Employers Should Consider Ruling That Stops DOL From Implementing, Enforcing New Overtime Rule
On Tuesday, November 22, 2016, a Texas federal district court judge issued a nationwide preliminary injunction halting the new U.S. Department of Labor overtime rule changes set to go into effect on December 1, 2016. State of Nevada, et al. v. United States Department of Labor, et al., Case No. 4:16-CV-00731 (E.D. Tex. Nov. 22, 2016) (Judge Amos L. Mazzant).
DOL Issues New Overtime Rule
Earlier this summer, the DOL issued a new rule updating the Executive, Administrative, and Professional exemptions to the Fair Labor Standards Act (“FLSA”). These exemptions–generally known as the “white collar” or “EAP” exemptions–apply to certain employees so that they are not subject to either the FLSA’s minimum wage or overtime requirements. The pending rule at issue would (1) increase the minimum salary level employees must make from $455 per week ($23,660 annually) to $921 per week ($47,892 annually) to qualify for a “white collar” exemption; and (2) establish an automatic updating mechanism that adjusts the minimum salary level every three years.
Court Issues Preliminary Injunction
Numerous States and businesses sued to challenge the pending rule. This October, the State plaintiffs sought a preliminary injunction to prevent it from going into effect. Reviewing the pending rule, the court observed that the significant minimum salary increase appeared to erroneously place the focus on an employee’s salary rather than his or her duties. But, it reasoned Congress never intended that. The court, therefore, concluded that the DOL exceeded its authority when it issued this new rule. Recognizing that the plaintiffs would suffer significant harm that could not be corrected if the new rules went into effect, it agreed that a nationwide injunction was necessary to preserve the status quo. Consequently, the DOL is temporarily prohibited from implementing or enforcing the new overtime rule.
New Overtime Rule May Never Be Implemented
Although the court only issued a temporary injunction, the recent presidential election may mean that the pending rule never goes into effect. As an initial matter, it is unclear whether the DOL will appeal the injunction. In a somewhat similar case, the Department of Justice agreed to a stay of proceedings involving the Obama administration immigration programs. It did so based on the results of the presidential election and uncertainty whether the new administration would maintain these programs. The DOL may reach the same conclusion as the DOJ and stay the litigation and implementation so that the new administration could weigh in.
Even if the DOL appealed the injunction, timing becomes important. It is doubtful that the appellate court would decide the matter within the next few months. At that point, there will be a new presidential administration. One of President-elect Donald Trump’s campaign issues was addressing regulations that were seen to interfere with economic growth. It is possible that the next Secretary of Labor may withdraw or replace the pending rule, which would moot the litigation.
Steps Employers Should Consider
Given the preliminary injunction, employers should decide how they will respond. The following are a few preliminary recommendations:
·Because of the pending rule, employers may have considered re-classifying exempt employees as non-exempt. For such employees, the employer could put such plans on hold until there is a final ruling.
·Employers may have already increased exempt employees’ salaries to maintain the employees’ exempt status. Depending on state laws and potential effects on employee morale, rescinding salary increases may not be worth it from a cost-benefit analysis—albeit employers should carefully consider this issue.
·Employers should continue to monitor the situation to determine when or if the pending rule will go into effect. An employer should not presume that the rule will be permanently barred.
·Regardless, employers should quickly develop and communicate their plans to their employees so that the employees understand how he or she will be personally affected. Doing so will hopefully limit any potential negative impacts to workforce morale or potential litigation.
Still, employers should determine the best course of action going forward. Doris Bobadilla and John Getty are experienced attorneys at Galloway Johnson who can provide employers specially-tailored advice on how they can handle these and similar regulatory challenges.