Federal Court in Texas Stops Implementation of New FLSA Overtime Rule
On November 22, 2016, just nine days before the implementation of the Department of Labor’s new federal overtime rule, a federal judge in Texas has issued a preliminary injunction stopping the new rule from taking effect as planned on December 1st.
The new FLSA Overtime Rule would have raised the salary threshold for the “white collar” exemptions from overtime pay from $23,660 to $47,476. The new rule also provided for automatic increases to the salary threshold every three years. Twenty-one states filed suit challenging the new overtime rule, and the case was consolidated with another lawsuit filed by the U.S. Chamber of Commerce and other business groups. The states then filed an emergency motion for preliminary injunction seeking to block implementation of the new overtime rule, arguing that the U.S. Department of Labor (DOL) exceeded its statutory authority under the FLSA when it by rule raised the salary threshold and provided for automatic updates to that salary threshold every three years.
After hearing on the motion for preliminary injunction, the Texas District Court judge found that the purpose of the FLSA was to exempt from overtime those employees engaged in executive, administrative and professional capacity duties, and that since the FLSA was enacted the DOL had promulgated regulations to define and delimit these “white collar” exemptions. Moreover, the Court found that the plain language of the FLSA revealed that Congress intended the “white collar” exemptions to depend on an analysis of an employee’s duties rather than the employee’s salary. The Court noted that the DOL had previously set the salary level low “to screen out the obviously nonexempt employees, making an analysis of the duties in such cases unnecessary.” The Court then found the significant increase to the salary level under the new overtime rule created “essentially a de facto salary-only test” which would effectively make 4.2 million workers eligible for overtime based on their salary alone without a change to the employee’s duties. The District Court stated that “[i]f Congress intended the salary requirement to supplant the duties test, then Congress, and not the [DOL] should make that change.” After concluding that Congress did not intend for salary alone to categorically exclude an employee with executive, administrative or professional duties from exemption under the FLSA, the Court ruled that the new overtime rule was unlawful and that the DOL exceeded its statutory authority under the FLSA in enacting the new rule. The Court issued a nationwide preliminary injunction preventing the DOL from implementing and enforcing the new rule until the Court has the chance to further review the merits of the case.
It must be understood that a preliminary injunction is not a final order, and the Court may modify or change its ruling later in the case. As applies to the new overtime rule, the preliminary injunction merely leaves in place the existing overtime rule (last updated in 2004) until further notice. The DOL has issued a statement that it strongly disagrees with the decision of the Texas Court, saying that the Department remains confident in the legality of its new overtime rule. The DOL has not filed an appeal of the Court’s ruling as of this time. For now, the result is that the new overtime rule will not take effect on December 1st as planned, but it could still be implemented in the future.
For those employers who have not yet increased the salaries of their exempt employees or converted those employees to non-exempt status, the issuance of this preliminary injunction will allow the employer to at least temporarily postpone those changes (although if the new overtime rule is eventually declared lawful and later enacted it is not clear whether employers who postponed implementation of the new rule beyond December 1st could face a penalty for doing so). For those employers who have already implemented salary increases for its exempt employees in anticipation of the new rule, the situation is more problematic as any attempt to reverse those changes could be difficult and lead to a breach of contract claim or salary dispute with the impacted employees. Moreover, there could be morale issues to address for employers who have already announced proposed changes in salary or duties in anticipation of the new rule, and would now prefer to postpone or avoid making those changes. Employers should proceed with caution and seek legal guidance as it relates to their particular situation.
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