DOL Overtime Rule Halted - Now What?

NOVEMBER 28, 2016

ILMA reported in an Alert last Wednesday that a federal judge in Texas has granted a nationwide preliminary injunction, blocking the Department of Labor's (DOL) new overtime rule, which would have raised the Fair Labor Standards Act's (FLSA) annual salary threshold for exemption from overtime pay from $23,660 to $47,476, beginning December 1.

Because the litigation over DOL's overtime rule will continue before Judge Amos Mazzant in the U.S. District Court for the Eastern District of Texas, we have asked ILMA Counsel Jeff Leiter and  Daniel Bryant to answer some questions about the court's action and whether ILMA members need to do anything by the December 1 deadline.

Q: What is does a "preliminary injunction" mean?
A: A preliminary injunction effectively preserves the status quo while the court determines whether DOL had the authority under the FLSA to issue the final overtime rule last May. It is only the first step in the litigation before the courts. Nonetheless, the overtime rule will not take effect as planned on December 1, so ILMA members as employers may continue to follow the current overtime regulations which were last updated in 2004.

Keep in mind that the injunction does not affect state and local law overtime exemptions, so employers need to continue to comply the requirements under those laws, some of which already have in place salary levels higher than the existing (2004) federal level (e.g., New York's salary requirement is $675 per week, and, in California, the weekly salary requirement will increase to $840 per week ($43,680 per year) on January 1, 2017).

Q: Does the preliminary injunction put an end to the new overtime rule?
A: No, the preliminary injunction is not permanent. The overtime rule could still be implemented later down the road either if the trial judge rules for DOL on the merits of the case and lifts the preliminary injunction, or if DOL successfully appeals the stay before the U.S. Court of Appeals for the Fifth Circuit. In either case, DOL now faces an uphill battle in the courts. DOL said it is reviewing all of its legal options.

Q: Does the court's ruling apply to all ILMA members as employers?
A: Yes. Because the FLSA overtime rule applies in all states, the judge decided to apply his preliminary injunction on a nationwide basis. Judge Mazzant said, "A nationwide injunction protects both employees and employers from being subject to different exemptions based on location."

Q: What does an ILMA member company do if it already had raised exempt employees' salaries or has reclassified employees to non-exempt status?
A. We expect that most employers likely will leave decisions in place they already have made to provide salary increases to those employees in order to maintain their exempt status. It simply is too hard to take the money back, and it would lead to disgruntled workers. However, employers can hold off for now if they have exempt employees who were going to be reclassified to non-exempt, but have not been reclassified as of yet.

Q: Any final thoughts on practical options for ILMA members?
A: As lawyers, we are risk averse. ILMA members, as employers, need to weigh the legal
and business risks in deciding whether to comply with the now enjoined DOL overtime regulations. Let's look at this two ways, recognizing that companies have spent countless hours getting ready for the December 1 deadline. 

First, the legal risk is whether the overtime rule can be enforced retroactively if the regulations are later upheld by the courts. In that event, employers could be liable for overtime payments, plus attorneys' fees, to those employees who were classified as exempt under the current regulations but who are not exempt under the new regulations. While we think the risk is low, ILMA members can minimize the risk by keeping accurate time records for such employees after December 1.

Second, the business risk is the incoming administration of President-elect Trump. The Trump administration could end the litigation by withdrawing an appeal by DOL. Notwithstanding the outcome of the lawsuits, the Republican-led Congress could enact legislation to amend the FLSA, further defining the white collar exemptions. 

The "bottom line" is that DOL’s salary threshold increases are in limbo, there are a lot of unanswered questions, and there is a high likelihood that the new regulations will never go into effect. ILMA will continue to monitor developments closely, and we are happy to discuss our views on what may happen next at any time.