As discussed in the firm’s June 29, 2016 Employment Law Alert (Federal Law Increases Minimum Exempt Pay Effective December 1, 2016), the United States Department of Labor issued a Final Rule to update overtime regulations regarding the minimum salary required for exempt executive, administrative, professional, and salaried computer professional employees.
However, 21 states filed a lawsuit seeking to block enforcement of these regulations and on November 22, 2016, a federal district court judge in the State of Texas granted the states’ request for a nationwide preliminary injunction, thereby temporarily blocking the regulations. Consequently, the amended federal regulations discussed in our June 29, 2016 Employment Law Alert will not be going into effect on December 1, 2016. The preliminary injunction will last until a final decision of the case in the federal trial court, unless an appellate court overturns it.
Under the new federal regulations, the minimum salary for exempt employees was going to rise from $23,660 to $47,476 under federal law. While this was to be a dramatic increase for employers in states without more strict state wage and hour laws, it represented a much smaller increase for California employers. California’s minimum annual salary for exempt executive, administrative, and professional employees was already $41,600 – two times the minimum wage for full-time employment – and will further rise to $43,680 on January 1, 2017 for employers of 26 or more employees (or on January 1, 2018 for employers of 25 or fewer employees). Moreover, in one of California’s major metropolitan areas, a job commanding less than $50,000 in annual salary generally would be considered suspect with regard to having the type of sophisticated, high-level duties necessary to satisfy exempt job duties tests.
The court ruling leaves many employers with a difficult choice to decide whether to proceed with implementing previously announced salary increases that were to take effect on December 1, or to postpone them. In particular, the cost savings of postponing such increases must be weighed against employee morale implications. Also, we need to emphasize the significant chance that an appellate court may disagree with the surprise ruling of the federal trial judge, and reinstate the regulations in the relatively near future. Employers that wish to postpone salary increases previously communicated to employees must act quickly to communicate any changes to employees before the new salaries were to go into effect. We recommend consulting with legal counsel before deciding and acting to communicate such changes.
In addition to California’s minimum salary requirement, employers are reminded that employees must also satisfy a duties test to qualify for an exemption from overtime. In our experience, by far more exempt classification mistakes are based upon misunderstanding which job duties qualify for exempt status. While federal law requires that an employee’s “primary duty” be exempt, California law follows the more strict “primarily engaged in” test – which requires the employer to show that the employee spends over half of his or her time every work week engaged in duties qualifying for an exemption from overtime.