Only nine days before sweeping changes to Fair Labor Standards Act rules were to have taken effect, a federal judge has issued a preliminary injunction suspending the final rule. From the standpoint of employer compliance, this ruling adds a new level of uncertainty to an already uncertain and complex 2017 compliance picture.  

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Overtime Rule Will Not Take Effect December 1, Federal Judge Says Labor Department Erred

Tue Nov 29, 2016

"Nothing in the EAP exemption indicates that Congress intended the Department [of Labor] to define and delimit with respect to a minimum salary level. Directly in conflict with Congress’s intent, the Final Rule states that “[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.” With the Final Rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test. If Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change. This significant increase to the salary level creates essentially a de facto salary-only test. Congress did not intend salary to categorically exclude an employee with EAP duties from the exemption."   

-- U.S. District Court Judge Amos L. Mazzant, November 22, 2016

Only nine days before one of the most sweeping changes ever to Fair Labor Standards Act rules was to have taken effect, a federal judge for the Eastern District of Texas has issued a preliminary injunction suspending the final rule. Twenty-one states and several business groups had challenged the legality of the final overtime rule.

Judge Amos L. Mazzant, appointed to the bench by President Obama, ruled that the Department of Labor exceeded its authority by essentially substituting a doubling of the minimum salary threshold for the so-called “duties” test.

Judge Mazzant held that Congress explicitly intended that there be three tests for overtime exempt employees—(1) that they be paid on a salary basis; (2) that they be paid at least a minimum salary; and (3) that they perform certain executive, administrative or professional (EAP) duties, i.e., the duties test.

To the extent that the Labor Department final rule minimized the importance of the duties test, said Judge Mazzant, the department exceeded its authority, making the final rule “unlawful.”

What happens next?

First of all, no one thinks the U.S. District Court ruling is the last word on this subject. The Department of Labor said that it “strongly disagreed” with the decision and was “considering legal options,” presumably including appeals.

But time is definitely not on the side of the Labor Department or the now-enjoined final overtime rule. President-elect Donald Trump will take the oath of office in less than two months, hardly enough time for an appeal to be considered. And with the final rule in legal limbo, the Trump Administration Labor Department might decide not to fight the district court ruling and instead start a new rulemaking process that takes account of the court’s decision.

In any event, the December 1 effective date for the new overtime rule is now on ice and, as Judge Mazzant put it, “the Department of Labor is enjoined from implementing and enforcing the regulations.”

What are employers to do?

From the standpoint of employer compliance, the U.S. District Court ruling adds an entirely new level of uncertainty and complexity to an already uncertain and complex 2017 compliance picture. With Affordable Care Act repeal and replacement high on the legislative agenda for early 2017, employers must now deal with a new FLSA overtime rule picture—even as most have already taken many steps to come into compliance with the final rule.

And as the old saying goes, “Be careful what you wish for.” Taken literally, the U.S. District Court ruling suggests that any new Labor Department rulemaking must address both the minimum salary level and the duties test—meaning that exempt EAP duties could be defined more rigorously, precisely what the Obama Labor Department was trying to avoid in setting the higher salary threshold.

In addition, the District Court decision could embolden the states to promulgate their own more restrictive overtime regulations—mirroring the patchwork of state-by-state mandatory paid leave laws now proliferating across the country.

Finally, the just-issued injunction is temporary, giving the Court time to more completely determine the Labor Department’s authority and the final rule’s validity. The department meanwhile will explore other options.

For employers all this uncertainty can only mean one thing: stand pat for now. The vast majority of employers have already acted to raise salaries, reclassify employees as needed and adjust schedules—all to come into compliance with the final rule. The preliminary temporary injunction would seem insufficient reason for employers immediately to undo decisions or take back actions they have already implemented.

The White House and the Labor Department, as well as state and local governments, nonprofits organizations, business groups and others, all will be considering options and following developments closely in the days and weeks ahead. That’s good advice for employers too.