Overtime Rule May Still Partially Apply

Court order may not pertain to highly compensated employee exemption

Allen Smith, J.D. By Allen Smith, J.D. January 18, 2017
Overtime Rule May Still Partially Apply

The Nov. 22, 2016, court order blocking implementation of the new federal overtime rule's higher salary level for the executive, administrative and professional (EAP) exemptions arguably does not apply to the rule's increased salary level for the highly compensated employee (HCE) exemption, some wage and hour attorneys say.

Rather than rely on the HCE exemption, for the time being a safer course for companies is to ensure that the employees' primary duties satisfy the tests for the EAP exemptions and to pay each exempt employee at the current rule's salary level at a minimum, said Brett Bartlett, an attorney with Seyfarth Shaw in Atlanta. Now that the court has blocked the overtime rule's increases in the minimum salary levels for the EAP exemptions, the old salary level of no less than $455 per week and $23,660 annually must be met for an employee to fit within one of the EAP exemptions.

Intentional Omission or Error?

The overtime rule raised the HCE exemption annual salary threshold from $100,000 to $134,004. Its weekly pay level remains, like the blocked minimum salary increase of the EAP exemptions, at a minimum of $455 per week.

While the preliminary injunction broadly said that it blocked the overtime rule, it also specifically enumerated the provisions of the overtime rule that it barred. It did not list the HCE exemption provision, Section 541.601 of the rule.

FLSA overtime rule resources
FLSA Overtime Rule Compliance

For more overtime compliance news, tips and tools, check out the SHRM resources provided below:

· FLSA Overtime Rule Resources Guide
· Overtime Rule Blocked: Now What?
· Compliance Checklist · Infographic

"By omitting Section 541.601 from that list of enjoined sections, the court's order arguably may not apply to it," noted Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C. "This may be a dispute best left to the court to clarify."

For now, Robinson said the most sensible course for employers is to consider the overtime rule's HCE minimum salary level preliminarily barred, just like the salary amount for EAP exemptions. It would be inconsistent for the court to block the salary level increase for EAP exemptions but not the HCE exemption, he explained.

However, Brett Coburn, an attorney with Alston & Bird in Atlanta, disagreed, saying, "The HCE exemption was not preliminarily enjoined." Because the list of barred provisions of the overtime rule excluded Section 541.601, that is an indication that the omission was intentional, according to Coburn.

But Robinson said the omission arguably was a "scrivener's error."

Steven Suflas, an attorney with Ballard Spahr in Denver, saw both sides of the argument. He noted that the complaint filed in the 21 states' lawsuit challenging the overtime rule specifically referenced the HCE exemption, reciting the effects of the new overtime rule on the HCE regulation. The U.S. Chamber of Commerce's lawsuit also mentioned the HCE exemption. (The states' and Chamber's lawsuits have been consolidated.)

Yet the Nov. 22 decision did not mention the HCE exemption. "An argument can be made that the HCE exemption remains outside the scope of the court's injunction so the new rule remains partially in effect," he said.

On the other hand, Section 541.601(c) states that "a high level of compensation is a strong indicator" of exempt status—a rationale the district court rejected as contrary to the Fair Labor Standards Act, Suflas noted. "I expect that the 5th [U.S.] Circuit Court of Appeals will rule on this issue promptly and hopefully give the employer community some predictability in grappling with these issues," he said.

However, none of the parties to the lawsuit has filed a motion seeking clarification as to whether the omission of a reference to the HCE exemption was a scrivener's error or was intentional, "so we still are in a state of confusion with respect to the status of the total annual compensation requirement" for the HCE exemption, said Steven Pockrass, an attorney with Ogletree Deakins in Indianapolis.

Carol Barnett, an attorney with Polsinelli in St. Joseph, Mo., said that a footnote in the district court's order may provide an answer to whether it blocked the increase in the minimum annual salary level for the HCE exemption. "Because the court explicitly said that it was 'not making a general statement on the lawfulness of the salary-level test' in footnote two, arguably—right at this moment, anyway—the increase from $100,000 to $134,004 for HCE employees is not something the court struck down."

That may be irrelevant, though, she added, since President-elect Donald Trump might issue an order rescinding the authority granted by President Barack Obama to the Department of Labor to create the overtime rule.

Exemption as Defense

Moreover, employers rarely use the HCE exemption, Bartlett said.

While he expects plaintiffs' attorneys will "exploit" the wording of the order, Bartlett said few businesses utilize the exemption as the basis for classifying employees as not eligible for overtime.

Most exempt employees instead fit under the EAP exemptions.

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

But lawyers sometimes rely on the HCE exemption as a legal defense to challenges of exempt status for highly compensated workers. If a business argues that someone is exempt because he or she makes more than $100,000, a plaintiff's attorney might point to the language from the Nov. 22 order to assert that an HCE exemption does not apply because the exemption's minimum annual salary level now is $134,004, Bartlett explained.

He added that some states, including California and New York, do not permit the use of the HCE exemption.

That said, "Employers who rely on the HCE exemption with respect to employees whose annual compensation is between $100,000 and $134,004 should continue to monitor the status of the overtime regulation litigation," Pockrass noted.

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