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Nonprofit and Church Alert: Court Stalls New FLSA Rule

On November 22, 2016, a federal court enjoined the new FLSA salary rule that was scheduled to take effect December 1, 2016. That start date is postponed indefinitely pending further action of the Courts, Executive branch or Congress or all three.

Judge Mazzant of the Eastern District of Texas granted an Emergency Motion for a Preliminary Injunction filed by 21 state attorneys general from across the country. The attorneys general argued the Department of Labor exceeded its lawful rule-making authority in establishing the new FLSA rule, which imposes a severe economic hardship on the states (and all employers).

In granting the injunction, the court held that the plaintiffs would likely succeed in their legal challenge because the court believed the new salary test does not comport with Congress’s intent in adopting the FLSA. Congress delegated the task of defining the white-collar exemptions to the DOL, but according to the court’s reading, this authority was limited to defining the duties test. Surprisingly, the court found that Congress’s delegation did not include the creation of a minimum salary test despite whether the level was $23,500 under existing law or 47,500 under the new FLSA rules. Therefore, the court held the new salary test unlawful, not only because there appears to be no delegation from Congress to create it but also because it practically obliterates the duties test, which the court believed the DOL was authorized to craft.

The local Texas district court applied the injunction nationwide meaning that it applies to all workers. This means that the rule will not go into effect in the near future. The question on everyone’s mind is what will happen next.

Until the case against the DOL is heard on the merits or unless the DOL appeals the preliminary injunction either by emergency appeal or regular appeals process and wins, the new FLSA rule is on hold. In the meantime, with the change in administrations, we can envision several scenarios. First, the new Department of Labor may simply drop the matter and jettison the new salary minimum rule altogether. Second, the new DOL may adopt a new rule, setting the minimum at an amount higher than the current level but far less than the $47,500 put forth by the Obama Administration. Third, the new DOL keeps the new salary level relatively high with some adjustments for COLA increases but carves out an exception for small businesses (including small churches and nonprofits).

Another scenario involves Congress weighing in. Before the injunction was granted, members in both the House and Senate introduced bills to postpone the December 1st start date. Other bill proposals include a phase-in to a higher minimum, such as $47,500, but with an incremental increase every year rather than the sharp increase threatened by the DOL.

Whether these proposals become law or whether the new Labor Secretary will establish a new administrative rule remains to be seen. We do know that any appeal whether emergency or regular will be 3-12 months away from any decision overturning the stay. We also anticipate that any executive branch and congressional action may be challenged since at least one court states that DOL has no power over the salary level unless Congress alters that law. What we do suspect is that the current salary minimum is likely to increase in the future, although we do not know by how much and over what period of time. This means that employers must stay tuned and be prepared to reclassify their employees if and when a new rule is established.

Lessons learned from this dry run of FSLA changes. From an examination of many employers in the church, nonprofit and business sectors in order to prepare for the FLSA changes, we did learn that many were not in compliance under existing law since they did not understand and apply the duties test correctly and treated employees as contractors in some cases.What can an employer do now? To prepare, an employer should work with legal counsel to ensure that exempt (or possibly exempt) employees are properly classified under the duties test, and that job descriptions are updated to boost the odds of satisfying the duties test of the white-collar exemptions. With that piece of the puzzle in place, an employer will be able to quickly adapt to any change in the salary test.

Simms Showers LLP is committed to helping you navigate the ever-changing landscape of employment law. Contact us by email or call us to see how we can help you.

Disclaimer: This legal alert is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum. Please contact Elyse Smith or Robert Showers at emsmith@simmsshowerslaw.com or (703) 771-4671 for greater details concerning how this court decision or FLSA law may affect your church or organization.

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