New FLSA Minimum Salary Expected - Airline Case Highlights Risks

Almost all employers will be affected by new regulations revising the so-called "white collar exemptions" from the Fair Labor Standards Act (FLSA), which have been submitted by the federal Department of Labor (DOL) for analysis and approval prior to publication. A notice of the DOL submission was published on January 16, 2019, by the Office of Information and Regulatory Affairs (OIRA), which is part of the Office of Management and Budget (OMB), and says the proposed rule is economically significant. The new rule will be published in the Federal Register when finalized.

The expected regulation will include DOL's long-awaited revision of the salary level generally required for the executive, administrative, and professional exemptions from overtime and other requirements under the FLSA. (The required salary is, in effect, a kind of "minimum wage" for exempt employees.)

The Obama administration attempted in 2016 to raise the required salary, long set at $23,660/year, to $47,476/year. However, the 2016 regulation was enjoined nationwide by a court in Texas, whose decision remains pending on appeal in the Fifth Circuit. The new regulation is expected to raise the required salary by a lesser amount, probably to the low $30,000s, and to moot the pending appeal.

OIRA normally has up to 90 days to review proposed regulations. It is not clear if the recent government shutdown, or any future shutdown period, might affect that timeline. Ninety days from the issuance of the notice would suggest that the new, Trump-era regulation should be expected by mid-April 2019.

Existing regulations condition the relevant FLSA exemptions on the required amount being paid on a "salary basis," i.e., not routinely subject to reduction based on the quality or quantity of work, as well as the employee's duties meeting certain requirements for supervising other employees, having discretion to make or implement policy, or practicing a profession. DOL and the courts may be skeptical whether employees whose salary barely exceeds the minimum have duties that properly qualify them as exempt. Employees who are misclassified as exempt (or otherwise paid incorrectly) can complain to DOL or sue collectively in federal court for retroactive pay, and often for double damages and attorneys' fees.

Making clear that wage and hour liabilities can grow large, a California court recently ruled in Bernstein et al. v. Virgin America, Inc. (coincidentally, also on January 16, 2019), that Virgin was required to pay a total of more than $77 million in back wages, penalties, and attorneys' fees to a group of California-based flight attendants. The suit was based on allegations that Virgin had systematically failed to pay as required for all hours worked, including certain meal and rest breaks, and improperly delayed payment of wages to terminated employees.

Most states also have overtime requirements that must be considered separately from federal law, because the FLSA does not preempt state statutes. (Virginia has no separate overtime requirement, but does have other wage and hour requirements, and Virginia employers must of course comply with the FLSA.) Some of the issues decided in the Virgin America case involved the extra-territorial application of California law as flight attendants traveled in and out of the state. California rules are especially onerous, but similar issues can arise under the FLSA and the laws of other states.

Spotts Fain can help employers determine proactively whether employees are properly classified as exempt, and whether payroll policies comply with salary basis, overtime, and other wage and hour rules.