May 2024

IS YOUR COMPANY READY FOR THE JULY 1, 2024 INCREASE IN THE SALARY THRESHOLD FOR NON-EXEMPT EMPLOYEES UNDER THE FLSA?

The U.S. Department of Labor (DOL) published a Final Rule on April 26, 2024, increasing the salary threshold for an employee to be classified as exempt from the Fair Labor Standards Act (FLSA) (i.e., not eligible for overtime). The first increase becomes effective July 1, 2024, followed by a second increase effective January 1, 2025. The Final Rule also includes a mechanism by which salary thresholds will continue to increase beginning July 1, 2027, and every three years thereafter. The increase affects the standard “white collar” exemptions (executive, administrative, professional, and some computer employees) as well as the Highly Compensated Employee exemption.

The “default” classification of an employe under the FLSA is non-exempt (i.e., eligible for overtime), and employers bear the burden of showing that an exemption applies. To determine whether a particular employee should be classified as exempt or non-exempt under the executive, administrative, professional, and some computer employee exemptions, two tests must both be satisfied: (1) the salary threshold test, and (2) the job duties test. The Highly Compensated Employee exemption sets an even higher salary threshold, plus the customary and regular performance of at least one of the job duties that qualifies for an executive, administrative, professional, or a certain computer employee exemption.

The DOL’s Final Rule does not impact the job duties test, and those requirements remain the same.  The Final Rule, however, markedly increases the salary thresholds beginning July 1, 2024 and they will continue to rise, as summarized in the chart below:

To prepare for the July 1, 2024 and January 1, 2025 increases, HGRS recommends that employers identify all employees who are compensated between $35,568 and $58,656 and review how much overtime is worked by each. By comparing future anticipated overtime costs against the salary increase necessary to remain classified as exempt, employers can estimate whether raising a particular employee’s salary to satisfy the new threshold or reclassifying the employee as non-exempt makes more financial sense.

In states with pay equity laws, increasing salaries for FLSA purposes may necessitate similar increases to comply with the applicable pay equity requirements.  When setting or restructuring your company’s current compensation structure, also keep in mind how the future increases will come into play.  California, Washington, and New York already have exempt salary thresholds above the new July 1, 2024 threshold (but not above the January 1, 2025 threshold), which provides a little breathing room in those states.

Other aspects of the FLSA remain unchanged.  Exempt employees under these exemptions must be paid on a “salary basis.” Employers may also continue to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the salary level in certain circumstances.  Further, employers’ recordkeeping requirements for all non-exempt employees stay the same.

The FLSA is a technical statue that can be tricky for employers to comply with.  Please contact HGRS to consult with an experienced attorney to ensure your company remains in compliance.

Elizabeth M. Newton, May 2024

Muldrow v. City of St. Louis: New U.S. Supreme Court Ruling Lowers Bar for Title VII Discrimination Claims

In a significant decision that reshapes the landscape of employment discrimination law, the U.S. Supreme Court has recently handed down an opinion in Muldrow v. City of St. Louis, which fundamentally alters the burden for plaintiffs alleging discrimination under Title VII of the Civil Rights Act of 1964. Previously, courts in several circuits, including the 11th Circuit, required plaintiffs to demonstrate a “materially adverse employment action” in Title VII cases. The Supreme Court’s ruling in Muldrow overturns this standard, requiring plaintiffs to show they suffered only “some injury.”

The Case.

Jatonya Muldrow, a sergeant in the St. Louis Police Department, claimed she was the victim of sex discrimination following her involuntary transfer from a prestigious position in the Intelligence Division to a patrol role. Despite maintaining her rank and pay, Muldrow experienced a notable change in her job responsibilities, perks, and work schedule. After lower courts ruled against her, stating that the transfer did not meet the threshold of a materially significant disadvantage, the Supreme Court agreed to hear her case.

In a unanimous decision, the Court held that, to prove discrimination under Title VII, it is not necessary for a transfer to inflict significant or material harm.  Writing for the Court, Justice Elena Kagan emphasized that the statutory language of Title VII requires only a showing of some disadvantageous change to an employment term or condition based on discrimination. The Court thus rejected the higher thresholds used by some circuits, which demanded that a plaintiff demonstrate significant, serious, or substantial harm.

Implications for Employers and Employees.

This decision marks a pivotal shift in how employment discrimination cases will be evaluated, particularly concerning job transfers that do not result in an outright demotion or pay cut. It opens the door for more claims to proceed in federal court by lowering the burden on employees. Employers must now exercise greater caution in how they manage employment actions that might be perceived as discriminatory, even if these actions do not alter an employee’s title, salary, or benefits.

