” in the restaurant industry. In other words, under the new law employers, managers and supervisors can never share in a tip pool and employees can never be required to pay any portion of their tips to employers, managers or supervisors.
The amendment also clarifies two (2) issues which have divided courts regarding the disgorgement of illegally retained tips. While many courts have long-held that an employer who illegally requires employees to share tip with non-tipped employees (managers, supervisors, back-of-house and/or kitchen staff, etc.) must return all such tips to the employees, not all courts uniformly held as such. The amendment clarifies that damages resulting from illegal tip pooling include a return of all tips to the employees. The amendment also clarifies that employees’ damages include liquidated damages on all damages, including the disgorged tips, an issue which had previously divided courts and for which the Department of Labor had not provided guidance previously.
In light of the fervent anti-employee stance that the Department of Labor has taken under the current administration, this certainly must be celebrated as a victory for workers. Indeed, the law replaces a proposed regulation which garnered much opposition for its pro-wage theft stance and which was recently discovered to have been pushed through the regulatory process based on intentionally incomplete information provided by Secretary of Labor.
Click amendment to the Fair Labor Standards Act to read the full text of the new law.
3d Cir.: Employer Must Pay for All Breaks Shorter Than 20 Minutes Notwithstanding “Flex Time” Policy
Secretary United States Department of Labor v. American Future Systems, Inc.
This case was before the Third Circuit on appeal by the employer. The district court granted the DOL’s motion for summary judgment, holding that the employer’s policy of excluding time for breaks less than 20 minutes long violated the FLSA. The Third Circuit agreed and affirmed, holding that the Fair Labor Standards Act requires employers to compensate employees for breaks of 20 minutes or less during which they are free of any work related duties.
The court summarized the relevant facts as follows:
American Future Systems, d/b/a Progressive Business Publications, publishes and distributes business publications and sells them through its sales representatives. Edward Satell is the President, CEO, and owner of the company. Sales representatives are paid an hourly wage and receive bonuses based on the number of sales per hour while they are logged onto the computer at their workstation. They also receive extra compensation if they maintain a certain sales-per-hour level over a given two-week period.
Progressive previously had a policy that gave employees two fifteen-minute paid breaks per day. In 2009, Progressive changed its policy by eliminating paid breaks but allowing employees to log off of their computers at any time. However, employees are only paid for time they are logged on. Progressive refers to this as “flexible time” or “flex time” and explains that it “arises out of an employer’s policy that maximizes its employees’ ability to take breaks from work at any time, for any reason, and for any duration.”
Furthermore, under this policy, every two weeks, sales representatives estimate the total number of hours that they expect to work during the upcoming two-week pay period. They are subject to discipline, including termination, for failing to work the number of hours they commit to. Progressive also sends representatives home for the day if their sales are not high enough and sets fixed work schedules or daily requirements for representatives when that is deemed necessary.
Apart from those requirements, representatives can decide when they will work between the hours of 8:30 AM and 5:00 PM from Monday to Friday, so long as they do not work more than forty hours each week. As noted above, during the work day, they can log off of their computers at any time, for any reason, and for any length of time and may leave the office when they are logged off. Employees choose their start and end time and can take as many breaks as they please. However, Progressive only pays sales representatives for time they are logged off of their computers if they are logged off for less than ninety seconds. This includes time they are logged off to use the bathroom or get coffee. The policy also applies to any break an employee may decide to take after a particularly difficult sales call to get ready for the next call. On average, representatives are each paid for just over five hours per day at the federal minimum wage of $7.25 per hour.
On appeal, the defendant-employer raised three arguments: (1) that time spent logged off under its flexible break policy categorically does not constitute work; (2) that the District Court erred in finding that WHD’s interpretive regulation on breaks less than twenty minutes long, 29 C.F.R § 785.18, is entitled to substantial deference; and (3) that the District Court erred in adopting the bright-line rule embodied in 29 C.F.R. § 785.18 rather than using a fact-specific analysis. The Third Circuit rejected each of these arguments.
The court rejected the defendant’s that their defendant’s “flex time” policy was not a break policy within the meaning of the FLSA, reasoning that labeling its policy as “flex time” was simply a means to attempt to illegally circumvent the requirements of the FLSA.
The court next held that the DOL’s break time regulation, codified in 29 C.F.R. § 785.18 is entitled to Skidmore deference, the highest level of deference given to an administrative regulation. The court reasoned that the regulation was due Skidmore deference because: (1) the former FLSA specifically empowered the DOL to promulgate such regulations; (2) the DOL’s interpretation of the break time regulations has been consistent throughout the various opinion letters the DOL has issued to address this issue; and (3) the DOL’s interpretation is reasonable given the language and purpose of the FLSA.
Having determined that the regulation is entitled to deference, the court held that the regulation must be read to create a bright line rule and concluded that it does. The court explained that “the restrictions endemic in the limited duration of twenty minutes or less illustrate the wisdom of concluding that the Secretary intended a bright line rule under the applicable regulations.” As such, the court affirmed the decision below and held that defendant’s break policy which excluded time for breaks less than 20 minutes long violated the FLSA.
Click Secretary United States Department of Labor v. American Future Systems, Inc. to read the entire Opinion of the Court.
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