In November, just days before the Final Rule’s December 1, 2016 effective date, a Texas federal district court judge granted an injunction halting its implementation, citing a high likelihood that the DOL exceeded its authority by raising the minimum salary threshold without Congressional approval. The injunction was entered as part of a lawsuit brought by 21 state governments and will remain in place until the case is resolved.  In the meantime, the prior rule remains in place.  

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Federal Court Delays Implementation of US Department of Labor Final FLSA White Collar Exemption Rule

Dec 19, 2016

Texas Federal Court Delays Implementation of US Department of Labor Final FLSA White Collar Exemption Rule, U.S. Department of Labor Appeals to Fifth Circuit

Background on the Final Rule:
On May 18, 2016, the United States Department of Labor (DOL) announced the publication of its final FLSA white collar exemption rules (the Final Rule). The Final Rule increased the exemption’s minimum salary requirements from $455 to $913 per week, or an increase from $23,660 to $47,476 on an annual basis. The DOL estimates the rule change would expand overtime coverage to more than 4 million workers.

STATE OF NEVADA, ET AL v. UNITED STATES DEPARTMENT OF LABOR, ET AL. 

On November 22, 2016, just 10 days before the Final Rule’s December 1, 2016 effective date, a Texas federal district court judge granted an injunction halting its implementation, citing a high likelihood that the DOL exceeded its authority by raising the minimum salary threshold without Congressional approval. The injunction was entered as part of a lawsuit brought by 21 state governments and will remain in place until the case is resolved.  In the meantime, the prior rule remains in place. 

On December 1, 2016, the DOL appealed the Texas court’s ruling to the Fifth Circuit Court of Appeals in New Orleans and asked for an expedited hearing. The Fifth Circuit granted the DOL’s request on December 8, and a hearing is scheduled for January 31, 2017, 11 days after President-elect Trump is inaugurated. The Trump Administration, including recent DOL Secretary nominee Andrew Pudzer, has already indicated it does not support the Final Rule and will likely withdraw the DOL’s appeal.

The prior rule is expected to remain in effect for the foreseeable future. If a change does occur under the Trump Administration’s tenure, it is likely to come after the litigation has been resolved and is expected to look quite different from the Final Rule. If the appeal is successful, there is a small chance the rule may be enforced retroactively.

Impact of Final Rule:
Employers seeking to comply with the Final Rule would have needed to consider whether to expand the number of employees who were entitled to overtime pay or increase employee salaries to meet the exempt threshold.  Each employer should have considered which response to the Final Rule would have been the most effective and appropriate for its business. Assuming overtime work could not be completely eliminated through work redistribution or schedule optimization, employers would have needed to consider the following options for each employee or groups of similarly-situated employees:

  1. Reclassify employees as hourly, nonexempt and pay overtime.
  2. Reclassify employees as salaried, nonexempt and pay overtime.
  3. Retain the exempt employees’ status by raising salaries to the minimum threshold required by the Final Rule. If they also met the applicable duties tests, no overtime pay would be due.

In any case, employers would have likely communicated with their affected employees before planned changes were implemented.

Impact of the Injunction and Appeal:
The injunction is likely to create significant challenges for employers, some of which have already given or promised their employees pay increases or the prospect of overtime pay.  Many employers prefer not to roll back these changes and face employee backlash, but to be clear, there is no current requirement to implement the Final Rule, even with the appeal pending. 

Further changes to the underlying FLSA overtime rules are a distinct possibility under the Trump Administration. At this point, employers must determine what works best for them given the changes they have already communicated or made with regard to affected employees. Because there is a small chance the Final Rule could be enforced retroactively if the appeal is successful, employers should keep detailed records of hours worked and limit overtime if possible until the legal landscape becomes clearer.

For more information, please see:

The final regulations: www.dol.gov/whd/overtime/final2016/              

DOL press release on appeal: www.dol.gov/whd/overtime/final2016/litigation.htm