Texas Judge Blocks Department of Labor’s Overtime Rule from Taking Effect on December 1, 2016
On Tuesday, November 22, 2016, Judge Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas entered a preliminary injunction barring the U.S. Department of Labor (“DOL”) from implementing its Final Rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act” (the “Final Rule”). The Final Rule would have increased the salary level for the executive, administrative, and professional (“EAP”) overtime exemptions from $23,660 to $47,476 per year. As a result, the Final Rule will not go into effect on December 1, 2016. Leech Tishman issued an alert about the Final Rule on May 20, 2016.
In October, 21 states filed an emergency motion for a preliminary injunction to stop the Final Rule from going into effect, on the basis that the DOL exceeded its authority by raising the salary level to more than two times the current level and providing for automatic updates to the salary level every three years. That lawsuit was consolidated with a lawsuit filed by the U.S. Chamber of Commerce and other business groups, which raised similar objections to the rule.
In issuing the nationwide injunction on Tuesday, Judge Mazzant stated that the Final Rule created a de facto salary level-only test for application of the EAP exemptions which, Judge Mazzant claimed, exceeded the scope of the DOL’s authority delegated to it by Congress under the Fair Labor Standards Act (“FLSA”). According to Judge Mazzant, “[i]f Congress intended the salary requirement to supplant the duties test, then Congress—and not the [DOL]—should make that change.” Judge Mazzant determined that “the state plaintiffs have satisfied all prerequisites for a preliminary injunction,” because they were able to demonstrate a likelihood of success on the merits and that they would suffer irreparable harm if the Final Rule went into effect. A nationwide injunction is appropriate, according to Judge Mazzant, because the Final Rule applies to all states.
What This Means for Employers
In the short term, this means that employers do not need to comply with the Final Rule by the December 1, 2016 deadline. To the extent employers have already raised exempt employees’ salaries or reclassified employees as nonexempt in order to comply with the Final Rule, employers should consider leaving those actions in place, given the potential negative impact on employee morale if such decisions are reversed.
Employers must also continue to follow the existing overtime regulations and applicable state wage and hour laws regarding the EAP exemptions. Employers should be mindful of the fact that the primary effect of Judge Mazzant’s decision is to maintain the existing salary level of $23,660 per year / $455 per week. To be exempt from overtime, the other two components of the three part test – payment on a salary basis and the duties test – must still be met. If those components of the test are not met for any particular EAP employee, such employee must be paid overtime for all hours worked over 40 in a workweek.
Finally, employers should be aware that this preliminary injunction is not a permanent bar to the Final Rule, but rather preserves the status quo until the court has the opportunity to consider the merits of the case. Continued litigation and appeal are likely, as the DOL has stated it is considering all of its legal options. The DOL may appeal this decision to the U.S. Court of Appeals for the Fifth Circuit. However, the chance of success of any such appeal is uncertain, given that the Fifth Circuit has decided against other administrative agency actions, such as the National Labor Relations Board’s position that class action waivers in employment agreements violate employees’ Section 7 rights, as well as President Obama’s executive actions on immigration. It goes without saying that the future of the Final Rule is uncertain in light of the impending change in the administration to a Donald Trump presidency and the current vacancy within the U.S. Supreme Court.
The decision to freeze the Final Rule comes on the heels of another Texas U.S. District Judge’s decision on November 16, 2016 permanently blocking the DOL’s Persuader Rule, which significantly narrowed the advice exception to the disclosure requirements for employers who engage consultants and advisors, such as lawyers, to provide advice on how to handle unionization efforts. The Persuader Rule, had it gone into effect, would have required lawyers and consultants to report any advice given to employers that was provided “with an object to persuade” employees concerning union organizing or collective bargaining.
Leech Tishman will continue to monitor legal developments concerning the Final Rule and will update this alert as more information becomes available. Leech Tishman’s Employment Practice Group has extensive experience advising employers on exempt and non-exempt classification issues under the FLSA and guiding employers through U.S. Department of Labor Wage and Hour Division Audits.
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