Federal Court Blocks DOL's New Overtime Rule

November 29, 2016

Last week, the United States District Court for the Eastern District of Texas issued a nationwide injunction prohibiting the implementation of the U.S. Department of Labor's (DOL) overtime rule, scheduled to take effect on December 1st. The DOL's rule was two years in the making, prompted by President Obama's 2014 Presidential Memorandum to update the Fair Labor Standards Act (FLSA) overtime protections for "white collar" workers.

If enacted, the rule would have: (1) increased the minimum salary necessary for administrative, executive and professional employees to be exempt from overtime (from $23,660 to $47,476), (2) permitted employers to include certain nondiscretionary bonuses and commissions in calculating up to 10% of an employee's salary, and (3) provided for automatic updates to the salary threshold every three years. The DOL estimated that over 4 million employees would have been become newly-eligible for overtime pay under the new rule.

The Court issued the ruling in a case brought by 21 states and numerous business groups. The plaintiffs argued, and the Court agreed, that the DOL exceeded its statutory authority by imposing any salary requirements for these particular "white collar" exemptions, which the statute defines by a job "duties" test and not a minimum salary threshold. The injunction is temporary, however, and the Court will need to determine whether to permanently nullify the new rule. Meanwhile, the DOL will almost certainly appeal the ruling to the U.S. Court of Appeals. To complicate matters, it is unclear whether President-elect Donald Trump's incoming administration would abandon such an appeal or allow it to proceed.

What does this mean for employers?

1. Employers are not required to comply with the new rule unless and until the injunction is overturned. While the injunction is in place, employers are not required to alter their overtime pay practices to comply with the new rules. For now, the minimum annual salary for the executive, administrative, and professional exemptions will remain $23,660 (or $455/week). For employers who have not yet made any changes to comply with the rule, they may safely adopt a wait-and-see approach.

2. Employers who have already implemented the new salary threshold rules should proceed with caution before revoking them. The DOL states that "it strongly disagrees with the decision" and is "currently considering all of [its] legal options." If the DOL successfully appeals the ruling, and Congress and/or the incoming administration does not otherwise act to rescind the rules, employers may still be required to comply with the changes. Employers also should consider the effect upon employee morale if they chose to rescind recent pay increases under the new rules.  

3. Employers should clearly communicate with affected employees. Employers should communicate with employees about the injunction and the potential for future changes to their working conditions and compensation in a timely, thoughtful manner. If the injunction becomes permanent, employers should consider whether there may be alternatives to rescinding salary increases that do not impose unexpected hardships on affected employees.

Further questions? Feel free to contact Allyson Kurker and Margaret Paget.