On March 7, 2019, the Department of Labor announced a proposed rule that would increase the salary level for the Executive, Administrative and Professional exemption from $455 per week, or $23,660 per year, to $679 per week or $35,308 per year. The proposed rule would also increase the salary level for “highly compensated employees” from $100,000 to $147,414 per year. The Department’s proposed rule recommends a lower salary level for employees in certain U.S. territories and the motion picture industry as well as allowing the use of nondiscretionary compensation (e.g., bonuses or commissions) to satisfy up to 10% of the salary level. The proposed rule is not final and public comments can be submitted electronically to the Department of Labor at www.regulations.gov, through the rulemaking docket RIN 1235-AA20, until May 21, 2019.
The current proposed rule is the most recent attempt to increase the salary level for the Executive, Administrative and Professional exemption since the failed Final Rule published in 2016.
Background
The Fair Labor Standards Act contains a number of exemptions to the requirement to pay an employee overtime for any hours worked over 40 in a given work week. One specific exemption is “any employee employed in a bona fide executive, administrative or professional capacity;” also referred to as the “White Collar” or “EAP” exemption. Over the years, there have been several tests to determine whether an employee qualifies for this exemption. In 2004, the Department of Labor replaced the prior tests with the “standard duties” test and set a minimum salary level. In order to qualify for the EAP exemption, an employee must be paid by salary (“salary-basis test”), must be paid a minimum salary of $455 per week, or $23,660 per year (“salary-level test”) and must perform executive, administrative or professional duties (“duties test”).
On March 23, 2014, former President Obama issued a memorandum to the Secretary of Labor to “modernize and streamline the existing overtime regulations for executive, administrative and professional employees.” The Final Rule was published on May 23, 2016 and scheduled to become effective on December 1, 2016. The Final Rule increased the minimum salary level for the salary-level test for EAP employees from $455 per week, or $23,660 per year to $913 per week, or $47,476 per year. The Final Rule also contained an automatic updating mechanism to increase the minimum salary level every three years beginning in 2020.
Two lawsuits were filed to challenge the Final Rule before it went into effect. On November 22, 2016, U.S. District Judge Amos Mazzant granted an injunction blocking the Department of Labor’s Final Rule. When granting the injunction, the Court determined that the plain language used by Congress when it enacted the Fair Labor Standards Act’s EAP exemption focused on the duties performed by the employee rather than the employee’s salary. The Court held that Congress’ intent was clear when it defined the EAP exemption based on the employee’s duties, and not by a minimum salary level. Judge Mazzant held that the increased salary level established by the Final Rule effectively eliminates the duties test and therefore is unlawful.
The ultimate fate of the latest proposed rule by the Department of Labor, which proposes similar changes to those contained in the ill-fated 2016 Final Rule, will be determined in the coming months.