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LAW ELEVATED — The Department of Labor’s new OT rule put on hold

It seems that the US. Department of Labor (DOL)’s highly-anticipated overtime rules changes have been put on hold—and, quite possibly, on ice.

On November 22, 2016, just days before the new rules were set to take effect on December 1, Federal District Judge Amos Mazzant, a 2014 Obama appointee, issued a preliminary injunction that prevents the DOL from implementing any changes.  The emergency motion to stop the new rules from taking effect was filed by the State of Nevada and twenty other states who claimed that some of the proposed revisions exceeded the DOL’s statutory authority under the Fair Labor Standards Act (FLSA).

Currently, the FLSA requires employers to pay overtime only to nonexempt employees with annual salaries of less than $23,660. [1] Overtime pay is “one-and-a-half times [an employee’s] regular rate of pay when [she] work[s] more than 40 hours in a week.” Among other things, the DOL’s new rules expanded the pool of OT-eligible employees by doubling the salary threshold to $47,476 and automatically updating the higher threshold every three years.

While the injunction issued by Judge Mazzant last week is only preliminary, word on the legal streets is that “the DOL overtime rules are pretty much dead in the water.” As one commentator has explained, Judge Mazzant’s strongly-worded opinion suggests that he is unlikely to change course and is probably well on his way to issuing a permanent injunction.  The viability of the DOL’s new rules is in even further jeopardy in light of the generally business-friendly Fifth Circuit Court of Appeals, which would hear any challenge to the injunction by the DOL, a hostile Congress, and a new administration that is set to take office in less than two months.

Not surprisingly, the DOL has issued a statement that expresses disagreement with the injunction and reiterates its belief that the new rules are legal in “all respects.”   On December 1 – the same day its rule was set to take effect – the DOL announced its intent to appeal the nationwide injunction. The Department has asked to expedite the proceedings on its appeal.

For some businesses, the injunction is a welcome reprieve. Many business groups felt that the new rules changes would eventually have led to layoffs.  And, while there is still some debate around the injunction’s actual financial impact, the Congressional Budget Office reports that abandoning the new rules would reduce compliance costs to employers and boost profits. But the consequences may be different for those businesses that already have implemented changes to their payroll or announced changes to employees. Time and effort spent preparing for the December 1 deadline aside, taking back higher salaries from employees would not only strike a serious blow to morale but could carry hefty consequences if employers attempt to retroactively change a pay arrangement that has already been implemented for work that has already been done. Employers should check state law for any applicable notice requirements before changing pay arrangements already implemented.  Similarly, employers who have announced but not yet implemented new salary levels have a messaging issue to address. Some commenters recommend simply blaming it on the other guy—“notifying employees that a court basically prevented the changes from going into effect.”

There may be a silver lining even for the most severely impacted employers. At the end of the day, all of the preparation in anticipation of the DOL’s new rules forced employers to take a harder look at the way that they classify employees, and many may elect to keep the changes in place despite the injunction. This exercise is one that most employers otherwise may not have undertaken. Now that they have, employers are better positioned to handle OT issues no matter what the ultimate fate of the DOL’s new rules turns out to be.

[1]  The FLSA classifies employees as “exempt” or “nonexempt” from overtime pay. Some jobs specifically are defined as “exempt” or “nonexempt.” “Outside sales” employees, for example, are always “exempt” while “inside sales” employees are always “nonexempt.”  Most employees, however, are classified according to three factors: (1) how much they are paid, (2) how they are paid, and (3) what kind of work they do.

» April N. Knox. Law Elevated is a column on the latest trends, issues and perspectives facing the legal industry, written by associates of Butler | Snow.