A Texas judge has halted a planned change to the Fair Labor Standards Act (FLSA), which would have adjusted a key salary threshold resulting in an estimated 4 million workers becoming eligible for overtime pay, or a raise. The ruling was in response to a lawsuit filed by 21 states and over 50 business groups. The changes to the FLSA were scheduled to go into effect next Thursday, 12/1/16.
Many businesses we support and guide have been affected by the proposed changes, and have been making preparations to meet what was to be the new compliance standards. These preparations have included making planned adjustments to salaries, schedules, workloads, and roles. Here is our guidance and view on the impact of this ruling, as well as possible steps to take now that the December 1st changes will not go into effect as planned:
- The Obama administration has few options if any at this point to address this ruling prior to the current term ending on 1/20/17. It is likely that the Trump administration will not pursue the matter further, essentially allowing the proposed changes to die and to never go into effect as they were designed. Other changes to the FLSA may be proposed in the coming year, but this set of adjustments are likely not going to ever be put into practice.
- For those firms impacted by what was to be the planned new guidelines, it is almost certain that compliance plans were formulated, implemented, and even communicated to those employees affected. As a result of the injunction, one approach could be to undo all the planned changes and keep pay and employee classifications as they currently are, pending any future action by the Department of Labor (DOL) or the Trump administration.
- Strategically speaking, those employees who were slated to have their situations improved via more pay and/or fewer hours are not likely to react well to any employer who tells them that because the law is not going into effect they in essence need to continue working as they have been, without a pay adjustment or schedule relief. Employers need to give serious thought to the anticipated reaction they may receive from those affected and determine if planned adjustments, at least in part, should just proceed as if the law is still changing on 12/1/16.
- Any plans to operate as if the law has in fact changed need to be executed consistently for all who were to be impacted in your organization. Making adjustments for some but not for all could create other issues around possible discrimination claims, compliance issues, and overall morale.
While moving ahead at this juncture by postponing any planned adjustments is justified and does meet compliance standards, the potential impact of reversing course could be severe for some and therefore needs to be considered as you weigh your options.
IMPORTANT NOTE – As we have worked with our clients on FLSA projects, both focused on the 12/1 change and those just focused on classification, we have found many companies do not comply with the FLSA as it currently stands. While this change is a relief from the salary threshold increase, it does not negate the other rules related to FLSA classification (exempt/non-exempt) and overtime payment.
As always, please feel free to reach out to your OperationsInc consultant for guidance on FLSA compliance and questions regarding this court decision.