Department of Labor Exempt Salary Ruling Struck Down

By Susan Breslauer, SPHR-CA, SHRM-SCP 

Employers breathed a sigh of relief at the recent court ruling that the Department of Justice overstepped its bounds last year in raising the minimum salary for certain exempt employees to $913/week ($47,476 per year).  This is good news for most US employers, although CA employers beat to a different (and more costly) drum.  

The US Department of Labor (DOL) announced in May of 2016 the final rule on how/when employees will be exempt from overtime payment.  However, on November 22, 2016, Judge Amos L. Mazzant, U.S. District Court Judge, granted a temporary injunction blocking the Department of Labor’s rule raising the minimum salary for certain exempt employees to $913/week ($47,476 per year).  The rule was to go into effect on December 1, 2016.  The court ruled that the regulations were unlawful because the new salary level excluded consideration of the employee’s duties (there is a salary test and duties test for these exemptions from overtime) as well as the regulations improperly allow an automatic increase to the salary level every three years.

The new rule was temporarily blocked up until August 2017.  As we expected, further litigation followed.  On June 30, 2017, the Department of Justice (DOJ) filed its reply brief with the Court.  Then following this on August 31, 2017, The case was heard in the US District Court, Eastern District of Texas, Sherman Division.

As a result, employers do not have to raise exempt employees to a federal minimum salary.  However, CA employers will still be required to pay exempt employees at least two times the state minimum wage, which will rise again on January 1, 2018.  

The CA state minimum wage is currently $10.00 per hour for employers with fewer than 26 employees and $10.50 per hour for employers with 26 or more employees.  Beginning January 1, 2018, this will rise to $10.50 per hour for employers with fewer than 26 employees and $11.00 per hour for employers with 26 or more employees.  That will result in exempt employees’ minimum salaries, at two times minimum wage, rising to $43,680 for employers with fewer than 26 employees, and $45,760 for employers with 26 or more employees.  There is an exception and a different salary test for private schools, computer professionals and physicians, but all other  CA positions are subject to this salary test.

With all of this being said, keep your eyes open for the proposed AB 1565, which would increase the CA minimum salary for exempt status to $47,472 per year.  The Bill was passed in the Assembly earlier this year and is now placed in an inactive status. 

We will continue to update you as bills are signed and we have more updates