The ruling in Muldrow v. City of St. Louis signals a more inclusive interpretation of what constitutes harm under Title VII, focusing on the broader spectrum of discriminatory impacts rather than just the most overt or substantial changes.

For those navigating the complexities of employment law, understanding the nuances of this ruling is essential. Should you have questions or require further information on how this decision might impact your situation, do not hesitate to consult with the attorneys at Hall, Gilligan, Roberts & Shanlever LLP (HGRS LLP), who are equipped to provide comprehensive legal guidance and support.

Wayne M. Cartwright, May 2024

Reducing Legal Risk to Your Company

As an owner or executive of your company, there are five improvements you should consider making within your organization to help prevent legal issues. Handling these things proactively will make your business run smoother and can mitigate the burden on your business if an employee files a lawsuit against your company or you are otherwise faced with a difficult employee issue.

(1) Review your employees’ pay and positions.

There are a lot of ways a company can run afoul of the Fair Labor Standards Act when a business grows and changes over time. All organizations should carefully evaluate how their employees are paid to ensure the organization is in compliance with applicable laws. Even if you follow what others in your industry do, it may not be enough to prevent a claim from being brought against your company.

Do you have employees doing the same job but who have different titles? Are they also paid differently? Do you have contractors working alongside employees for a long period of time? Do you have managers that don’t actually manage people and also don’t manage an entire project or line of business? If any of these apply to your organization, it is a good time for an employment audit to ensure your business is complying with applicable laws.

(2) Train your managers.

Continuously training management often gets overlooked. There is rarely a good time to have your management employees turn their attention from the goals of the business to focus on legal risk and compliance. But there are numerous benefits of periodic training, including educating management on how to properly handle complaints of harassment and discrimination.

Additionally, ensuring employees know how to report any issues, concerns, or suspected discrimination or harassment is critically important. Employers must have a strong reporting procedure that provides for multiple avenues of reporting and guarantees employees that they will not face retaliation for making good faith complaints of discrimination or harassment. Management training can also be used to coach managers and strengthen the skills they need to navigate other difficult management issues they may face. If you have not done management training recently, getting a training session scheduled would provide valuable protection to your company, as it is essential that your managers know their legal obligations as a part of your leadership team.

(3) Establish a performance review process.

Many of the claims we see against companies are pursued when an employee feels mistreated or wronged. This is often due to receiving little to no feedback on their performance from management during the course of their employment. This lack of communication can lead to misunderstandings in the workplace, which can then result in litigation.

It is natural for managers to shy away from difficult conversations and confrontations when an employee is not meeting expectations, but this leaves the company exposed to risk when the time comes to make a decision on termination. As a business leader, you should prioritize giving managers the tools they need to address performance deficiencies while communicating respectfully and fairly with employees.  Empowering your managers to raise and document performance concerns early in the process will go a long way in protecting your company and minimizing the chances you are sued. And, with regular training and good documentation practices, you’ll be ready to strongly defend yourself in the event of litigation.

(4) Protect your confidential information and trade secrets.

What is your business’s most valuable information? What kind of information gives your business a competitive advantage? Is that information properly protected? Who has access to your confidential information?

Confidentiality agreements are an important tool for protecting your business’s most important information. These agreements are used to set forth employees’ obligations to not to share your sensitive information. Such agreements also make clear that the company, not the employee, owns the information, even if the employee worked on or compiled the information during the course of their employment. Depending on your business, confidentiality agreements can also be used alongside noncompete agreements, nonsolicitation agreements, and/or nonrecruitment agreements, all of which should be tailored to your specific business needs and must be carefully drafted to comply with constantly-changing state laws.

(5) Set an example.

Finally, it is worth considering other steps you can take to cultivate a positive workplace environment that lets employees know they are valued. If you spend the time necessary to actively develop your culture and ensure that your managers are acting to best represent the organization, it is less likely you will be the target of a disgruntled employee’s lawsuit. No employer can completely prevent all personnel issues, but when complaints are taken seriously with proper investigations and managers exemplify the company’s professional and respectful culture, it greatly mitigates any problems that may arise.

Conclusion

Not only do these steps help put your organization in a position to efficiently and effectively defend against claims that may be asserted against it, they will also help you avoid having to deal with expensive litigation. The time you spend focusing on these key improvements will pay off. If you would like to learn more about any of the topics discussed in this article, please reach out to a member of our firm.

Kristina K. Griffin, May 2024