Columbus employers are caught in compensation limbo.
By Robert Perryman
A federal district court in Texas recently placed employers across the country in a position of uncertainty when it comes to managing their employees' overtime benefits.
Following months of chatter among HR circles about how employers would respond to a Fair Labor Standards Act regulation that would have extended overtime pay protections to more than 4 million American workers, Columbus employers now wonder whether they must comply with the regulation-if at all-and when.
Just days before the FLSA Final Rule would have been enacted, Judge Amos Mazzant of the Eastern District of Texas nixed implementation of the regulation. He ruled that the Department of Labor would have exceeded its authority under the FLSA by making the overtime exemption largely conditional on an employee's salary rather than whether the employee performed an executive, administrative or professional (EAP) job function-thereby being eligible for overtime compensation.
The Rule would have increased the minimum salary to qualify for the EAP Exemption from $455 per week (or $23,660 annually) to $921 per week (or $47,892 annually).
Following the Nov. 22 decision in the Eastern District of Texas, the DOL filed an appeal with the 5th Circuit Court of Appeals, challenging the injunction. Considering President Obama's term will end soon, the DOL has obtained an expedited briefing schedule, which means that the rule could be held as valid and implemented fairly soon if the DOL gets its way and 5th Circuit Court of Appeals overturns the District Court's ruling.
Alternatively, the 5th Circuit could uphold the District Court's ruling, leaving the rule invalid. It is unclear whether President-elect Trump's administration will continue to pursue the appeal, which will likely still be pending when he takes office.
The pending appeal raises an important question for Columbus employers. If the rule were to ultimately be held valid and implemented, how will courts treat the interim period between the initial effective date of Dec. 1, 2016, and the date of implementation? Federal courts have had varying opinions on whether employers are expected to comply with previously enjoined administrative rules by the proposed effective date or not until the rules are declared valid by an appeals court.
So, What Should Columbus Employers Do Now?
Employers face a conundrum: Pay overtime compensation to employees affected by the rule and risk never recouping those payments if the rule remains invalidated, or withhold overtime compensation from those employees affected by the rule and gamble that a court will not impose back pay and possibly liquidated damages.
With this in mind, here are some recommended practices until we have some clarity:
Do not award significant pay increases, but limit affected employees to 40-hour workweeks. At this particular time, don't increase an employee's pay just to meet the salary standard for the EAP exemption. However, if employees are arguably performing executive, administrative or professional functions and are paid on a salary basis between $23,660 and $47,892 annually, employers can best protect themselves by limiting those employees to 40-hour workweeks.
Operating in this manner will prevent employers from incurring any overtime compensation obligations until it is clear whether the rule is valid.
Pay overtime compensation to affected employees. Employers who cannot limit employees to 40-hour workweeks and who have decided not to award significant pay increases to raise their previously non-exempt employees to the $47,892 salary standard can best protect themselves by treating the rule as immediately effective until its ultimate disposition.
While courts in our own home state have, in the past, held that employers are not obligated to pay overtime compensation under an invalidated administrative rule until a court implements the rule, there is risk associated with drawing a judge who disagrees with that position. The FLSA also allows for liquidated damages, in addition to back overtime pay, if an employer is found liable for failing to pay earned overtime compensation.
While an employer might not be able recoup overtime payments if the rule ultimately remains invalidated, the employer would reduce the exposure associated with potential back overtime pay and liquidated damages.
Robert C. Perryman represents employees in all aspects of labor and employment law. He is a Columbus attorney with Isaac Wiles, and can be reached at (614) 221-2121 or by email at firstname.lastname@example.org.