On November 22, 2016, federal district court Judge Amos L. Mazzant of the Eastern District of Texas issued a preliminary nationwide injunction stopping the Department of Labor (“DOL”) from implementing and enforcing the updated overtime rule, which was set to go into effect December 1, 2016.
The updated overtime rule
would have required employers to provide overtime payment to any worker earning less than $913 a week, or $47,476 annually, regardless of job duties.
The injunction occurred as a result of 21 states filing an emergency motion in federal court to stop the updated overtime rule from going into effect. The states’ case was combined with another lawsuit filed by the Plano Chamber of Commerce and over 50 business organizations. The combined suit raised objections to the authority exercised by the DOL and claimed irreparable harm would occur if the rule went into effect. The court held 1) there was a substantial likelihood the states’ case would succeed on the merits, 2) the updated overtime rule created a substantial threat of irreparable harm if the injunction was not issued, 3) the harm in implementing the rule while the case is litigated outweighs the harm caused by delaying implementation, and 4) the public interest is not disserved by the injunction.
In support of its conclusion, the court said there was a substantial likelihood the DOL acted against the intent of Congress as it relates to the white-collar overtime exemption rules in that it “exceed[ed] its delegated authority and ignore[d] Congress’s intent by raising the minimum salary level such that it supplants the duties test” and created a “de facto salary-only test” as it would require overtime for many white-collar workers by ignoring duties all-together in several instances. The court said Congress did not intend for the salary level to categorically exclude an employee with white-collar duties from the exemption. In addition, the court also found there was a likelihood of success on the states’ claim that the DOL lacks the authority to implement an automatic updating provision for the salary level threshold every three years.
The injunction will preserve the existing rule while the court reviews the DOL’s authority to make such a rule as well as the validity of the rule. While the rule will not take effect December 1, 2016, it is possible it could be implemented after review. Further, the incoming administration and Congress have voiced opposition to the updated regulations so while the future of the updated overtime rule is unknown, it is more likely than not significant changes will occur.
At this point, there are several directions this can go, which leaves employers in a difficult position. An appeals court could overturn the injunction at any point (assuming the court’s decision is appealed), Congress could pass legislation nullifying the updated regulations, the incoming administration could make changes, the court could invalidate the regulations with a ruling on the merits, or the court could uphold the regulations. Given the uncertainty, the following are some considerations employers should take into account when assessing next steps and the possible implications:
The issued injunction maintains the status quo, preserving the overtime rules as they are currently administered. An employer could decide to act in accordance with the current rule or if changes have already been implemented in the workplace, adhere to the pending overtime rules understanding there is no current enforcement provisions.
In the short term, the DOL may decide to appeal the injunction in the Fifth Circuit Court of Appeals. If the appeal is successful and the injunction is overturned, employers would have to act accordingly and adhere to the updated overtime rule. Employers should be aware that the incoming administration and Congress have expressed dissatisfaction with the new overtime rule, so it is possible that even after a successful appeal, the rule could be suspended by Congress or by the incoming administration. The injunction appeal could also be denied, in which case the current overtime rule would remain in place. However, employers would still be required to comply with any local or state labor laws that may offer more protection than federal law.
Employers must also consider the long-term effects of whatever action it decides to take. If an employer chooses to do nothing or revert back to the status quo while the updated overtime rule is being reviewed, it is possible that an employee could sue for potential back pay with interest in the event the updated overtime rule is finally implemented.
Employers should also consider the disruption to the company and culture of switching employees’ status between nonexempt and exempt. Finally, employers should continue to watch for newly implemented local and state laws that may offer more protection than federal labor laws as it relates to overtime and minimum wage protections.
If you have any questions, please contact a member of Plante Moran's Employee Benefits Consulting team.