Federal Judge Blocks Implementation of New Overtime Regulation

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FEDERAL JUDGE BLOCKS IMPLEMENTATION
OF NEW OVERTIME REGULATION

A federal judge in Texas has issued a nationwide preliminary injunction blocking implementation of the U.S. Department of Labor’s (“DOL’s”) new federal overtime rule. The new rule was set to go into effect on December 1, 2016.
Background.

The Fair Labor Standards Act (FLSA) is a federal law that mandates overtime compensation for employees who work more than 40 hours in a work week. Certain employees can be exempted from the overtime requirements, if they meet certain duties tests and are paid on a salaried basis. Under current regulations, a salaried employee who is otherwise exempt from overtime must earn at least $24,660 per year. The new regulation would have increased the salary threshold to $47,476 per year. Under the proposed rule, employees earning less than this amount could not be exempt from the overtime pay, regardless of their duties.

Ruling.

This new overtime rule was set to go into effect on December 1, 2016. In October, a coalition of twenty-one states (including Michigan) filed suit challenging this regulation, asserting DOL had exceeded its rule-making authority by raising the salary threshold too high. This suit was consolidated with another, brought by the U. S. Chamber of Commerce, in the United States District Court for the Eastern District of Texas. Yesterday, in a surprise ruling, District Judge Amos Mazzant (an Obama appointee) issued a preliminary injunction blocking DOL from implementing the new rule.

A preliminary injunction is not a final or permanent ruling. Its purpose is to preserve the status quo while the Court determines whether or not DOL exceeded its authority in making the new regulation. The new rule will not take effect on December 1, but it still could be implemented later on. DOL has indicated that it intends to appeal this ruling, as well. For now, though, employers can continue to follow the existing rules, including the lower salary threshold.

What to do now?

Ultimately, the new regulation may still face a stiff uphill battle: The Court would not have granted the preliminary injunction without finding that the states had shown a “significant likelihood” of ultimately prevailing on their claim that DOL exceeded its authority. Additionally, both President-elect Trump and the Republican-controlled Congress have expressed opposition to this rule. The new Administration and Congress may ultimately eliminate the proposed rule altogether, or at least add an exemption for smaller businesses.

Many employers have already taken action to raise exempt employees’ salaries above the new threshold, or have reclassified employees earning less to nonexempt, hourly status. Given that this is not a final decision, and given uncertainty about the future of this regulation, employers who have already taken actions will likely want to leave those decisions in place for now. Taking back pay increases that have already been implemented could prove very difficult. However, to the extent employers were planning to reclassify employees earning less than $47,476 from salaried to nonexempt, hourly status effective December 1, those plans can be delayed.

Recap:

(1) This is a preliminary injunction, and not a final or permanent decision;

(2) Although it would be difficult to undo any changes that have already been implemented, employers may want to postpone any reclassifications or salary increases that haven’t been done yet;

(3) Don’t assume that this new overtime regulation will be permanently barred. It is crucial to have a plan for moving forward in the future, if necessary.

If you have further questions or concerns about the status of the new overtime regulations, or how your business should be preparing for it, contact the Employment Law Group at the Loomis Law Firm. We are committed to helping business and employers find innovative and creative solutions to all your employment-related issues.

Contact: Kevin J. Roragen
kjroragen@loomislaw.com
(517) 482-2400