Summary

A federal district court judge in Texas issued an order granting a temporary injunction late Tuesday against the Department of Labor’s new overtime exemption rule that was scheduled to take effect December 1. This article contains some practical tips on what employers should do next.

A federal district court judge in Texas issued an order granting a temporary injunction late Tuesday, November 22, against the US Department of Labor’s (DOL) new overtime exemption rule that was scheduled to take effect December 1. This has left many employers wondering what this means and what they should do next.

In summary, the court’s order blocks the new rule from taking effect this week (absent an emergency appeal) and applies to all public and private employers nationwide. The court’s order is not, however, necessarily the final word on the subject, as the DOL could seek to have the court stay or vacate the injunction, or it could immediately appeal the order to the US Court of Appeals for the Fifth Circuit. Further complicating matters is the possibility that the incoming administration could eventually weigh in on the issue and eliminate the need for further litigation—or roll back the result of any litigation—by halting any challenge to the court’s injunction or producing a revised rule more acceptable to Congress, states and the business community. The incoming administration to date has not provided many policy specifics regarding its view of wage and hour regulations, and none regarding the revised overtime rule. Thus, it is hard to predict what the incoming administration may do.

While the injunction is in effect, employers are not required to increase salaries to retain employees’ exempt classification or to reclassify employees as non-exempt and pay overtime in accordance with the revised rule. However, not going forward with implementing the new rule involves some risk. It is possible that if the court’s injunction is later set aside, the new overtime rule could be enforced retroactively. That is the position some (but not all) district courts took last year when revised overtime rules for home health care workers were initially vacated and then reinstated. The split among the district courts on that issue has yet to be resolved.

So where does all of this leave employers? Simply put, in a place of uncertainty (and likely with a headache). The decision each employer makes going forward must be made on the basis of its own business. For some employers, due to the nature of their business and workforce, the new rule had little administrative or cost impact. For others, the impact was likely significant. Some employers have engaged in little or no communications with employees about the proposed changes, while others began complying with the new rule before the injunction was issued. In determining what to do next, employers should consider the following.

For those who do not wish to begin complying with the new rule or have already begun complying:

  • Consider what has been said to date to employees about reclassification and eligibility for overtime. Do the communications create a potential employee relations problem or—worse—a potential legal problem? Decide how any new communications will address these issues and whether the original exempt classification was defensible.
  • What is the cost of undoing the changes already made to employer payroll processes and systems? Can those changes be put into place again quickly if the new rule is ultimately implemented, and especially if it is implemented retroactively? If a stop and wait approach is taken, does it make sense to still track hours for those employees who would be non-exempt under the new rule, in the event the rule is applied retroactively?

For those who do not wish to begin complying with the new rule or who have already done so, consider whether your business is in a state (such as California or New York) which already has a higher minimum salary for certain exempt employees or which may have pending legislation on this issue. For those employers, this injunction may have little legal impact.

For those who are considering going forward and complying with the new rule, if the rule is declared invalid or revised, what is the cost to the business of having complied when not legally required to do so, and what are the difficulties and risks of changing course months from now?

All of these questions require a combined and careful analysis involving legal, human resources and operations personnel.