The Federal Court’s November 22 preliminary injunction stopped the Overtime Exemption Rule from going into effect on December 1. This rule would have increased the minimum weekly salary an employee must earn to be considered exempt from overtime to $913 from the current minimum weekly salary is $455.
In its decision, the court ruled that the new salary threshold was so high that it would effectively remove the exemption from overtime pay for many employees who meet the duties tests found in DOL’s White Collar Exemptions. Thus, this rule functioned to replace the duties test with a salary test for the purposes of determining who is exempt from overtime, which was not the intent of Congress.
As of now, the court’s relief is preliminary and, theoretically, it could decide to let the rule take effect in the future (though that is unlikely) or the Department of Labor (DOL) could step in and rescind the rule with the new administration, which would take some time and effort (but is likely to happen under the Trump Administration).
In that light, all clubs and other affected employers should stay tuned for further developments. Though this is a tremendous victory for the industry, many clubs have already begun instituting changes in anticipation of the December 1, 2016, implementation date. NCA recommends that you advise all employees as follows: Because of the decision by a federal court, employee pay and work schedules will remain in effect as they were at the beginning of the year until this case is resolved.
“How clubs and other employers have communicated with employees about the rule taking effect may be very important,” says Thomas Lenz, partner, Atkinson, Andelson, Loya, Ruud & Romo in Pasadena, Calif. “If salary changes were signaled or promised, there may be significant morale problems—if not potential breach of contractual/promise to pay issues—if there is no follow through on December 1,” says Lenz. “In that respect each club should look to how it has planned and communicated the impact of the DOL rules to its employees, as the details and issues may vary.”
As always, club leaders will also need to ensure that their employees’ pay meets all state obligations, too—especially if their state provides greater benefits to employees above what the federal overtime exemption rules provide. Of course, those should already have been in place regardless of what took place at the national level.
The Yo-Yo Effect
Some clubs have gone through complex and sometimes painful decisions to promote some staff with significant raises or place formerly salaried employees on an hourly pay rate in order to meet the government directive. Clubs now must decide how much back and forth those employees can handle in regard to reversing promised raises or pay plans with their employees.
If a club has discussed, but not implemented the change to the employee’s wages, there is not a legal directive to continue with the salary increases, especially if it was already a hardship for club operations. But, if the salary increase has been implemented in advance of the December 1 deadline, it would be challenging to reverse that action.
Each club will have a different economic and club morale situation and will need to determine whether or not they want to go though another round of discussions with employees, especially if it creates an uncomfortable position for management and staff.
“While there has been clearly a legal victory with the preliminary injunction against the DOL,” says Lenz, “clubs and other employers face a potential HR and morale crisis if they fail to deliver on pay terms employees have reason to expect.”