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Court Halts New Overtime Rules on Nationwide Basis

Just as employers across the nation were bracing for the new rules governing white-collar exemptions to the overtime laws (“the New OT Rules”), a federal district court in Texas blocked the Department of Labor from implementing them. The New OT Rules—which drastically increased the minimum salary threshold for employees classified as exempt under the executive, administrative and professional employee exemptions—were set to take effect on December 1, 2016. However, on November 22, 2016, Judge Mazzant of the United States District Court for the Eastern District of Texas ruled that the Department of Labor exceeded its authority in making the New OT Rules.

The ultimate fate of the New OT Rules is still an open question because (1) this is a preliminary injunction and therefore the Court may revise certain aspects of its holding in the final order on the merits; (2) the Court’s final order could be revised or reversed on appeal; and (3) the New OT Rules were vulnerable to challenge by the next Congress and/or modification by the new Secretary of Labor to be named by the Trump Administration. But, as it stands now, the New OT Rules will not take effect on December 1, 2016 as originally planned.

As was previously reported on this blog, in May of 2016 the DOL issued the long anticipated New OT Rules. See Department of Labor Releases New Overtime Rules. Among other things, the New OT Rules substantially increased the salary threshold necessary to qualify for the FLSA’s “white-collar” overtime exemptions, from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). In September, several states and multiple business organizations filed lawsuits challenging the New OT Rules. They argued (1) that New OT Rules unconstitutionally hindered the states from setting their own wage policies and (2) that they were issued in excess of the statutory authority granted to the DOL under the FLSA.

The Court rejected the constitutionality argument but accepted the statutory construction argument. Specifically, the Court held that the focus of the white-collar exemptions is the duties performed by the employee, and that the DOL could not, in absence of an amendment to the FLSA, interpret those exemptions in a way that a person’s ability to qualify as an overtime exempt employee would rest solely on the person’s salary.

Key Takeaways

  • The DOL is now prohibited from implementing and enforcing the New OT Rules on a nation-wide basis until this case is fully and finally resolved.
  • The final fate of the New OT Rules remains unclear pending a further ruling in the case by the Court and/or on appeal, and perhaps pending new direction from the Department of Labor following the appointment of a new Secretary of Labor in January, or an attempt by Congress to void the rule under the Congressional Review Act.
  • The Court intended to preserve the status quo by issuing the preliminary injunction, meaning that employers do not need to implement changes to comply with the New OT Rules on December 1 as we await a further ruling in the case and perhaps new direction from the Department of Labor.
  • How each employer should respond to this ruling may depend on whether salary or job classification changes have already been made or communicated to employees in anticipation of the New OT Rules. Consultation with legal counsel and human resources professionals is recommended.
  • The Court’s ruling does not impact compliance with any applicable state law or regulatory scheme regarding overtime exemptions, and employers must still comply with those laws/regulatory schemes going forward.

This blog post was drafted by Brian Peterson. He is an associate in Spencer Fane’s Kansas City, MO office. If you have questions and would like to speak to a Spencer Fane attorney then please contact Frank Neuner, Paul Satterwhite, Dave Wing, Ron FanoGeorge Freedman or Sue Willman. For more information, visit spencerfane.com.