As you finish your Thanksgiving preparations the last thing you needed was a major legal development in the area of Employment law – but we had one yesterday.
On November 22, Judge Amos Mazzant, sitting in the Eastern District of Texas, issued an order enjoining implementation and enforcement of the US DOL’s new overtime exemption rules, that were set to go into effect on December 1, 2016 ( and yes – that is next week). The order was the result of a lawsuit, State of Nevada, et al v. United States Department of Labor, et al, filed by the attorneys general of 22 states, joined by various business groups, who argued that the DOL had acted unlawfully in implementing these regulations, and that there would be irreparable harm if they were allowed to go into effect.
For a quick refresher, the DOL’s new overtime rules raised the “salary threshold” an employee must have to be exempt from federal law’s overtime requirements from $455/week to $913/week (or $47,476 per year). According to the DOL’s estimates, this would make an additional 4.2 million workers eligible for overtime. This is the rule that the Texas judge has now blocked.
What does this mean? For obvious starters, the new DOL rules are not going into effect on December 1. Even though this judge is in Texas and you may be a thousand miles away, this ruling applies nationwide. So, unless and until the order is appealed and reversed, the DOL rules cannot be implemented and enforced.
What happens next? In a word, no one knows. This order is temporary, although the judge indicated he may make it permanent, which would mean it would last for the duration of that case – which could be some months. While the case is pending, the temporary restraining order remains in place, meaning that the new overtime rule remains blocked nationwide.
The federal government can and likely will be immediately appeal this order to a federal appeals court. The higher court will then have to decide whether the judge abused his discretion in issuing the injunction. At this early stage, it is impossible to predict the outcome. But appeals take time—meaning that it is very likely that the appeal (and the dispute over the new rule) will not be resolved by December 1. It is worth noting that the Fifth Circuit Court of Appeals, which is the court that would hear the appeal, is a conservative court that does not often reverse injunctions.
The Fifth Circuit’s affirmation of the lower federal court’s order would then tee up an appeal to the U.S. Supreme Court. With the Trump administration’s likely addition of a new conservative justice to replace the late Antonin Scalia on the nation’s highest court, the fate of the rule may become even more uncertain. There is also the possibility of appeals to the US Supreme Court, or a set of new regulations by the DOL.
To complicate matters even further, it’s not clear that a Trump DOL will even continue to be supportive of the new overtime rule—it may simply stop the appeals, and abandon the rule – leaving the decision of the lower court intact.
What should employers do?
- Many employers have already implemented or announced plans to implement these new regulations, by changing the exempt status of staff making less than the new threshold salary, or raising salaries to meet that threshold. If you are in that category, you could (but don’t have to) lawfully roll back those changes and tell staff that they are not getting those raises.
Should you do that? Our view is – probably not. Your employees are important to your success, and it would be a very bad employee relations move to roll back a salary increase. You may well lose good people and will likely cause the employees who stay to be confused and unhappy. Also, regardless of whether an employer is legally entitled under state or local laws to roll back a promised increase, we suspect that some employees (and plaintiffs’ lawyers) would be willing to argue against it in court. A better tactic is to explain to staff that the DOL rules have been blocked—but that you are still going to implement the raises. That will buy you a great deal of goodwill and loyalty.
- What if you have not announced any changes? In that case, you could make the decision to take the “wait and see” approach regarding these new regulations. They are now not going into effect on December 1, so you have some breathing room. Keep a close watch on the news and be prepared to roll out any necessary changes if and when the regulations are put into effect. Of course, this assumes that the changes can be halted without major disruption to your business.
- If you do decide to roll back or halt changes that have been announced, consult with your employment counsel as to how to announce that change. You should look at your policies, union contracts and other state and local laws, and make sure that this rollback will not subject to the company to claims from a creative plaintiff’s lawyer.
- Also keep a careful watch on local developments. Many cities and states (New York being one) have jumped on the DOL bandwagon and have proposed changes to the exemption rules and salary thresholds. If your state enacts its own new regulations, this Texas ruling will be of little help to you. You will have to comply with the local law.
Overall, this ruling is a positive development for business. However, coming just a week before the rules were to be implemented, it is sure to create a great deal of uncertainly and confusion. We will keep monitoring developments, so look for more posts on this important issue.