By Tyler Tarney and Michael Mahon

On November 22, 2016—nine days before a drastic increase to the salary requirement for overtime exemptions was set to take effect—a Texas federal court issued a nationwide preliminary injunction temporarily blocking it. Although this is not a final determination and the uncertain legal and political landscape in this area could leave employers in limbo for months, the ruling means that employers no longer need to implement the changes by December 1, 2016.

The Fair Labor Standards Act requires employers to pay covered, non-exempt employees overtime for all hours worked in a week over 40. To be exempt: (1) employees typically must be paid a predetermined and fixed salary; (2) the salary must satisfy the minimum specific amount (“the salary test”); and (3) generally the job must primarily involve “executive,” “administrative,” “professional,” or other duties (“the duties test”). Although the Department of Labor is charged with enforcing the FLSA, private actions are often brought through class and collective actions—which have recently been filed at record levels—on behalf of employees and “similarly-situated” individuals.

After President Obama’s 2014 directive for the DOL to modernize its overtime rules, the DOL issued its “Final Rule” in May 2014 that:

        • Raised the minimum salary from $23,660—which is below the poverty line for a family of four—to $47,476 a year (or from $455 to $913/week);
        • Automatically updates the salary threshold every three years; and
        • Allowed bonuses and incentives to count for up to 10 percent of the new level.

These changes, which were set to take effect on December 1, 2016, were forecasted to affect 4.2 million workers and raise wages by $12 billion over the next decade.

On November 22, 2016, a Texas federal court issued a nationwide preliminary injunction temporarily blocking the Final Rule. The case, State of Nevada, et al. v. United States Department of Labor, was filed by twenty-two states who argued that the Final Rule was unlawful because it exceeded the authority delegated to the DOL by Congress. Finding that Congress intended the exemptions to depend on an employee’s duties rather than salary, the court held that the Final Rule is likely invalid because the DOL “exceed[ed] its delegated authority and ignore[ed] Congress’s intent” in raising the minimum salary level in a way that supplants the duties test. The court further found that the states faced irreparable harm through depleted state budgets, layoffs, and the disruption of government services.  Although the court’s preliminary injunction is not a final determination on the issue, it found a “substantial likelihood” that the challenges to the Final Rule would ultimately prevail in the case.

Moving forward, the injunction applies nationwide—to all private and public employers—and not just the parties to the case. The DOL can immediately appeal the injunction, but any appeal would be heard by the historically conservative United States Court of Appeals for the Fifth Circuit and evaluated under the difficult-to-satisfy “abuse of discretion” standard of review. Also, the incoming Trump administration may decide not to pursue any appeal. Since it is unclear what impact the change in presidential administrations will have on the DOL’s position or if the higher courts would reverse, the fate of the Final Rule remains unclear and could leave employers in limbo for weeks or months.

Practically, the biggest takeaway is that employers do not need to go forward with plans to implement the Final Rule’s requirements by December 1, 2016. Employers that were already far along in the process in their plans to comply may follow through with any changes as planned, put them on hold indefinitely, or gradually make (or reverse) them over time. Although every wage-and-hour issue is different, employers evaluating how to react must carefully consider the impact on issues like morale, payroll, human resources, and timekeeping. Employers should also: (1) remain ready to comply quickly if the decision is reversed or if the Final Rule later becomes effective; (2) communicate with affected employees about how changes will be handled during the current uncertainty; and (3) be cognizant of any state-law salary notice requirements. Also, before moving employees back to exempt status, employers should ensure they meet the job duty requirements for exemption under both the FLSA and similar state laws.

Do not hesitate to contact a member of Reminger’s Employment Practices Defense Group if you have questions about the decision, general advice on FLSA compliance, or any employment-related issue.

This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.

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