New Overtime Changes on Hold… For Now

Less than two weeks before the Department of Labor’s new federal overtime rule was scheduled to take effect on December 1, a federal judge in Texas issued a nationwide preliminary injunction postponing its implementation. The new rule would have raised the minimum salary threshold to qualify for overtime pay under the Fair Labor Standard Act’s white collar exemption from $23,660 to $47,476 per year, with automatic adjustments to the threshold every three years going forward.

In his ruling granting the preliminary injunction, U.S. District Judge Mazzant stated, “Congress defined the [white collar] exemption with regard to duties, which does not include a minimum salary level.” He found that, “[w]ith the Final rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test.”

Following this ruling, the overtime rule will not take effect on as scheduled and employers may continue to follow the existing overtime regulations until a final decision is reached by the court. Because a preliminary injunction is not permanent, it is possible that the rule will be implemented at a later date. However, the judge could not have issued a preliminary injunction without determining that the states had established a substantial of likelihood of succeeding on their claims.

We are monitoring this matter closely. Please feel free to contact our attorneys for further guidance or analysis.

Company and CEO Held Jointly Liable for Minimum Wage Violations

A federal district court in Pennsylvania has held American Future Systems, Inc., and its CEO jointly liable for Fair Labor Standards Act (“FLSA”) violations arising from the company’s break policy. That policy required employees to log off of their computers and forgo compensation for all breaks, even short ones lasting fewer than 20 minutes. The CEO, as a 98% owner of American Future Systems and the “final authority” for compensation and break policies, was found to be a joint employer and therefore personally on the hook for these FLSA violations.

The company’s written compensation policy, which had been in place since 2009, required employees to log off of their computers during all breaks, including short personal breaks to use the restroom or get a cup of coffee. Because the company only compensated employees for the time they spent logged into their computers, all breaks were rendered unpaid. Such a policy clearly contradicts the FLSA, which states that short breaks between 5 and 20 minutes are considered compensable work hours. As a result of failing to pay employees for their short personal breaks, American Future Systems allowed employee compensation to dip below minimum wage over the course of each pay period, prompting the lawsuit, which was brought by the U.S. Department of Labor.

While a company facing liability for violating FLSA minimum wage and recordkeeping requirements is nothing new, the fact that the CEO was held personally on the hook as a joint employer is an interesting wrinkle that business leaders should take note of. In this case, American Future Systems’s CEO was a principal owner of the company, had hiring and firing authority, controlled compensation and break policies, and was ultimately responsible for company strategy and the activities of its employees. By having that level of control over the day-to-day operations of American Future Systems, the CEO was liable, along with the company itself, as a joint employer. Complying with the FLSA is always imperative, but for owners who exercise a high degree of control over their businesses, this decision provides a new sense of urgency in the form of potential personal liability. It also highlights the importance of having employee handbooks and workplace policies reviewed from time to time, as seemingly innocuous policies such as “always log off from your computer before going on break” could result in significant consequences for the company as well as its owners.

Frank Gulino is an attorney with Berenzweig Leonard, LLP. He can be reached at FGulino@BerenzweigLaw.com.