Executive Summary: Today, a federal District Court in Texas issued a decision declaring the Department of Labor’s (DOL’s) new overtime rules invalid and, therefore, permanently enjoining the implementation of these rules nationwide. This decision comes on the heels of a preliminary injunction issued by the same court in November 2016, halting the implementation of the new overtime rules, which were to have taken effect on December 1, 2016. Although the DOL had appealed the issuance of the preliminary injunction, this new development likely moots the pending appeal and will require President Trump and the DOL to reexamine their options going forward.

Procedural History: On May 18, 2016, the DOL published its Final Rule amending the “white collar” exemption tests for executive, administrative, and professional employees (located in 29 CFR Part 541) under the Fair Labor Standards Act (FLSA). Detailed information regarding the new regulations can be found in our prior alert (here). In September 2016, two separate lawsuits were filed in the U.S. District Court for the Eastern District of Texas, which were eventually consolidated, and that resulted in the court granting a request for emergency preliminary injunctive relief to delay the December 1, 2016, effective date. Detailed information regarding the court’s decision granting a preliminary injunction can be found in our prior alert (here). The DOL appealed the court’s award of preliminary injunctive relief to the U.S. Court of Appeals for the Fifth Circuit. Briefing on the issue had been completed, and oral arguments were to be scheduled for the week of October 2, 2017. Back in June 2017, while the appeal was pending before the Fifth Circuit, the DOL sent a request for information asking the public to comment on a number of questions related to the overtime rules. This was believed to be the Department’s attempt to seek alternative options, whether that be to abandon the appeal or take other affirmative steps to replace the overtime rules with more employer-friendly regulations. More information regarding the DOL’s request for information can also be found in our prior alert (here).

The Decision: Although the DOL had appealed the District Court’s preliminary injunction determination to the Fifth Circuit, the District Court retained jurisdiction to determine the final merits while the appeal was pending. Today, the District Court issued its final decision on the merits, granting summary judgment in favor of certain plaintiff business organizations and ruling that the new overtime regulations were invalid.

In his ruling, Judge Mazzant echoed many of the sentiments he had expressed when enjoining the implementation of the new overtime rules last year. Judge Mazzant held that the DOL’s attempt to double the salary level threshold to determine overtime eligibility status was a “significant increase” that “would essentially make an employee’s duties, functions or tasks irrelevant if the employee’s salary falls below the new minimum salary level.” Judge Mazzant also noted that while the DOL was permitted to establish a salary level to create a “floor” to assist in determining whether an employee qualified as a “bona fide” exempt employee, “the Department does not have the authority to use a salary-level test that will effectively eliminate the duties test.” Consequently, the court ruled the Final Rule to be invalid and permanently enjoined its implementation.

What Now? It is likely that the court’s decision today moots the pending appeal before the Fifth Circuit. In general, when an appeal on a preliminary injunction is pending, the district court’s final decision in the form of a permanent injunction moots the appeal on the preliminary injunction. As a result, the DOL would now have to appeal the permanent injunction that was granted today, and therefore faces a decision in the coming weeks on how it wishes to proceed.

Impact on Employers. The immediate impact on employers is that the current regulations with respect to overtime will endure for a while. Even if the DOL were to appeal, it would normally take several months for the Fifth Circuit to render a final decision, unless the Court orders a rare expedited treatment of the appeal.In addition, it is possible the DOL will decide not to appeal and the Trump administration and the DOL will work to craft revised overtime rules instead. Regardless, employers will want to keep informed as the Department takes further steps, whether it be to pursue an appeal or roll back or revise the overtime regulations.