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Wednesday, November 23, 2016

Federal Judge Blocks Implementation of DOL’s New Overtime Rule

On November 22, 2016, a federal judge in Texas issued a nationwide injunction barring implementation of the United States Department of Labor’s new overtime rule under the Fair Labor Standards Act, 29 U.S.C. § 201 et. seq. (“FLSA”), which was to become effective on December 1, 2016. 

The new rule, if it ever goes into effect, would represent the most significant modification of the FLSA’s overtime regulations in over twenty years.  Prior to the new rule, the longstanding “white-collar” overtime exemptions required that executive, administrative, and professional employees perform certain duties and be paid a salary of at least $23,660 annually (or $455 per workweek) in order to be exempt from overtime.  The new rule made no change to the duties test, but would have doubled the minimum annual salary level to $47,476.  Under the new rule, the minimum salary also would have automatically adjusted every three years to track a federal wage index. 

Yesterday’s injunction was issued by a federal district court judge in the Eastern District of Texas in a consolidated lawsuit, Nevada v. U.S. Department of Labor, No. 4:16-CV-00731 (E.D. Tex. Nov. 22, 2016), which was brought by 21 states and 50 business organizations.  The court held that the new rule is unlawful because it “exceeds [the Department of Labor’s] authority and ignores Congress’s intent” in that it raises the minimum salary level to such an extent that it “supplants the duties test.”  The court noted in support of its decision that under the new rule 4.2 million workers currently ineligible for overtime would automatically become eligible simply due to the new threshold salary.  The court expressly held that the injunction against implementation of the new rule extends nationwide.

The court’s ruling presumably will be appealed to the U.S. Court of Appeals for the Fifth Circuit.  It is unknown how long such an appeal will take or whether the appellate court (or the United States Supreme Court) will affirm or reverse the district court’s decision.  In any event, the injunction will remain in effect until such time as it is reversed, which almost certainly will not occur before December 1, when the new overtime rule was to go into effect.  Adding even more uncertainty is the recent election of a new president, which very well may result in the modification or withdrawal of the rule, even if it were ultimately held by the courts to be lawful in its current form.

In light of the uncertainty regarding whether and when the new rule will go into effect, employers now face difficult questions about whether to restructure salaries, modify job duties, hire part-time employees or take other steps that would be important if the new rule were to go into effect.  Employers who have not yet implemented changes are no longer legally required to do so.  Employers who have already announced changes in anticipation of the new rule now must decide whether such changes are still warranted, whether because legally-binding promises have been made to employees or simply in the interest of preserving employee morale.

The foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation and should not be relied on as such.  Please contact one of our labor and employment lawyers if you have any questions or if you would like to discuss how to proceed under these circumstances.

This update was prepared by David A. Castleman and Erin M. Leach.

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