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DOL Final Rule on Exempt Status Invalidated

On August 31, 2017, the U.S. District Court for the Eastern District of Texas issued an Order invalidating the Final Rule of the Department of Labor (DOL) finding that it exceeded the DOL’s authority by failing to implement Congress’s intent under the Fair Labor Standards Act (FLSA).

The Court reasoned that Congress intended the various FLSA exemptions to be based on duties, not salary level. Thus, the DOL’s rule, which relied solely on salary level, was an action beyond its power by failing to give effect to the intent of Congress. It noted, for example, that employees who earn less than $913 per week, or $47,474 annually, but perform duties that are in a bona fide executive, administrative or professional capacity, are excluded as nonexempt based solely on salary level, not duties. In short, the DOL Final Rule made an employee’s duties and functions irrelevant, which the Court ruled was unlawful.

There are some implications for employers from this ruling. Because the DOL has previously indicated that it does not intend to defend the higher minimum salary rule in its current form, it probably means it will not appeal this decision. Consequently, it is more likely that the DOL will develop a new minimum salary level for these exemptions. For now and the immediate future, the original regulation containing the $455 per week minimum salary level will remain the law. Employers who made no salary changes and adopted a “wait and see” approach may maintain the status quo. Those who raised employee salaries to comply with the anticipated increased levels may decide to maintain those raises or return to lower wages rates, especially if budget or other legitimate business reasons justify doing it. There would be, of course, an obvious adverse impact on employee morale in reducing wages, which should be considered carefully before taking such action.

Finally, it is important to remember that this decision reinforces the importance of focusing on employee duties that must satisfy the requirements of executive, administrative, or professional work to qualify for an exemption. Employers should continue to ensure that the work actually performed by exempt employees is properly and validly classified under at least one of the FLSA’s recognized exemptions. 

Tags: Labor
  • Partner

    Phil is a partner and former co-chair of the Labor and Employment Department. He represents employers in defending against employment-related claims in both federal and state courts. He represents clients involving covenants not ...

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