Yesterday, Texas District Court Judge Amos L. Mazzant issued an order that immediately blocks the implementation of the Department of Labor’s (“DOL”) new overtime rule to the Fair Labor Standards Act (“FLSA”), which was scheduled to go into effect on December 1, 2016. In order to comply with the new overtime rule, employers across the country were preparing either to raise certain employee salaries substantially, or, in the alternative, pay overtime to employees who had previously been classified as exempt.
Under the new overtime rule, the DOL increased the salary threshold for the white collar exemptions to $47,476 per year – more than double the previous cutoff of $23,660. Had the rules gone into effect, approximately four million Americans, who were previously considered exempt from the overtime laws under the white collar exemptions, would have become eligible for overtime pay.
After the DOL issued the final new rules in May, twenty-one states and a coalition of business groups filed lawsuits against the agency, arguing that the new overtime rule should be struck down because the DOL exceeded its authority to determine which employees can be exempt from overtime pay. The states sought an immediate injunction to suspend enforcement of the new overtime rule, arguing that it would strain employer budgets and restrict their ability to offer services. Last month, the claims of the business groups and the states were consolidated into a single lawsuit, and the Court agreed to consider the arguments of both groups as part of the states’ request for an injunction.
In a decision that surprised many observers, the Court agreed with one of the more straightforward arguments advanced by the states – that Congress never gave the DOL the authority to implement a substantially higher salary test for white collar employees. The Court looked at the language of the FLSA, which allows the Secretary of Labor to define which employees are “employed in a bona fide executive, administrative, or professional capacity,” and held that the DOL exceeded its authority by raising the minimum salary to a level that would effectively supplant this duties test. In the Court’s view, the new rule contradicts the clear intent of Congress – to focus on the job tasks that employees actually perform. The Court also exercised its authority to block the overtime rule nationwide, as applied to both public and private employers, to avoid inconsistent standards.
The Justice Department may appeal the injunction to the conservative Fifth Circuit Court of Appeals. If the injunction survives appeal, the states and business groups will still have to convince the Court that the new overtime rule should be permanently blocked. However, further legal maneuvering will take time, and employers are not required to comply with the new overtime rule in the interim.
Companies that have already made changes to comply with the new overtime rule may wish to continue with those changes, especially if policies have already been distributed and managers and employees have been trained on new procedures. Factors to be considered include: whether notice has already been given, whether new rules have been communicated in writing, and whether job duties and work schedules have been changed. Likewise, employers should consider whether foregoing planned salary increases or agreements to pay overtime will impact employee morale or spur potential union activity. We encourage employers to consult with their employment counsel, and keep an eye out for further updates from HR Legalist, until the ultimate fate of the new overtime rule is determined.
Ivo Becica focuses his practice on advising employers on how to reduce litigation risk and resolve employee issues, and on defending employers in litigation if necessary. He can be reached at 215-667-6335 or email@example.com