Breaking News: Federal Judge Blocks DOL Overtime Rules
November 23, 2016

Late yesterday, a federal judge in Texas issued a nationwide injunction blocking the Department of Labor (DOL)’s Final Rule and its regulations regarding the new salary thresholds for the so-called “white collar” exemptions that were set to go into effect on December 1st. The injunction not only prevents the regulations related to the Final Rule from taking effect, it prevents the DOL from enforcing these new regulations. The injunction is not a final order and is subject to potential revision or appeal, but has nationwide, immediate effect until further order of the court or an appellate court.

As we have reported previously, the DOL's Final Rule, announced in May, more than doubled the salary level test for the executive, administrative and professional exemptions from overtime under the Fair Labor Standards Act (FLSA),from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The Final Rule also contained a triennial escalator provision, with automatic increases every three years (beginning January 1, 2020).

The Federal Court Ruling

The case before the U.S. District Court for the Eastern District of Texas involved two federal court challenges to the Final Rule—one brought by 21 states (including Wisconsin) and one by the U.S. Chamber of Commerce and other business groups. Both cases were assigned to Judge Amos Mazzant, who consolidated the cases.

On November 22, Judge Mazzant found that the plaintiffs showed a substantial likelihood of success on the merits (as to their argument that the Final Rule exceeds the DOL's authority), that they would suffer irreparable harm in the absence of an injunction, that the balance of hardships weighed in favor of granting an injunction, and that the public interest would be best served by an injunction.

The state and business group plaintiffs had argued that the DOL exceeded its authority under the FLSA. Judge Mazzant agreed, finding that while the DOL may define which employees are eligible for overtime pay based on the duties they perform, it may not define the salary level in such a way that completely swallows the “duties” tests contained within each exemption. Judge Mazzant stated, “The department’s role is to carry out Congress’ intent. If Congress intended the salary requirement to supplant the duties test, then Congress, and not the department, should make that change.”

Pending further order of this court or the Fifth Circuit Court of Appeals, employers are not required at this time to abide by the Final Rule setting the salary level bar at $913 per week. The current minimum salary level, established by the current regulations, remains at $455 per week ($23,660 annually) until further legal developments may provide otherwise.

Employers should recognize that the temporary injunction does not grant any certainty for what will occur in the future. As the judge has found that there is a substantial likelihood of success on the merits, it is expected he will make the injunction permanent—thereby nullifying the Final Rule and its regulations—which would then undoubtedly lead to an appeal. Of course, before an appeal might be taken the regulations may be amended or revoked by Department of Labor under the Trump administration. It is anything but clear as to how the Trump administration will approach the issue.

What Should Employers Do in Light of the Ruling?

While the injunction remains in effect, employers are not required to pay overtime to those who would be newly non-exempt under the Final Rule. However, many employers—particularly those who have implemented major changes to their workforces and compensation plans and have communicated those changes to its affected workers—may be wondering what they should do in light of this ruling.

Employers, for instance, may have given raises to those employees who were just under the new $913 per week salary threshold. Other employers may have employees who liked their exempt status and who did not favor having to work overtime to preserve their previous income. Further, public sector employers who took action on compensation or classification changes through board or council actions would need to evaluate the desirability and practicality of now revisiting those actions, particularly since the litigation in not yet concluded. All employers, however, should weigh the financial relief given by the temporary injunction against the costs to morale that may occur if the employer decides to roll back these changes.

Davis & Kuelthau attorneys are available to assist you with your legal and practical questions about how this ruling will affect your business or organization. Please contact your Davis & Kuelthau attorney or the author, Laurie E. Meyer, at 414.225.1419 / laurie.meyer@dkattorneys.com.

 

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