In the latest move in the proverbial tug of war over possible changes to the overtime laws, the Department of Labor (“DOL”) announced a potential new rule on March 8 that would increase the salary required for the so-called “white collar exemptions” under the Fair Labor Standards Act from $23,660 to $35,308, with automatic cost of living adjustments thereafter. In other words, in order for a white-collar employee to be exempt from minimum wage and overtime requirements, he or she will not only have to perform duties which meet one of the applicable duties tests for exemption, but will also have to be paid a minimum salary more than 50% higher than under the old rule. The proposed rule, if adopted, will not take effect until January of 2020. No changes to the “duties” test requirements are part of the proposed rule.
Where We Were Two Years Ago
Many of you may recall that the DOL previously announced a rule that would have doubled the minimum salary necessary for exempt status under the white-collar exemptions from $23,660 to $47,476, to take effect in December of 2016. In a lawsuit filed by the attorneys general of several states, a federal judge in the Eastern District of Texas, however, issued a nationwide injunction against that rule and subsequently entered a final judgment, effectively killing it. The Texas court held the DOL exceeded its authority in attempting to promulgate the new rule. In essence, the court reasoned that such a significant increase in the salary requirement for exempt status would effectively supplant an analysis of the job duties required for the exemptions. The court explained that because Congress expressed a clear intent in the federal overtime laws to exempt certain categories of jobs from overtime requirements based on the jobs’ primary duties, such a drastic and broad increase in the salary requirement would effectively, and impermissibly, override congressional intent.
It is unclear whether a similar challenge will be mounted against the newly proposed DOL rule and, if it is, how a court will rule. Although the new proposed minimum salary is far less than the one proposed in 2016, the logic the Texas court employed to strike it down seems no less applicable. It is also possible that Congress will intervene. Regardless, the proposed rule is subject to a notice period of 60 days, during which time employers and others may submit comments before any final rule is announced.
Is the Increase in Minimum Salary a Good Idea?
It is debatable whether the DOL’s proposed rule is a good idea. On one side, an argument can be made that a salary of $23,360 is well below the poverty line and should be raised so employees, who often work far in excess of 40 hours per week without overtime, can make a “livable wage.” On the other side, such an increase, like the increases in minimum wages we are seeing across the country, artificially increases the cost of labor rather than leaving the determination of that cost to market forces. As any economist will tell you, artificially increasing the cost of labor will have a tendency to reduce the demand. Employers could reduce their workforces, increase the workloads of their exempt staff, or be able to demand stronger educational and/or experience backgrounds for employees in exempt positions, leaving less qualified candidates in the dust. Also, an increase in the cost of labor will likely increase the prices of the goods or services employers charge their customers, leading to decreased demand at the consumer level and, in turn, potential employee layoffs. If history has taught us anything, it’s that employers and their customers will likely make changes in response to the increased costs imposed by such a rule change, and those changes could cut against the very reason the rule was put into effect: i.e. protection of employees.