In a decision that surprised most experts, a federal judge in Texas issued a preliminary injunction barring implementation of the new Department of Labor overtime rule scheduled to take effect on December 1.
Although this is just a temporary order allowing the judge more time to study the merits of the underlying claims, the timing of the ruling may actually make it the death blow to the change in overtime rules that has been anticipated for more than a year.
The Rule
As we wrote in May of this year, the new rule would increase the amount of salary that an employee would have to be paid to be exempt from overtime (assuming that the employee also performs bona fide exempt duties). The new rule would require a salary of $913.00 per week ($47,476 annually), just a little more than double the current $455.00 per week ($23,660 annually). It is estimated that approximately 4 million workers would become newly eligible for overtime as a result of this change, and many more have received, or are slated to receive, significant pay increases in order to put them above the new salary threshold.
The Lawsuit
After the final version of the rule was issued, attorneys general from twenty one states banded together to file suit in federal court, claiming that the Department of Labor (DOL) exceeded its authority and seeking an order barring implementation of the new rule. The states also requested an immediate injunction to block the December 1 effective date so that the status quo could be maintained while the judge examined the legal issues more fully.
Judge Amos Mazzant (an Obama appointee) agreed, ordering that the new rule should be enjoined on a nationwide basis until he could render an opinion on the actual lawsuit. Judge Mazzant determined that it was best to delay implementing the rule in order to be certain whether it was or was not valid, rather than risk forcing employers to start paying millions of dollars of overtime that would eventually could be deemed unnecessary if the rule were to be invalidated.
What Happens Now
The DOL will likely appeal this decision to the United States Circuit Court of Appeals for the Fifth Circuit. The Fifth Circuit could issue a stay of Judge Mazzant’s ruling pending the appeal, or perhaps even hear the appeal on an emergency basis. Neither of those options seem likely, however, given Judge Mazzant’s opinion that a delay in implementation for a few months is not a significant hardship to anyone. If the Fifth Circuit decides not to act immediately, it probably will be some time before a decision is issued in the appeal.
That’s where it gets interesting – if the appeal of Judge Mazzant’s order is not heard by inauguration day on January 20, 2017, there is a strong chance that a more pro-business president and his newly appointed (but as yet unnamed) Secretary of Labor would decide to withdraw the appeal of the injunction and actually cease opposing the underlying lawsuit. Both sides of the lawsuit could stipulate to ask the judge to permanently enjoin implementation of the new rules, allowing the new DOL to pursue administrative procedures designed to alter or rescind the new salary rule.
If the Fifth Circuit Court of Appeals were to stay the injunction or overrule it on an emergency basis, the rule would likely go into effect, at least until the underlying lawsuit from the states is decided. Even then, there is a strong possibility that the new Congress could invalidate the rule under the Congressional Review Act, as we explained in our recent article entitled “What Happens to the New Overtime Rule Now?“. This would require an early adjournment to the current Session of Congress, something that is being actively considered at this time.
Of course, it is even possible that this is a lower priority for the new administration and Congress, and that they will allow the lawsuit to proceed and live with the results. In that case, the new salary rule could still take effect at some point in the future.
What Should You Do
Nothing is certain. However, with a judge enjoining the rule’s implementation, a new administration almost certainly opposed to enforcing it and a new Congress that might be able to invalidate it, the chances that the new rule becomes effective are growing dim. If you have not yet finalized and implemented new salaries to maintain exemptions under the new rule, or undertaken other personnel changes to adapt to it, you may feel reasonably safe in delaying those changes for a couple of months while we see how all of this shakes out.
If you have already made those changes, you might wish to keep them in place both to see how they work for your organization, and also to determine whether the new salary rule really will be off the table for good. In deciding how to proceed, you will also want to consider the employee relations impact of rescinding salary increases, revised job descriptions and other significant changes that employees may feel good about. On the other hand, if these changes have caused a significant hardship for your organization, rescinding them might be the way to go.
Bottom Line
This new ruling has upended an apple cart that has been in the works for a long time. While it is very possible that the rule will never actually take effect, we have now learned never to say never. As such, it might be best just to stay with where you are right now until we see how the next, and perhaps the last chapter of this story unfolds.