Federal Court Blocks Implementation of New Overtime Rules

By: Christian P. Jones

Late on Tuesday, November 22, 2016, the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction enjoining the U.S. Department of Labor (“USDOL”) from implementing and enforcing its new overtime rules. These overtime rules would have raised the minimum salary level for the white collar exemptions (executive, administrative, professional) to $47,476 per year. These rules would have gone into effect on December 1, 2016 had the court not issued the injunction.

For those employers who have either already raised salaries to meet the minimum threshold or have already at least communicated to employees that such a raise is imminent, this ruling may be too late. The reaction of employees to a retraction of the wage increase, as well as the associated administrative headaches, may make it too difficult from a practical perspective to get that toothpaste back into the tube, so to speak.

For those employers who had decided to forego a wage increase and instead reclassify those exempt employees with salaries below the threshold to nonexempt and pay overtime, this ruling does allow for such reclassification to be scrapped. Some things to keep in mind, though, before completely doing away with the reclassification: First, the ruling is very likely to be appealed to the Fifth Circuit Court of Appeals. If the decision is reversed, a difficult legal issue may arise as to whether those employers who were not in compliance on December 1 bear any liability for overtime pay between the December 1, 2016 effective date and the date the Court of Appeals issues its decision. Second, what effect will scrapping the reclassification have on employee morale? Some employees may like the idea of being eligible for overtime pay, while other employees may feel like a reclassification to a nonexempt employee was a demotion of sorts.

Another factor for employers to consider is what impact the Trump Administration will have on this matter. It is possible that Congress may pass legislation blocking the rule entirely, delaying its implementation, staggering the wage increases over time, or setting a lower wage threshold. While any such legislation would certainly be vetoed by President Obama, President-Elect Trump may be friendlier to such legislation if it were to reach his desk.

We will continue to monitor this case and provide updates when needed.