Federal Judge Blocks New Overtime Rule

In a major (and surprise) ruling, a federal judge in Texas has issued a preliminary injunction blocking the Department of Labor’s new overtime rule scheduled to go into effect on December 1, 2016.

The new rule would have increased the minimum annual salary requirements for exempt employees will from $455 per week to $913 per week (or from $23,666-$47,476 per year).  Importantly, although 21 states participated in the lawsuit, US District Judge Amos L. Mazzant rejected a request by the Department of Labor to limit the injunction to the states that filed the lawsuit and instead issued an order blocking the new rule nationwide.

WHAT DOES THIS MEAN FOR EMPLOYERS AND WORKERS?

For now, employers who rely upon the “white collar exemptions,” referred to as the executive, administrative, and professional exemptions, will be permitted to continue paying the minimum salary requirement of $455 per week.  In order to classify an employee as salaried “exempt,” the employer must satisfy both the salary requirements and the “duties” requirements of the exemptions.  Most overtime claims and overtime liability arise out of an employer’s failure to satisfy the duties requirements for the exemption. For example, the “executive” exemption Employers rely on (sometimes referred to as the “managerial” exemption) requires the employer to demonstrate that the employee’s “primary duty” must be the management of a department or division of the company AND that the employee regularly directs the work of two or more full-time employees (or full-time equivalents) AND that the employee must have the authority to hire, fire or make other changes in employment status OR that the exempt employee’s recommendations for hiring or firing must be given particular weight by the company.

The new rule would have likely spawned even more litigation of overtime claims under the FLSA.  Employers and businesses who could not afford to double the salary requirements would likely be forced to take risks including classifying employees as independent contractors or implementing alternative pay plans.

A preliminary injunction is just that — preliminary. In other words, the judge has ruled that the overtime salary requirements will remain the same in order to keep the status quo pending an outcome on the merits. If the judge ultimately determines that the DOL does not have the authority to change the salary requirements without Congress, the injunction would become final. Although the federal government may appeal the injunction, any appeal may be futile because Congress and the new administration will likely take legislative steps to block the new rule (in whole or in part).

BOTTOM LINE: Overtime claims on both an individual basis and class actions will continue.  The Fair Labor Standards Act and its implementing regulations are very complex.  Employers not in compliance face liability for back wages, liquidated damages (double), and attorney’s fees.

The complete opinion and Order from Judge Mazzant can be found here.