On December 1, 2016, millions of American workers were expecting to become eligible for overtime pursuant to the new Fair Labor Standards Act (“FLSA”) overtime regulations enacted by the U.S. Department of Labor (“DOL”). Employers had prepared to put the new rules in place and some had even preemptively adjusted employee policies and salaries in anticipation of the new rules taking effect. However, on November 22, 2016, in a surprising ruling, U.S. District Judge Amos Mazzant in Texas blocked the new rules from taking effect by granting a nationwide preliminary injunction which was sought by 21 states and a number of business groups.
Current DOL regulations require an employee to meet three criteria to be considered an exempt employee:
- the employee must be paid on a salary basis (“Salary-basis test”);
- the employee must be paid at least the minimum salary level established by the regulations (“Salary-level test”); and
- the employee must perform executive, administrative, or professional duties (“Duties test”).
The new overtime rules were supposed to double the Salary-level test threshold for exempt employee status to $913 per week ($47,476 per year), up from $455 per week ($23,660 per year). The new rules also provided an automatic updating mechanism which would adjust the salary level every three years.
In his opinion granting the preliminary injunction, Judge Mazzant concluded that the DOL was not entitled to deference when creating the new rules because, when drafting the new rules the DOL did not comport with the statutory intent of Congress in enacting the FLSA. Judge Mazzant concluded that Congress intended the determination of exempt status to be based on the tasks the employee actually performs (i.e., whether an employee is actually performing bona fide executive, administrative or professional duties), and not their salary level. The Court found that the new salary level imposed by the revised regulations created “essentially a de facto salary-only test,” effectively eliminating the Duties test. The Court reasoned that the increased salary level would allow workers who perform executive, administrative or professional duties to become eligible for overtime based solely on their salary level without a change to their duties.
Judge Mazzant’s unexpected decision has put employers and employees in a state of uncertainty. Presently employers do not need to comply with the new rule on December 1, 2016. However, employers and employees alike should continue to monitor the issue because on December, 1, 2016, the same day the rules were to go into effect, the DOL filed an appeal of the decision by Judge Mazzant to grant the preliminary injunction. The appeal will be heard by the Fifth Circuit which has frequently affirmed lower court decisions to grant preliminary injunctions.
The over-arching theme at this time is that there are many unknowns. The issue could conceivably make its way to the U.S. Supreme Court or Congress could step in and make changes to the statutory language of the FLSA. Another unknown is the position the Trump administration will take. President-elect Trump has not commented on the granting of the preliminary injunction and he only briefly addressed the rule changes on the campaign trail, indicating he would want to add a small business exemption to the new rules.
What Should You Do Now?
Employers who have not yet made any changes to their overtime policies, or adjusted employee status or pay, should consider putting a hold on any planned changes until there is a final resolution. Employers who have preemptively made changes should evaluate whether rolling back any employee status changes from exempt to non-exempt would significantly affect employees and gauge the reaction of their employees to this new development. Suspending or reversing any changes could create significant morale issues for employees.