Federal Judge Temporarily Blocks New FLSA White Collar Exemption Overtime Rule

In November 23, 2016
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On Wednesday, November 22, Judge Amos Mazzant III of the U.S. District Court for the Eastern District of Texas granted a preliminary injunction that blocks the December 1 implementation of the revised FLSA overtime rule nationwide. The updated overtime rule was set to raise the annual federal salary threshold from $23,660 to $47,476. The rule also provided for adjustments every three years based on the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region.

What Happened?

  • In October, two lawsuits were filed, the first by 21 states, and the second by a number of business groups in the U.S. District Court for the Eastern District of Texas, each asking the Court to grant a preliminary injunction against the updated FLSA overtime rule – essentially blocking the new rule from going into effect on December 1, 2016.Among the points raised, the motions claimed that the federal Department of Labor had exceeded its authority by increasing the salary threshold too high and by providing for automatic adjustments to the threshold every three years.

 

  • Judge Mazzant consolidated the separate lawsuits into one case, and held a hearing on November 16, 2016. With only a few days remaining before the December 1deadline, a preliminary injunction was granted which blocks the rule’s implementation. In his decision, the Judge indicated the states were able to effectively show “irreparable harm” should the rule be allowed to go into effect, while the DOL was unable to show the same if the rule did not go into effect. Also, according to Judge Mazzant, “A preliminary injunction preserves the status quo while the court determines the department’s authority to make the final rule as well as the final rule’s validity.”

 

Now What?

 

Employers should keep a few important points in mind. First, a preliminary Injunction does not overturn or void the revised rule.  As stated above, a preliminary injunction keeps things as they are until the court has an opportunity to consider the merits of the case. However, it could be implemented at some time in the future.  With that said, the updated rule likely faces an uphill battle. Judge Mazzant would not have granted the preliminary injunction unless, from his perspective, there appears to be a strong likelihood of the states succeeding on their claims.

 

As one prong of a three-prong test for white-collar exemptions, the (minimum) salary level has historically been set low, to act as a floor to screen out employees who are obviously nonexempt. According to Judge Mazzant, the DOL “has admitted that it cannot create an evaluation ‘based on salary alone.’” However, “this significant increase to the salary level creates essentially a de facto salary-only test,” he noted. “If Congress intended the salary requirement to supplant the duties test, then Congress—and not the department—should make that change.”

 

Secondly, although he has indicated that he does not fully support the updated FLSA overtime rule as written, President-elect Trump has not provided any details on how he, or the leadership of the DOL under his administration may address this regulatory issue.

Finally, regardless of the short-term effects of the court’s actions, employers in New York State will, from all indications face increases in the minimum salary requirements for the executive and administrative exemptions on December 31, 2016, as recently announced by the New York State DOL. (For more information on the New York State minimum salary requirements, refer to NY State Labor Department Gets In Rule-Making Act )

 

The following are a few questions and answers for employers to review:

Q: As an employer, is there anything I need to do by December 1?

 

A: The short answer…NO. The revised rule has been blocked, at least for now.

 

Q: Does this ruling to block the revised rule from being implemented apply only to employers in the 21 states, or to all employers nationwide?

 

A: The ruling applies nationwide.  According to Judge Mazzant, “A nationwide injunction protects both employees and employers from being subject to different [executive, administrative and professional] exemptions based on location.”

 

Q: Does this decision permanently block the revised overtime rule from ever being implemented?

 

A: NO. The Judge’s ruling only grants a temporary injunction, or block. It is possible that this rule, or some revised version may be implemented in the future.

 

Q: Can the federal DOL challenge this ruling?

 

A: YES. In fact, the DOL has already stated that it is reviewing and considering all legal options.

 

Q: Based on all of the information provided about the revised overtime rule over the last several months, we’ve already reclassified several employees as nonexempt, and raised the salary of others. What should we do based on this ruling?

 

A: Most attorneys and compliance experts are recommending that employers consider leaving decisions in place if they have already made changes to employees’ classifications or provided salary increases to employees in order to maintain their exempt status. At this point it would be difficult to take those increases back. Employers planning to reclassify specific employees to nonexempt based solely on the increased federal salary level, but have not do so yet, may consider postponing those changes for the time being. However, employers should still move forward with reclassifying those employees who will not meet the increased NYS salary level effective December 31.

 

For additional information, please refer to: https://employershradvisor.com.

Additional information will be posted as it becomes available.
 
For a sample template FLSA Reclassification Delay Letter to be used to communicate this to employees, click here.

 

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