Nationwide Preliminary Injunction Halts Implementation of New White Collar Overtime Regulations

November 23, 2016

Yesterday, a federal district court judge in Texas issued a preliminary injunction halting the implementation of the Department of Labor’s update to the white collar overtime regulations set to go into effect December 1, 2016. The preliminary injunction is nationwide.

Twenty-one states and a coalition of business groups sued claiming the Department of Labor did not have the authority to implement the updates to the white collar overtime regulations. Judge Amos L. Mazzant, III found the Department of Labor did not have the authority to supplant the duties test by raising the salary level so high. The judge found: “While [Congress’] explicit delegation would give the Department [of Labor] significant leeway to establish the types of duties that might qualify an employee for the exemption, nothing in the [Executive, Administrative, Professional] exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level.” You can find the text of the opinion here: www.txed.uscourts.gov/d/26042.

There remains much uncertainty about the fate of the proposed white collar overtime regulations. For example, President-Elect Trump has stated that he would like to exempt small businesses from the regulation. His administration may or may not continue to defend the regulation once his administration takes over on January 20, 2017. Based on the Texas federal court opinion, the Republican Congress may amend the Fair Labor Standards Act to further define what “executive”, “administrative” and “professional” mean in terms of the white collar overtime exemptions.

The new white collar overtime regulations raised the salary level from $455/week or $23,650/year to $913/week or $47,476/year; raised the highly compensated employee exemption from $100,000 to $134,004, and created an automatic update to the salary level to take place every three years.

What Should Your Company Do?
Because of the nationwide preliminary injunction, your company is under no legal obligation to implement the changed overtime regulations by December 1, 2016. Yet, you may still want to consider complying with the regulations, especially if you have already transitioned your employees. We believe there is no one-size-fits-all solution and your company may have particular needs or situations that impact the decision.

A big consideration in considering how to move forward is to consider how your employees respond. Does the compliance with the new regulations cut against corporate culture and would employees welcome a return back to the “old regulations” and their more flexible, exempt-status? Or would employees be impacted because their salary will not be reduced?

Your Company Already Implemented the New Regulations: Consider maintaining compliance. You may have greater costs to transition back to “the old regulations” rather than maintaining compliance with the new regulations. Employee morale may be greatly impacted if you switch back, especially if that means reducing pay. You will never be penalized for doing more than the law requires and a DOL appeal could be successful. You can consider reclassifying workers who became non-exempt and are unhappy with that loss of status on a case-by-case basis.

Your Company Already Communicated to Employees the Changes, but the Company Has Not Implemented: It will likely be difficult to rescind salary increases already announced, but it may be easier to keep employees exempt who are unhappy with the loss in exempt-status. This should be a case-by-case analysis. Also consider whether the costs are greater in rescinding the changes rather than pushing ahead. Have any salaries been promised, how so?

Your Company Has Not Done Anything to Comply. You have not transitioned any employees—there would be no change. You may face greater administrative costs if the injunction is lifted and a quick compliance time is created. However, the Department of Labor will appeal the decision to the Fifth Circuit Court of Appeals. If the Court of Appeals finds the regulations lawful and your company was not in compliance on the December 1 effective date, there may be a question of whether your company will be liable for the period between the December 1, 2016, effective date and the date the Court of Appeals issues its decision.

We will keep you updated as more information becomes available. Please feel free to contact any of our Labor and Employment Attorneys to discuss.