As most readers know, the U.S. Department of Labor’s overtime rule, which was set to take effect yesterday, was preliminarily enjoined (temporarily blocked) on November 22 by U.S. District Court Judge Amos Mazzant III. The injunction in Nevada v. Perez applies nationwide, but the court’s decision is not final, and the DOL appealed yesterday. An article in the Washington Post said that workers are “in limbo,” but I think it would be more accurate to say that all of us – employers, employees, and even Human Resources professionals and attorneys — are in limbo.

What now? Can employers relax? What happens to employees who were told they’d be reclassified and eligible for overtime? And what can we expect the incoming Trump Administration to do?

I am grateful to Jim Coleman and Ellen Kearns, co-chairs of Constangy’s Wage and Hour Practice Group, for having agreed to share with us their wisdom about this perplexing turn of events.

ROBIN – Jim and Ellen, does Judge Mazzant’s order mean that employers can relax? What are the possible legal scenarios that could follow his decision?

JIM – Relax, yes, but only a little. The odds are probably good, but not certain, that the injunction will remain in force through January 20 (Inauguration Day), at which time new decision-makers will be running the DOL. Yesterday, the same day that the regulations were to have taken effect, the DOL filed its appeal to the the U.S. Court of Appeals for the Fifth Circuit. If the Fifth Circuit reverses before President-Elect Trump takes office, the new regulations would become effective before the new administration has time to pursue a more permanent fix through either executive rulemaking or legislation from Congress.

ELLEN – I agree with Jim that “relax” is too strong a word to describe what an employer should do in the wake of Judge Mazzant’s decision.

The DOL’s appeal of the preliminary injunction order is “interlocutory,” meaning that the DOL is appealing a decision that is not final. An appeals court will reverse a preliminary injunction only if it finds that the lower court abused its discretion. The Fifth Circuit would have to find that Judge Mazzant’s decision was based on a clearly erroneous finding of material fact, or that he misapplied the law or the four-factor standard for granting a preliminary injunction.

In sum, the Fifth Circuit could overturn the injunction and thereby reinstate the regulations, modify the injunction, or leave the injunction in place while the Nevada case is pending. Then the case would go back to Judge Mazzant to make a final decision, which could also be appealed.

To complicate matters more, the plaintiffs in the companion Plano Chamber of Commerce v. Perez case (the “business plaintiffs”) have filed a motion for expedited summary judgment. Judge Mazzant will be hearing that motion soon, and he could grant or deny that motion. If he denies it, the case would go to trial. If he grants summary judgment to the business plaintiffs, then his summary judgment decision can be appealed to the Fifth Circuit, as it is a final judgment.

It’s worth noting that some legal commenters have found what they call a “fatal flaw” in Judge Mazzant’s preliminary injunction decision in the Nevada case, which may help the DOL in its appeal. Judge Mazzant said that the doubling of the salary threshold was probably illegal because it effectively eliminated the duties test. In fact, his order strongly suggests that the DOL does not have the authority to impose a salary threshold at all: “The plain meanings of the terms in Section 213(a)(1), as well as Supreme Court precedent, affirms the Court’s conclusion that Congress intended the [Executive-Administrative-Professional] exemption to depend on an employee’s duties rather than an employee’s salary.” Elsewhere, in a footnote, the judge said that he wasn’t challenging the DOL’s authority, but it sure sounded like he was, and other commentators have agreed.

ROBIN – So, a lot can happen between now and Inauguration Day. If an employer chose not to make any changes because of the injunction, and then Judge Mazzant’s preliminary injunction order is reversed on appeal, would the employer face any type of legal exposure under the Fair Labor Standards Act?

JIM – Yes, that is a risk. If this were to happen, the courts could take the position in subsequent FLSA litigation that the injunction was invalid from the beginning, and therefore that the new regulations did become effective December 1. Something very much like this happened with the in-home caregiver exemption regulations that were to take effect on January 1, 2015. A federal court vacated the regulations days before they were to become effective, and eight months later, the U.S. Court of Appeals for the District of Columbia Circuit reversed. All told, there were about 10 months when the regulations did not appear to be in effect.

