On November 22, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction prohibiting the Department of Labor from implementing and enforcing the new overtime rule as scheduled on December 1, 2016.
The new rule more than doubled the minimum salary an employee needed to qualify as exempt from overtime under the so-called “white collar” or EAP exemptions (Executive, Administrative, Professional). The existing minimum salary is $413 per week ($23,460 per year); the new rule increased the minimum to $913 per week ($47,476 per year). Employers have been scrambling in recent weeks to decide how best to comply with the new rule: whether to increase exempt employees’ salaries to the new minimum or reclassify formerly exempt employees and pay overtime for hours worked over forty per week. Two lawsuits were filed September 20 challenging the rule but few expected the court to actually stop the rule from going into effect.
What are the practical effects of this ruling? Most importantly, employers do not have to give raises or re-classify your employees by December 1. Unfortunately, for many it may be too late. Some employers have already communicated raises or re-classifications to employees. There is nothing in the law that prevents those changes from being reversed, but it is difficult to take back what has just been given.
For employers who have not communicated or implemented the changes, the court’s injunction provides some immediate relief. But, there is still quite a bit of uncertainty about what will happen next. The future of the overtime rule will be impacted not just by legal but also by political considerations.
On the legal side, it is important to remember this is a preliminary injunction. That means the court has not entered a final ruling, and it possible (although doubtful) in the end the court will allow the rule to go into effect. It’s also likely the DOL will appeal this ruling to the U.S. Court of Appeals for the Fifth Circuit, which could result in the decision being reversed. Neither of those outcomes is likely to occur for many months. But, if the injunction is dissolved and the rule goes into effect, a thorny question arises: does the preliminary injunction preclude liability under the new rule between December 1, 2016 and the date the injunction is dissolved? Common sense tells you an employer would not be liable, but that might not prevent employee lawsuits claiming they are entitled to either unpaid overtime or additional salary.
The election of Donald Trump along with a Republican controlled Congress may result in the political branches pulling the plug on the new rule. That could occur in several ways, some of which take longer than others. Congress could pass and the president could sign a law repealing the new rule. The president could direct the Department of Labor to drop an appeal of the injunction and simply let the injunction remain in place. Finally, the DOL under a new administration could issue rule repealing the new overtime rule. The first two actions could occur fairly soon after January 20, 2017, while the third is a much longer and more difficult process.
We will continue to monitor the rule and keep you posted.