Federal Court Blocks Dept. of Labor “Overtime Rules” From Taking Effect on December 1, 2016 – So, Now What?

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On Tuesday, November 22, 2016, a federal court in Texas issued a Preliminary Injunction Order that effectively halted implementation of the new "overtime rules" mandated by the U.S. Department of Labor (DOL) scheduled to take effect on December 1, 2016. The court’s ruling applies nationwide to all employers who are subject to the Fair Labor Standards Act (“FLSA”) and who were going to be affected by the new rules. 

Background. We previously reported here on the requirements of the new overtime rules. The rule changes would have had a direct impact on all salaried employees currently classified by their employer as “exempt” under the executive, administrative, professional, outside sales or computer employee exemptions, who are currently paid a salary that is more than $455/week ($23,660/year) but less than $913/week ($47,476/year). Under the new rules (which now are blocked), employees making less than $913/week ($47,476/year) would no longer be exempt, regardless of whether they meet the exemption “duties” tests, and would be entitled to overtime pay for all hours worked over 40 in each work week. The changes would have affected an estimated 4 million workers in the United States and caused employers nationwide to engage in months of planning, preparation and workforce adjustments in advance of December 1.  

The lawsuit and preliminary injunction. Earlier this year, a group of 21 states and governors filed a lawsuit in the U.S. District Court for the Eastern District of Texas seeking to block the new rules from taking effect. The lawsuit was supported by a coalition of industry, trade and commerce groups that opposed the DOL’s rules and challenged the agency’s legal authority to mandate compliance with them. The district court recently heard arguments from the parties and stakeholders connected to the lawsuit. One of the primary arguments advanced by those who opposed the rules was that the DOL was not permitted to define whether employees were “exempt” or “nonexempt” for overtime purposes solely by their salary level. According to their argument, when it enacted the FLSA Congress intended the exemptions to apply based on the tasks or “duties” the employees actually perform (rather than the salary threshold alone).

Apparently, the court was persuaded by this argument and stated, “Congress defined the [white collar] exemption with regard to duties, which does not include a minimum salary level. With the final rule, the [DOL] exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test.” If Congress’s intent was for a salary requirement to control whether a worker was “exempt,” the court noted, then Congress, and not the DOL, should make that change. In issuing the Preliminary Injunction, and temporarily blocking the new rules, the court determined that the states demonstrated a “likelihood of success on the merits,” meaning that the states opposing the law likely would be able to prove that the DOL exceeded its authority in passing the new rules.

What does the ruling mean? How long are the rules halted? The ruling means that employers will not be required to comply with the new rules on December 1. There is currently no certainty on how long the injunction will be in place, except to say that it will remain in force until the “merits of the case” are fully and finally adjudicated through the legal system or until a higher court reverses, alters or amends the current injunction. Parties to the litigation are reported to be considering all legal options. Many commentators opine that the current injunction will carry into a new presidential administration that already has forecast a willingness to challenge, amend or repeal certain regulations that were enacted and laws that were passed under the current presidential administration. So, while temporarily granted a reprieve, employers may need to stand ready to comply with the rules eventually, or comply with a retooled or revamped version of them, depending on future developments.  

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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