November 23, 2016

Slow Your (Pay)Roll: Department of Labor's Overtime Rule Blocked

The U.S. Department of Labor’s (DOL) new minimum salary rule for the “white collar” exemption may not take effect on December 1, 2016, as scheduled. On November 22, U.S. District Court Judge Amos Mazzant of the Eastern District of Texas issued his memorandum and order memorandum and order in support of a preliminary injunction barring the DOL from enforcing the rule.

In March 2014, President Obama directed the Secretary of Labor to modernize the existing overtime regulations for executive, administrative and professional employees. The Department published a Notice of Proposed Rulemaking published a Notice of Proposed Rulemaking and received more than 293,000 comments on the proposed rule. The final version of the rule, published on May 23, 2016, would increase the minimum salary level for exempt executive, administrative and professional employees from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) and would establish an automatic updating mechanism that adjusts the minimum salary level for such employees every three years.

In October 2016, 21 states filed an Emergency Motion for Preliminary Injunction questioning the lawfulness of the rule, the DOL’s authority to promulgate it, and whether the automatic updating mechanisms comply with Administrative Procedure Act. In granting the nationwide injunction, the Court determined that the DOL exceeded its delegated authority and ignored Congress’ intent because the broad purpose of the statute was to exempt from overtime those engaged in executive, administrative and professional (EAP) duties (without regard to any minimum salary threshold). 

The Court explained that Congress intended the EAP exemption to apply based upon whether an employee actually performs executive, administrative or professional duties. The Court determined that nothing in the EAP exemption indicated that Congress intended the DOL to further limit the EAP exemption by instituting a minimum salary level. The Court found that the new rule's significant increase to the salary level essentially creates a de-facto salary-only test, where an estimated 4.2 million workers currently deemed exempt, but who fall below the new rule's minimum salary level, would automatically become eligible under the rule without a change to their duties and regardless of whether their duties satisfy the EAP tests. The Court also concluded that the DOL lacked the authority to implement the automatic updating mechanism. 

The injunction will be in effect until the Court determines the DOL’s authority to make the rule and the validity of the rule itself. While the Department could request that the Court stay the injunction or appeal the injunction ruling, the DOL has not yet taken such steps. Until the Court lifts the injunction, employers are not required to comply with the rule. This will undoubtedly cause chaos, as many employers have already implemented changes to comply with the new rule, or were about to do so. Employers could decide to move forward with those changes if reversing course will disrupt their businesses. Alternatively, employers who have already implemented changes could choose to walk those back, at least until it becomes clear whether the injunction will become permanent. Matters are further complicated, as any attempt to appeal the court’s ruling by the Obama administration’s DOL might (or might not) be withdrawn under new DOL leadership after the Trump administration takes over in January.

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