Employment Alert: Federal Court Halts Implementation of New Overtime Rules

by Fenwick & West LLP

Fenwick & West LLP

On November 22, 2016, a federal district court in Texas preliminarily enjoined the Department of Labor (DOL) from enforcing portions of its rule increasing the federal minimum salary for exempt executive, administrative, and professional employees. Originally set to take effect on December 1, 2016, the injunction—coupled with the change in the White House—call into question the rule’s future. (For further information about the rule and its changes, please see our May 23, 2016 Employment Alert.)

Twenty states filed an action against the DOL challenging the rule’s increased minimum annual salary threshold—from the current $23,660 to a proposed $47,476—and its mechanism for automatically updating the minimum salary in the future, among other things. They asked that the court enjoin enforcement of the rule while the action was pending.

In evaluating the states’ request and without deciding the actual merits, the court determined there was a substantial likelihood of ultimate success on the merits of the states’ claims. Analyzing the plain language of the Fair Labor Standards Act, the court determined that Congress intended to exempt from overtime certain positions based on their job duties, not their salary. The court concluded the DOL exceeded its authority to define or delimit the exemptions when it “ignore[d] Congress’s intent by raising the minimum salary level such that it supplants the duties test.” Citing the DOL’s estimates that 4.2 million currently exempt workers would become non-exempt and eligible for overtime without a change in their duties, the court observed that “this significant increase to the salary level creates essentially a de facto salary-only test.”

The court granted the injunction, finding also that the states were likely to suffer an irreparable injury absent the injunction, the balance of potential harm weighed in favor of the injunction, and the public interest would be best served in enjoining enforcement of the rule until a full and final ruling on the states’ claims. The preliminary injunction prevents the DOL from implementing (on a nationwide basis) portions of its rule that would increase the salary threshold for the executive, administrative, and professional exemptions, pending further order from the court.

The viability of the rule remains to be seen. In addition to the court challenge, the rule faces potential hurdles at the administrative level. Promulgated at President Barack Obama’s direction, it is questionable whether the changes will receive similar support under President-elect Donald Trump’s administration. ​​​​

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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