Well, by now everyone is aware of the injunction on the December 1, 2016 FLSA overtime Final Rule. Many employers had decided (a/k/a were forced) to increase an exempt employee’s salary to $47,476 to meet the DOL’s new (and now on hold) $47,476 threshold. So, now what? Can an employer just revert the employee’s salary, or not increase it as planned? Let’s put employee morale aside too…because certainly any reversion of a salary is not going to sit well with the employee who now may feel undervalued (and/or question whether he or she is properly classified anyway).
The Fair Labor Standards Act (FLSA) doesn’t address “promised” wages; accordingly, there is no federal requirement that an employee be paid a promised wage following an intervening event. Similarly, the Minnesota Fair Labor Standards Act (MnFLSA) does not impose any requirements on “promised wages”. But, Minnesota law does provide employees some protections in certain circumstances.
In Minnesota, “wages” is defined as: “Compensation due to an employee by reason of employment”. Minn. Stat 177.23, Subd. 4. Further, an employer cannot “directly or indirectly and with the intent to defraud…(2) directly or indirectly demand or receive from any employee any rebate or refund from the wages owed the employee under contract of employment with the employer…” or the employer can be liable for twice the amount in dispute. Minn. Stat. 181.03. Why do I bring up this statute? Well, a salaried employee who is told she is getting a raise may try to argue she has a contract that she is “owed” those wages for the work she performs during the time frame she was told she’d get the raise. Is this a stretch? Probably, but then again, I’ve heard more far-fetching arguments than that. Also, notice the bold – “intent to defraud” – I think it’s safe to say, no employer was attempting a bait-and-switch here; it was all regulation driven and employers had the full intent (at the time) to increase a salary just to meet the new threshold.
In any event, for the cautious employer, you may want to provide the employee notice of the decrease prior to the period in which the employee would earn that money. So, for example, if the employee was told on November 25 that she would be getting a raise to $47,476 effective December 1, and the next payroll cycle is for the workweeks of November 21 to December 4 and paid on December 9, you may want to consider reverting back during the next payroll cycle that is for the workweek of December 5 to December 18 (so long as the employee is notified prior to December 5). That being said, this approach is being cautious – certainly in this instance there would be no “intent to defraud”, however, with this delayed decrease, there is no arguable “contract” with the salaried employee for the following payroll cycle (they may argue there is a contract for the payroll cycle encompassing December 1-5).
Yes, I’m fully aware that I did not address hourly employees here. Given they are hourly, and “earn” wages on an hourly basis, I would not expect the same argument to ever even remotely pop up. Finally, don’t forget to document the payroll change, preferably with the employee signing that he or she understands the change and applicable start date of the change.