On November 22, 2016, a federal District Court judge in Texas granted a preliminary injunction that suspends implementation of the new overtime rule announced earlier this year by the Department of Labor (DOL).

In Brief

  • In May 2016, the Department of Labor approved a new overtime rule that increased the minimum salary threshold for “white collar” exemptions under the FLSA. The rule was scheduled to go into effect on December 1, 2016.
  • Last week, a federal judge issued an injunction suspending implementation of the rule nationwide. As a result, the new overtime rule will not go into effect on December 1.
  • The immediate impact of the ruling is that employers do not need to comply with the rule by December 1.
  • The rule’s future is uncertain. For now, employers are in a holding pattern pending future legal and political decisions.

In May 2016, the Department of Labor (DOL) published a rule designed to bring millions of currently exempt workers within the overtime pay protections of the FLSA. The new rule, which was scheduled to go into effect on December 1, 2016, doubled the minimum annual salary threshold for the FLSA’s executive, administrative, and professional exemptions (often referred to as “white collar” exemptions) from $23,660 to $47,476. It also raised the minimum salary level for “highly compensated employees” and created a new mechanism for automatically increasing the salary threshold for white collar exemptions every three years.

In September, twenty-one states and a large group of business organizations challenged the new overtime rule in federal court. They argued that the DOL had overstepped its authority, and asked the court to declare the rule invalid. The state plaintiffs also filed an emergency motion requesting a preliminary injunction to prevent the new rule from going into effect on December 1.

U.S. District Court Judge Amos L. Mazzant III, an Obama appointee, granted the preliminary injunction on November 22. The injunction does not invalidate or permanently block the new overtime rule; it simply preserves the status quo (i.e., the FLSA’s existing overtime rules) until the court has an opportunity to consider the merits of the case.

Good News, Bad News

The good news is that new overtime rule will not go into effect on December 1. That means employers get a temporary reprieve from complying with burdensome new FLSA regulations.

The bad news is that although the injunction dealt a blow to the rule, the rule is not dead. And for the time being, we don’t know when, or even if, the new overtime rule will ultimately be implemented. That means employers are stuck in compliance limbo until further notice.

One big question is whether the DOL will continue to actively defend its position, either by appealing the recent injunction ruling, or by vigorously pursuing and arguing its case when the matter comes up for a hearing before Judge Mazzant.

Another big question is how post-election politics and the transition of leadership from the Obama administration to a new Trump administration will impact the future of the overtime rule. President-elect Trump and Republican lawmakers have made no secret of the fact that they oppose many of the aggressively pro-labor regulations championed by the Obama administration. Trump is also poised to appoint a significantly more business-friendly Secretary of Labor. It thus seems unlikely that the DOL under a Trump administration will be interested in spending time or resources to defend an Obama-era wage rule against claims of unauthorized agency overreach.

Between now and January 20, the status of the overtime rule could be affected if the DOL appeals Judge Mazzant’s preliminary injunction ruling, or if the lame-duck Congress passes legislation codifying parts of the DOL’s rule. (If this happens, it is also possible the incoming Republican-controlled Congress could vote to repeal the legislation.)

A Rock and a Hard Place

For many months, employers large and small have worked assiduously to make sure they were prepared to comply with the new overtime rule by December 1. Their preparations may have included conducting wage and classification audits, deciding to raise certain employees’ salaries, or implementing new timekeeping systems and policies. In many cases, the preparations may also have involved discussing proposed changes with affected workers.

Now that the overtime rule has been suspended – perhaps temporarily, perhaps permanently – employers are in the unenviable position of having to decide whether to move forward with planned changes, or to reverse course. For many employers, proceeding as originally planned may seem the easier course, but it may also be an expensive one. On the other hand, communicating course adjustments to employees, and managing the impact of changed expectations, can create a host of other problems if not properly executed.

Employers should assess the impact of their decisions on employee morale and productivity, as well as on legal risks and exposure. Postponing or modifying plans to adjust wages and worker classifications can implicate a range of legal concerns, including employment discrimination, breach of contract, and unpaid wage claims, and should be undertaken carefully with the assistance of legal counsel.