Federal Court Blocks Implementation of Overtime Rule
A Federal District Court Judge in Texas issued a nationwide injunction blocking the roll out of the new overtime rule that was to become effective next week on December 1, 2016. This injunction effectively puts the implementation of the new salary test for overtime on hold unless the Federal Court of Appeals overturns the injunction.
Many of you remember that President Barack Obama directed the Department of Labor to modernize long existing overtime rules that applied to employees that were exempt under overtime law because they were classified as executive, administrative or professional employees (with some other special exemptions). In response, the Department of Labor issued a new rule which raised the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $921 per week ($47,892 annually) with an automatic adjustment that would go into effect in 2020. The rule had the effect of immediately moving many employees that would otherwise have met one of the exempt classifications into a non-exempt status because of the salary test and would have required the payment of overtime for any hours worked over 40 in a work week for employees not meeting the new salary level regardless of classification. The rule was set to become effective December 1, 2016.
The Plano Texas Chamber of Commerce and several other business organizations filed suit against the Department of Labor. This suit was joined with another lawsuit filed by over 20 states challenging the authority of the Department of Labor to issue the new rule.
The U.S. District Court Judge, Judge Amos L. Mazzant, concluded that the Department of Labor overstepped its authority by issuing a de facto salary level test and an automatic inflation rider, which effectively supplanted the duties test established by Congress; specifically, Congress did not intend to categorically exclude an employee with executive, administrative or professional duties from the exemption. Further the Court specifically enjoined the final rule on a nationwide basis, thus effectively blocking implementation of the rule even in states that were not part of the lawsuit. (See decision)
What does this mean?
The proposed increase of the salary threshold was certainly unpopular with a number of businesses, nonprofit organizations, business groups and other political groups. With the new administration taking over in January, it’s unclear whether President-Elect Trump’s Administration will choose to support the Department of Labor’s position if the Department of Labor chooses to appeal the injunctive order. Even if the order is appealed, it’s unclear how quickly a Federal Court of Appeals will hear the case. Traditionally, appeals take months, if not longer, to work their way through the appeal process.
Ironically, many businesses took steps to plan for the implementation of the new overtime rule by raising salaries of those that would otherwise be classified as exempt. More importantly, however, come December 1, 2016, the old rules will remain in effect and employees who are otherwise classified as exempt and paid on a salary basis will not be entitled to overtime if their salary exceeds $23,660 annually.
Stay tuned, we don’t think this is over yet…
For more information on this and other matters, please contact Mansour Gavin’s Labor and Employment Practice Group.
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