First and 10 for Employers: On November 22, 2016, U.S. District Judge Amos L. Mazzant, III of Texas issued a nationwide injunction blocking the U.S. Department of Labor’s new overtime Rule that was designed to expand the number of workers eligible for overtime compensation.
This Order was a huge victory for the 21 states and over 50 business groups who had filed the lawsuit, as well as the plethora of private employers and non-profit organizations who have long complained that the new Rule set the salary threshold too high and would cause them severe financial harm.
The new Rule was to become effective on December 1, 2016, and would have doubled the salary level required for employees to be exempt from the overtime requirements of the Fair Labor Standards Act pursuant to the DOL’s executive, administrative, and professional exemptions (commonly referred to as the “white collar” exemptions). Specifically, some of the key provisions of the Rule include the following:
- Increase in Salary Threshold: The Rule sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South. As a result, the salary threshold requirement to be exempt increases from $455 per week to $913 per week, or $47,476 annually for a full-year worker.
- Increase to Highly Compensated Employee Threshold. The new Rule sets the total annual compensation requirement for highly compensated employees at $134,004, which is equal to the 90th percentile of earnings of full-time salaried workers nationally.
- Salary Thresholds are Locked for Three Years. The new Rule establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at mandated percentiles and to ensure that they continue to provide useful and effective tests for exemption. The first automatic update is set to go into effect on January 1, 2020.
Basis for Ruling: The Judge ruled that the 21 states and over 50 business groups that had filed the lawsuit to block the new Rule had a significant likelihood of success on the merits of their claims and would suffer irreparable harm if the Rule became effective on December 1, 2016.
In granting the injunction, the Judge stated that with the Rule the DOL “exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test.” The Judge also concluded that the balance of the hardships weighs in favor of preliminary injunctive relief and that the public interest is best served by an injunction.
Scope of the Injunction: The injunction is nationwide. The Judge reasoned that a nationwide injunction protects both employees and employers from being subject to different exemptions based on location.
What’s Next? The ruling is not permanent. A preliminary injunction preserves the status quo while the Court determines the DOL’s authority to make the Rule as well as the Rule’s validity. The DOL stated that it is considering it legal options. Thus, the Rule will not go into effect on December 1, 2016, and until the Judge renders a final ruling or the DOL successfully appeals the Order, the Rule will remain on the sidelines.
What Should Employers Do? Employers who have already made salary changes in anticipation of the Rule, will likely choose to leave those decisions in place. Employers who have not made any salary changes can postpone any changes and see what develops.