In a class action complaint filed on June 7, 2017, in federal court in New Jersey (Alvarez v. Chipotle Mexican Grill, Inc.
), a group of workers at Chipotle Mexican Grill Inc. (Chipotle) allege that their employer owes them time-and-a-half pay under the Obama administration overtime rule that a federal judge in Texas put on hold last year. This case demonstrates that employers that pay exempt employees an annual salary of less than $47,476 may be at risk for an overtime claim under the Fair Labor Standards Act (FLSA) despite the preliminary injunction that enjoined the Department of Labor (DOL) from enforcing the increased salary threshold.
Specifically, the workers allege that the company is required to comply with the FLSA regulation, which would have made about 4.2 million workers newly eligible for overtime pay, according to a DOL estimate. The rule more than doubled the salary threshold under which employees are automatically eligible for overtime. The DOL rule, which was to become effective on December 1, 2016, increased the minimum salary for the white-collar exemptions under the FLSA. The DOL’s new rule would increase the salary requirement from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). Anticipating this change, many employers planned accordingly, and in many cases had to restructure job duties, alter payment arrangements, reclassify jobs, etc. In this case, many assistant managers started to receive overtime pay since Chipotle did not want to raise salaries to the increased salary threshold. After the injunction, Chipotle stopped paying overtime to such assistant managers and paid them under the old salary threshold. As a result, many employees felt like they received a pay cut and were disgruntled.
The workers at Chipotle argue that the regulation went into effect as scheduled on December 1, 2016, even though the U.S. District Court for the Eastern District of Texas granted a preliminary injunction, which enjoined the DOL from enforcing the new rule. In the complaint, the Chipotle employees argue that, in general, the DOL does not implement rules, but instead rules go into effect automatically and without any specific enforcement by the DOL. Furthermore, because the injunction is only preliminary, as opposed to a final decision, the DOL rule of December 1, 2016, has not been vacated and still stands.
Employers should stay tuned to developments in this case, noting that the Trump administration is reviewing the rule as well. In the interim, you may also want to consult with employment counsel to evaluate potential risks if you pay exempt employers an annual salary of less than $47,476. Likewise, employers should consider keeping time records for such workers in case such classification is challenged. Lastly, employers should always consider how morale will be impacted when employees’ payment arrangements and/or duties are restructured.