STOP THE PRESSES. Yesterday, in a surprise move, the United States District Court for the Eastern District of Texas, Sherman Division, issued a preliminary injunction to halt the implementation of the U.S. Department of Labor's (“DOL”) new federal overtime rule (i.e., the “2016 Final Regulations”). The 2016 Final Regulations, which were set to take effect next Thursday, December 1, would have increased the minimum salary level threshold from $455 per week to $913 per week (or from $23,660 to $47,476 annually) for an individual to be considered exempt from overtime pay requirements. The rule also included triennial adjustments, but all of that has now been postponed in light of the Court's ruling.“A preliminary injunction preserves the status quo while the Court determines the [DOL]'s authority to make the final rule as well as the final rule's validity,” said Judge Amos Mazzant.
In its decision, the Court examined the original wording of the Fair Labor Standards Act (“FLSA”) as implemented in 1938. The Court found that Congress, in establishing the FLSA, focused on the duties of individuals who should be exempt from overtime pay. These were and are still known as Executive, Administrative, and Professional duties. The Court found that Congress did not originally intend for either a salary test or minimum salary level to be part of the exemption analysis. Accordingly, Judge Mazzant held that the original statute as passed by Congress did not permit or intend for an employee's salary to be considered much less override the explicitly embraced duties analysis.
Judge Mazzant cited the following language in the 2016 Final Regulations to bolster his decision to issue an injunction: “[w]hite collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities.”[Emphasis added.] Judge Mazzant found this language to be an impermissible attempt to have the new 2016 salary levels override the originally envisioned primary duties analysis.
Judge Mazzant further found that a nationwide injunction was necessary as multi-location employers would face great difficulty complying with the new rule in one state but not in another. The Court therefore issued a nationwide preliminary injunction to prevent the DOL from implementing or enforcing the new minimum salary level of $913 per week for exemption from overtime pay and any triennial minimum salary increase.
The preliminary injunction is also certainly going to be appealed by the DOL to the Fifth Circuit Court of Appeals.
1. Due to the timing of the Court's injunction, any appeal to the Fifth Circuit will likely occur after President-elect Donald J. Trump takes office.It is unlikely that his administration will enforce the 2016 Final Regulations (i.e., the $913 weekly salary and the salary increases every three years). If his administration revokes the 2016 Final Regulations, any appeal would then become moot and the 2016 Final Regulations would, in essence, die. The Republican-controlled U.S. House of Representatives and Senate have also both promised to override the 2016 Final Regulations.President-elect Trump would likely sign any such override (i.e., bill) into law.
2. Importantly, the preliminary injunction does not make any changes to pre-2016 FLSA regulations or interpretations. The injunction and the now-enjoined 2016 Final Regulations do not alter the long-standing Duties Test, i.e., whether or not an employee qualifies as exempt under the Executive, Administrative, Professional analysis and the earlier $455/week salary minimum. Therefore, if your organization made changes or needs to make changes to an individual's exempt status because of that employee's tasks actually performed or authority within your company, then the Court's preliminary injunction and any resulting legal battle will not alter your obligations to comply with the tests which pre-existed the 2016 Final Regulations and which continue today.
3. If you have already communicated changes to your employees, either a shift to nonexempt status or an increase in salary level, you now find yourself in a difficult position. You will need to determine if you will rescind raises promised or reclassifications made.Any changes made or promises communicated impact not only budgets and reporting structures but also employee productivity and morale. Tread cautiously if you intend to rollback changes already communicated and consult your legal counsel before doing so.
4. If you have not communicated changes to your employees, you find yourself in an enviable position. You can analyze your organization to determine which changes should still be implemented, if any, due to the duties test or other factors while also looking to possible budgetary savings.
Farhang & Medcoff recognizes that this injunction will impact our clients in numerous ways. We are happy to answer any questions you may have and to craft precise solutions to address your concerns.Should you have any questions, please feel free to contact Ali Farhang, Tim Medcoff, Lia Keller, Robert Garcia or Roscoe Mutz at Farhang & Medcoff.They can be reached via their bios on our firm's website fmazlaw.com or 520.790.5433.