Court Halts Implementation of Overtime Regulations
A federal judge in the Eastern District of Texas issued a preliminary nation-wide injunction on November 22, 2016 blocking the changes to the Fair Labor Standards Act (“FLSA”) that were to have taken place on December 1, 2016 (Nevada v. US Department of Labor, E.D. Tex., 4:16-CV-00731, 11/22/16).
On May 23, 2016, the Department of Labor (“DOL”) issued new regulations regarding the salary level that an executive, administrative or professional employee must earn in order to be exempt from the FLSA’s overtime requirements (“EAP exemption”). The new regulations increased the salary threshold for the EAP exemption from $455 per week to $921 per week. It has been estimated that the new salary threshold would have added four million workers to those employees entitled to overtime pay.
The plaintiffs argued that the DOL lacked the authority to set a salary threshold in connection with the EAP exemption. Judge Amos Mazzant found that because the FLSA was not ambiguous, the DOL’s interpretation of the EAP exemption was not entitled to deference. Reviewing the history of the FLSA and the plain meaning of the terms “executive, administrative and professional,” Judge Mazzant held that the DOL improperly included a minimum salary level in its new definition. As such, he found that it was appropriate to issue an immediate temporary injunction during the pendency of the litigation.
While not the final word on this issue, the preliminary injunction does block the December 1, 2016 effective date of the new salary test, leaving the existing test in place. While the plaintiffs may ultimately prevail and the new regulations be struck down, the temporary injunction and the current state of the litigation create a number of significant issues to consider.
In preparation for the December 1 effective date, many employers have already made system changes and announced plans to implement the new regulations either by raising salaries, to keep certain job classifications above the new salary threshold, or by arranging to pay overtime to those employees in classifications which do not meet the new salary threshold. To unwind those decisions now may cause significant employee relations issues. In addition, should the plaintiffs ultimately be unsuccessful or the preliminary injunction be lifted, it is possible that the original effective date will be enforced. Under that scenario, those employers who delay implementation of the new regulations may face back pay obligations.
On the other hand, going forward with the new regulations in spite of the temporary injunction carries its own employee relations and financial risks. Once an employee’s salary is increased to meet the new threshold, decreasing that employee’s salary if the new threshold is struck down will undoubtedly cause morale issues. Similarly, once an employee has enjoyed the benefit of being paid overtime for hours worked in excess of forty, taking away the extra income will cause much unhappiness. In addition, should the new regulations ultimately be struck down, any additional salary or over time paid to meet the new regulations will not be able to be recouped.
For those employers who used the new regulations as an opportunity to engage in a self-audit of exempt job classifications, any duties-test issues discovered should be addressed regardless of the state of the litigation. No matter where the salary threshold is ultimately set, employees must perform exempt duties under the tests set out in the FLSA to be exempt from the requirement to pay overtime for hours worked in excess of forty.
There is still much uncertainty regarding the future of the regulations. Ultimately, there are many business considerations, in addition to legal considerations, that employers will need to address before making any decision.
This alert was written by Marc K. Sloane, counsel in the Labor, Employment, Benefits, & Immigration practice group at Miles & Stockbridge in the firm's Baltimore, Maryland office.
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