But since then, at least five private FLSA collective action lawsuits have been filed against employers who did not pay overtime during that 10-month period. In two cases, the courts ruled that the employer did not have to pay overtime while the regulations were vacated. But in three cases, the courts ruled that the appeals decision retroactively nullified the district court’s decision, meaning that the regulations had effectively been “in place all along.” One of the three employer-adverse rulings is now being appealed to the U.S. Court of Appeals for the Second Circuit, so we may see an appellate court analysis of the issue next year.

ELLEN – Just to give you the flavor of the opposing views on this issue, we have Bangoy v. Total Homecare Solutions, LLC, in which a federal judge in Ohio said, “In this court’s view, the third party employer was entitled to rely on the district court’s decision. . . . [P]ermitting Plaintiffs to recover for a violation of the rule while [it was vacated] would give the rule an impermissible retroactive effect.”

By contrast, in Kinkead v. Humana, Inc. – the case that Jim referred to that is on appeal to the Second Circuit – a federal judge in Connecticut said, “Long-established law gives retroactive effect to federal judicial decisions. . . . [I]nsofar as defendants seek dismissal on a theory that would negate the agency’s choice of an effective date and preclude retroactive application of the D.C. Circuit’s decision, I will deny Defendants’ motion to dismiss this case.”

The current situation is different from the home caregiver situation in at least two respects. First, from a legal standpoint, Judge Mazzant issued a preliminary injunction, which is not a final ruling on the merits. Even if his decision is reversed on appeal, the reversal might be based on the ground that preliminary relief wasn’t warranted. That would not be a ruling on the legality of the underlying regulations, which means that the rule on giving retroactive effect to federal judicial decisions might not come into play. Second, the political landscape is of course entirely different now, as compared with 2015. We don’t know what the incoming administration will do with these new regulations.

ROBIN – Speaking of Donald Trump, I realize you don’t have a crystal ball, but what do you expect his administration to do?

JIM – This is very hard to predict – almost as hard to predict as the outcome of the election! The odds are good that any Secretary of Labor chosen by President-Elect Trump will be more employer-friendly than the current Secretary of Labor. Despite the appeal by the Obama DOL, it is not likely that the Fifth Circuit will have time to address it substantively before January 20, and after that date the new leadership of the DOL could simply withdraw the appeal and let the injunction stand. This would give a Trump Administration time to either open a new administrative rulemaking proceeding, or work with Congress to enact legislation amending the FLSA to either eliminate the DOL’s regulatory authority on this subject, or to define the exemption criteria by statute. Either way, a more permanent solution would be forthcoming under a Trump Administration.

ELLEN – I agree that the appeal of Judge Mazzant’s decision will probably be withdrawn after President-Elect Trump takes office. Assuming the injunction stays in place, I would expect Mr. Trump to ask his DOL to go back to the drawing board and issue new regulations that will modify the salary threshold by lowering it (as compared with the Obama threshold that has been enjoined) and phasing in any increases over a two-, three-, or four-year period. I think he may also make the new levels inapplicable to non-profit, higher education, and public employers. And, as Jim has already noted, Mr. Trump might also work with Congress to amend the FLSA to eliminate the salary thresholds, or at least to exempt certain sectors of the economy.

ROBIN-Which brings us to the practical “limbo” issue that everyone is wondering about. The injunction was issued on November 22, and by that time some employers had already put their changes into place. Others had announced the changes to employees. Others may not have taken any action at all. Do you have a feel for what employers in each of these categories are doing now?

JIM – In my experience, most employers who had already executed on their planned changes are sticking with those changes and waiting to see what happens next. Many expressed discomfort with the idea of reversing their changes based on a preliminary injunction, and concern about disruptions in the workplace and employee morale.

With employers who were ready to execute on their planned changes and had communicated the coming changes to employees but hadn’t put them into effect yet, I know many who have decided to put the changes on hold until there is greater certainty about whether, and when, the new regulations will ever become effective.

And for those employers who did nothing (not that we condone that!), I would expect them to simply continue waiting and seeing what the future brings.

ELLEN – I agree with all that Jim has said.