New Overtime Rule Blocked

In preparation for the new Fair Labor Standards Act (“FLSA”) overtime rule that was scheduled to go into effect on December 1, 2016, most employers have been actively planning or implementing changes with respect to how they compensate employees and classify them for purposes of overtime eligibility. The new FLSA rule would raise the minimum salary requirement for employees to be exempt from overtime under the FLSA from $455 per week ($23,660 per year) to $913 ($47,476 per year). However, a last minute Court injunction has now resulted in employers not needing to comply with the new regulations in the immediate term and presents uncertainty over whether this new FLSA rule will ever actually be implemented.

By way of background, on September 20, 2016, a coalition of 21 states, and the U.S. Chamber of Commerce in conjunction with other business groups, brought two separate lawsuits seeking to stop the new overtime regulations from going into effect on December 1. On November 22, 2016, only a week prior to the new rule going into effect, a federal judge in the Eastern District of Texas entered a nationwide injunction, ordering the U.S. Department of Labor to freeze implementation of the new overtime rule until a final decision has been made on the merits of the cases brought challenging the rule’s validity.

Judge Amos L. Mazzant, who issued the injunction, agreed with the plaintiffs that they faced irreparable harm should the rule become effective on December 1. Judge Mazzant found that the Department of Labor had overstepped its authority with the new rule, writing that “[i]f Congress intended the salary requirement to supplant the duties test, then Congress and not the department, should make that change.” He also agreed with the plaintiffs that the language of the FLSA indicates that Congress intended the “white collar” exemptions to apply to employees that were performing executive, administrative, or professional duties, without any reference to a minimum salary level.

However, in this case, the injunction could result in the demise of the new rule should the Department of Labor choose to not appeal the decision based on the impending presidency of Donald Trump. The rationale behind not taking the appeal would be that president-elect Trump, and his new secretary of labor, would be unlikely to continue to defend the case going forward.

Regardless of the outcome of this case, employers still face difficult decisions going forward. For employers that have not implemented any changes to comply with the new rule, the injunction removes the immediate requirement for any action on their part and presents the possibility that changes may not be required based on this version of the rule. In contrast, employers that have already implemented changes, such as by informing employees that their salaries will be increased or that they will be converted to non-exempt status on December 1, 2016, are presented with a difficult decision on how to respond to this recent development.

Employers should realize that although they are not required to comply with the new rule on December 1, 2016, reversing course on any previously announced changes could present a variety of repercussions, including potential claims against the employer for misclassification of overtime exempt status or even breach of contract claims. As such, employers should consult with counsel if they are contemplating modifying their employee compensation plans based on this injunction, especially if the modifications alter plans that had already been announced to employees.

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12.01.2016  |  PUBLICATION: Employment Notes  |  TOPICS: Employment

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