Big Things Happened at the DOL Last Week – The Release of the Final 541 Rule Including a Significantly Lower Dollar Threshold for Highly Compensated Employees

“If we have data, let’s look at data. If all we have are opinions, let’s go with mine.”

-- Jim Barksdale

Last week the U.S. Department of Labor (“DOL”) released the final Part 541 exemption rules for which they solicited comments in March of 2019. The final rule is set to go into effect in January 2020. Please note that AWR posted a blog on June 4th, 2019 detailing the proposed rules. That blog can be found here: https://www.awrcounsel.com/blog/2019/6/4/the-proposed-highy-compensated-exempt-employee-test-under-the-flsa.

The purpose of the proposed rulemaking was to update the previous exemption thresholds of the Obama era which had been held to be invalid by a Texas U.S. District Court. See Nevada v. United States Department of Labor, 218 F.Supp.3d 520 (E.D. Tex. 2016). Because the 2016 rule was invalid on account of its automatic updating policies and supplanting of the duties tests, the salary basis has not been effectively updated since 2004. Therefore, the Highly Compensated Employee (“HCE”) test continued to use the $100,000 salary as the threshold for a relaxed duties examination and standard test continued to use the $455 per week base salary level to qualify for the standard duties’ examination.

In March, the DOL proposed to increase the standard salary basis test to $679 per week and $147,414 for the HCE test in the Federal Register. 84 FR 10900. The 2004 standard salary basis test takes the salaries of the 20th percentile of full-time salaried workers in the south and retail workers nationally. DOL used a similar method of calculating the standard salary by using the 20th percentile of salaried workers in the lowest-wage Census Region in the country, thereby finding $679 per week. In the proposed rule, the HCE corresponded with the 90th percentile of fulltime salaried workers nationally and then projected these wages to January 2020 when the final rule would eventually take effect.

The final rule dispenses with the 90th percentile method for HCE and uses the 80th percentile of full-time salaried workers resulting in a HCE salary basis of $107,432. This is a large discount that will come to the relief of employers with highly compensated workers who would have suddenly become eligible for overtime had the salary basis increased to $147,414. The rule also adjusted the data it received for the standard salary basis test to include more data and settled on a salary level of $684 per week. DOL estimates that 1.3 million workers will become eligible for overtime because of the increased salary levels during the first year. https://www.dol.gov/newsroom/releases/whd/whd20190924. This is a marked retreat by the Department of Labor between the months of March and September. DOL says the  modification was made based on the comments it had received, some of which suggested that using the 90th percentile in a national scale precluded employers in lower wage areas from accessing the exemption. See 84 FR 51230. Opponents of the increase suggested that the 80th percentile would allow more flexibility and those working in lower earning industries and lower earning areas access the exemption. Because DOL found that imposing a HCE test of $147,414 would result in extremely high administrative costs for employers while not effecting the majority of Highly Compensated Employees, they decided it would be unwise to increase the HCE test too much too quickly. As a result, they settled with the 80th percentile of full-time salaried workers and a yearly salary of $107,432. This rollback of the proposed regulations perhaps presages a more conservative shift at DOL now that Labor Secretary Acosta has resigned from his office.

Additionally, in the news this week is the appointment and confirmation of Eugene Scalia, the son of the late Justice Antonin Scalia, to the position of Secretary of Labor. He was confirmed by a largely party line vote of 53-44 in the Senate.  He took the oath of office this week. He comes to the position with sterling credentials and relevant experience. He received a degree from University of Chicago Law School, was previously working in private practice, and had formerly served as the Solicitor of Labor in 2002 under the George W. Bush Administration. Although labor advocates were concerned because of his experience in private practice advocating for employers against worker’s rights, the book has yet to be written on whether Mr. Scalia’s ascension means that the relative moderation of the Acosta years will give way to more conservative policies at DOL.