Late in the day on November 22, 2016, a federal district court in Texas issued a nationwide preliminary injunction blocking the new overtime rule from taking effect on December 1, 2016. Employers must quickly decide how to respond to the block in terms of their affected employees.
The Court ruled at this stage of the litigation that the overtime rule is unlawful because the United States Department of Labor ("DOL") lacked the authority to adopt it. The Court held that the DOL does not have the power to impose a salary test when defining the duties that determine if employees qualify for the executive, administrative, and professional exemptions. The Court said the DOL has "significant leeway" to establish the duties that make an employee exempt, but nothing in the exemptions from the Fair Labor Standards Act "indicates that Congress intended the Department to define and delimit with respect to a minimum salary level." By writing the rule to state that employees earning a salary of less than $913 per week will not be exempt regardless of their duties, the Court concluded that the DOL exceeded its delegated authority and ignored the intent of Congress by raising the minimum salary level "such that it supplants the duties test."
This is a nationwide preliminary injunction, so the rule cannot take effect December 1. Because it is "preliminary," it is an emergency stop until the next stage of the litigation, where the businesses and states that challenged the rule must prove on the merits that the DOL lacked the authority to adopt it. Put another way, the Court concluded that it had to block the rule because of the harm it will cause in the absence of the preliminary injunction, and it issued the injunction because it believes that the challengers eventually will prove that it is unlawful.
We do not know where the court case goes from here. It is possible that the DOL will seek review of the decision from the federal court of appeals. Following the preliminary injunction, the DOL issued a statement on its website including the following:
"The Department strongly disagrees with the decision by the court, which has the effect of delaying a fair day's pay for a long day's work for millions of hardworking Americans. The Department's Overtime Final Rule is the result of a comprehensive, inclusive rule-making process, and we remain confident in the legality of all aspects of the rule. We are currently considering all of our legal options."
Regardless of the outcome of the court case, the rule may be in jeopardy at the DOL itself because the Trump administration may want to revise or abandon it.
Employers should weigh both legal and employee relations considerations when deciding next steps. If an employer has announced to affected employees that it was implementing changes (e.g., a salary increase or change in exempt status) to comply with the requirements of the new rule effective December 1, it may continue down that path voluntarily. If an employer wants to reverse course by going back to employees who understood they would start receiving overtime due to a change in exempt status, and telling them that nothing will change after all because of the Texas court decision, it is legal to do so for now. Employers should carefully consider the legal implications and employee relations issues prior to withdrawing a promised salary increase. In the end, we think that it likely will be a judgment call for many employers as to how they approach affected employees.
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Please contact a member of Maslon's Labor & Employment Group if you have questions or would like to discuss this important development.