Pennsylvania Repeals Rule Increasing Exempt Salary Threshold

As a result of a compromise reached during recent budget negotiations, Pennsylvania repealed an administrative rule that would have substantially increased the salary threshold needed to qualify as an exempt executive, administrative and professional (EAP) employee under the Pennsylvania Minimum Wage Act (PMWA). Notably, the compromise did not just eliminate the increase to the salary threshold—it repealed the entire regulatory framework for defining the EAP exemptions under the PMWA.

Background

In October 2020, the Pennsylvania Department of Labor and Industry (DLI) published its final rule to substantially increase the salary threshold for qualifying as an exempt EAP employee under the PMWA to:

• $684 per week ($35,568 annually) effective Oct. 3, 2020.
• $780 per week ($40,560 annually) effective Oct. 3, 2021.
• $875 per week ($45,500 annually) effective Oct. 3, 2022.
  

Effective Oct. 3, 2023 (and each third year thereafter), the salary threshold would reset automatically to the 10th percentile of Pennsylvania workers who work in exempt EAP classifications.

Republicans in the General Assembly opposed the increase to the salary threshold, but Gov. Tom Wolf vetoed their resolution disapproving the final rule on May 29, 2020, and the first increase (which aligned the PMWA salary threshold with its federal Fair Labor Standards Act (FLSA) counterpart) took effect as scheduled on Oct. 3, 2020.

The Compromise

In June 2021, during negotiations on the 2021-2022 state budget, it was reported that Wolf agreed to repeal the final rule in exchange for additional funding for public schools, including $100 million to support historically underfunded school districts. That repeal was memorialized in HB 336, which was approved in the General Assembly on June 25, presented to Wolf on June 28, and became law as "2021 Act 70" on July 9.

Notably, the language included in the final bill does much more than repeal the 2020 final rule and restore the salary threshold to its pre-2020 levels. Rather, it repeals the entire regulatory framework for defining the EAP exemptions under the PMWA—regulations that have been in place since 1977.

The PMWA exempts employees in "a bona fide executive, administrative, or professional capacity ... as such terms are defined and delimited from time to time by regulations of the secretary ...." Since 1977, those regulations have been set forth in 34 Pa. Code § 231.82 (executive), § 231.83 (administrative), and § 231.84 (professional). The 2020 rule raised the salary threshold by amending these three regulations. Rather than simply repeal the 2020 rule (which would have restored the regulations to their pre-2020 iterations), the bill abrogated these three regulations in their entirety:

SECTION 2215.1. ABROGATION OF DEPARTMENT REGULATIONS. — THE REGULATIONS AT 34 PA. CODE §§ 231.82 (RELATING TO EXECUTIVE) 231.83 (RELATING TO ADMINISTRATIVE) AND 231.84 (RELATING TO PROFESSIONAL) ARE ABROGATED.

This provision takes effect Sept. 7, at which time Pennsylvania will be without any regulatory definition of what it means to be an exempt EAP employee.

What it Means

Of course, the repeal of the PMWA regulations defining what it means to be an exempt EAP employee does not signal the end of the exemptions altogether. That is because the PMWA statute continues to provide that bona fide EAP employees remain exempt. The statutory exemptions "signal the General Assembly's intention to exclude bona fide EAP employees from the act's protections." With the repeal of the PMWA's EAP regulatory definitions, however, what will it take to qualify as exempt under state law?

In general, when a Pennsylvania statute tracks the language of an existing federal statute, Pennsylvania courts will consider federal authority that existed at the time of the state law enactment. 

The PMWA was enacted on Jan. 17, 1968, and the PMWA's EAP exemption language generally tracks the FLSA's exemption for "any employee employed in a bona fide executive, administrative, or professional capacity." Thus, it is expected that courts will interpret the PMWA's EAP exemptions by reference to how the EAP exemptions were defined under the FLSA in 1968.

In 1968, the FLSA EAP exemptions were subject to the following standards:

• Executive exemption: An employee who is compensated on a salary basis at a rate of not less than $150 per week (exclusive of board, lodging, or other facilities), and whose primary duty consists of the management of the enterprise in which he is employed or of a customarily recognized department or subdivision thereof, and includes the customary and regular direction of the work of two or more other employees therein.
• Administrative exemption: An employee who is compensated on a salary or fee basis at a rate of not less than $150 per week (exclusive of board, lodging or other facilities), and whose primary duty consists of the performance of office or nonmanual work directly related to management policies or general business operations of his employer or his employer's customers, which includes work requiring the exercise of discretion and independent judgment.
• Professional exemption: An employee who is compensated on a salary or fee basis at a rate of not less than $150 per week (exclusive of board, lodging or other facilities) and whose primary duty consists of the performance of work either requiring knowledge of an advanced type in a field of science or learning, which includes work requiring the consistent exercise of discretion and judgment or requiring invention, imagination, or talent in a recognized field of artistic endeavor.

At first glance, these standards may appear to share a lot in common with their contemporary FLSA counterparts (apart from the much lower salary threshold). Keep in mind, however, that the FLSA EAP regulations were revised in 2004 and 2019 and regulations that were added to the FLSA EAP framework after 1968 will not guide a court's interpretation of the framework as it existed in 1968. As just two examples, the 1968 FLSA regulations did not include: (a) an exemption for computer professionals paid on an hourly basis or (b) a streamlined test applicable to "highly compensated" employees with total annual compensation of at least $107,432.

Going forward, Pennsylvania employers will need to consider the exempt status of their EAP employees under contemporary FLSA regulations as well as the version of those regulations in effect more than 50 years ago.

Robert Pritchard is an attorney with Littler Mendelson in Pittsburgh, Pa. © 2021 Littler Mendelson. All rights reserved Reposted with permission. 

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