In a stunning turn of events for employers, the United States District Court for the Eastern District of Texas has entered a nationwide injunction, ruling that the Department of Labor’s new overtime rule, which was slated to go into effect on December 1, is unlawful. As a result, at least for now, the rule will not take effect. This is a welcome (but perhaps temporary) victory for employers who will be able to continue to treat as exempt from overtime “white collar” workers who are paid a salary of at least the current minimum level of $23,660 per year without raising their salary to the proposed new minimum of at least $47,476. But the ruling may be unsettling for employers who already have re-classified employees or raised employees’ salaries to meet the requirements of the anticipated – – but for now dead on arrival – – new rule.
The Court reasoned that when Congress enacted the Fair Labor Standards Act’s so-called “white collar exemptions,” it intended to exempt from the minimum wage and overtime rules, workers who performed executive, administrative, and professional (“EAP”) duties. It ruled that while Congress gave DOL the authority to “define and delimit” what types of duties might qualify as EAP duties, “nothing in the EAP exemption indicates that Congress intended the [DOL] to define and delimit with respect to a minimum salary level.” The Court found that DOL had essentially supplanted the EAP duties test by extending the EAP exemption only to those paid a weekly salary of at least $913 per week ($47, 476 annually). Quoting from the DOL’s Final Rule itself, the Court noted “white collar employees . . . earning less than $913 per week will not qualify [under the new rule] for the EAP exemption, and therefore will be eligible for overtime regardless of their job duties and responsibilities.” Thus, the Court found the new rule had the effect of denying the exemption to employees being paid a salary less than $47,476 even though those employees performed exempt EAP duties. This, according to the Court, violated Congress’s intent to exempt all employees who performed EAP duties, rendering the new rule unlawful.
What should employers do? For now, consider sitting tight. For one thing, the injunction could be appealed to the Fifth Circuit or the Supreme Court. Almost certainly the Texas district court has not had the last word on this subject. If you have not yet reclassified as non-exempt EAP employees who are currently exempt because they make more than $23,660 but less than $47,476, you can wait to see if the new rule (ever) takes effect. If you were considering increasing the salaries of employees who were earning close to the $47,476 in order to get them over the new rule’s salary basis threshold, you can wait to do so. Conversely, if you are one of the thousands of employers who have already reclassified employees or increased salaries in anticipation of the new rule taking effect, it may well make sense not to upset the apple cart by undoing those changes . . .at least not now, while it remains unclear whether the injunction against the new rule will withstand appeals and if the new rule will still take effect. Either way, we will have more to say on this in the coming weeks.