Christmas come early

Employers who had been searching for a way to best  implement the Department of Labor’s new overtime regulations (the “Final Rule”), which are set to go into effect on December 1, 2016, received an early holiday gift yesterday, and from one of President Obama’s appointed jurists no less. On November 22nd, Judge Amos Mazzant of the US District Court for the Eastern District of Texas granted a nationwide preliminary injunction against implementation of the overtime regulations. As a result, the Department of Labor will not  be able to enforce the regulations as of December 1, 2016.

The Final Rule, issued on May 18th of this year, under the direction of a memorandum signed by President Obama, has been controversial since its inception. Changes under the new regulations  were set to raise the minimum salary threshold for the FLSA’s white-collar exemptions from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The DOL was also set to update the salary threshold every three years to reflect the 40th percentile of full-time, salaried wage earners in the lowest-wage Census region, with the first update being on January 1, 2020. These changes were set to affect more than 4 million workers nationwide. Although the new regulations did not modify the FLSA’s duties test, they significantly changed the scope of the white-collar exemptions.

More than four months after the final rule was announced and only two and half months before it was set to go into effect,  Nevada and Texas along with 19 other states sued the Department of Labor in the Eastern District of Texas to challenge the new overtime rules in Nevada v. US Department of Labor, Civil Action No. 4:16-cv-731. The State Plaintiffs alleged that the new regulations, which more than double the minimum salary threshold, obliterated the text of Section 213(a)(1) of the FLSA and Congressional intent to exclude employees who work in a “bona fide executive, administrative, or professional capacity.” The Department of Labor on the other hand argued that it had the authority to define and limit the scope of the white-collar exemptions, that the new salary threshold was reasonable, and the regulations warranted deference under the US Supreme Court’s 1984 decision in Chevron USA, Inc. v. Natural Resources Defense Council, Inc. In October, the State Plaintiffs moved for an emergency preliminary injunction during the pendency of the litigation.

On November 22nd, Judge Mazzant issued an order granting the State Plaintiffs’ motion for a nationwide preliminary injunction. Judge Mazzant concluded that the FLSA did not grant the Department of Labor the authority to supplant the FLSA’s duties test by focusing instead on a minimum salary threshold. The injunction effectively precludes the Department of Labor from implementing and enforcing the new regulations against employers. That being said, the Department of Labor, has stated that it is consider all its options and thus may appeal Judge Mazzant’s Order to the Fifth Circuit Court of Appeals. 

Because of the intervening Thanksgiving holiday and the fact that the new rule’s implementation date was set to take place in eight (8) days, Employers need to be hyper vigilant for any developments from the DOL during the early part of next week. Employers also need to understand that Judge Mazzant only issued a preliminary injunction; not a permanent one, so it is difficult to predict how long the rule will be stayed or whether the overtime rule will actually be overturned. That being said, those employers, who were waiting and had not yet implemented a compensation plan to comply with the proposed rule, are in the best possible position since they can refrain from implementing those plans until the 5th Circuit or possibly the US Supreme Court reach a decision on the matter. That leaves those employers, who already implemented their new compensation plans, in a real quandary. Do they leave such plans in place, in order to avoid a loss of employee morale and retain the best talent, or do they rescind them; especially if their competitors are doing the same? That is a business, not a legal decision, that companies will have to make, depending on their respective circumstances. Norton Rose Fulbright’s employment and labor team will continue to closely monitor every development in this area and provide additional updates. Also, a full webinar is planned after the Thanksgiving holiday to discuss any new developments as well as the implications of the injunction.