On Tuesday, November 22, 2016, a Texas federal district court judge issued a nationwide preliminary injunction to block U.S. Department of Labor (DOL) Fair Labor Standards Act (FLSA) overtime regulations that were slated to go into effect on December 1.
On December 1, 2016, the U.S. Departments of Labor and Justice filed a Notice of Appeal to the Fifth Circuit Court of Appeals challenging the Texas District Court judge's injunction.
Employers, including not-for-profits, are not required to comply with, or implement, the requirements of the Overtime Rule until the case is decided.
The new regulations would have extended eligibility for overtime to workers not previously subject to overtime rules because of their compensation level (for further details, view the AICPA Not-for-Profit Section’s Compliance Brief).
Based on oral arguments, U.S. District Judge Amos L. Mazzant III found a substantial likelihood that the challenges to the Final Rule would ultimately prevail in the case. The court determined that Congress intended the exemptions to the overtime pay requirements to depend on an employee’s duties rather than salary. Therefore, the Final Rule is likely invalid because the DOL “exceed[ed] its delegated authority and ignor[ed] Congress’ intent” in raising the minimum salary level in the way that supplants the duties test.
The federal judge’s injunction is temporary pending a full hearing on the case. However, it will delay the new regulations from becoming effective and may give the new administration the opportunity to reverse or modify them if the judge’s ruling is not subsequently upheld. It is unlikely to go into effect before the new Congress convenes on January 3 and the new President is inaugurated on January 20, due to the briefing schedule announced by the 5th Circuit Court of Appeals in a lawsuit brought by 21 states and others. The timing would allow the DOL under the Trump Administration to abandon DOL’s current position and stop defending the appeal if it chose to do so.
What’s next for employers?
Employers should note that this is only a temporary injunction, not a permanent one. The injunction simply prevents the regulations from going into effect on December 1. There will be a ruling issued at a later date on the actual merits of the case, so changes in the FLSA salary threshold for exemption may be back.
- The question is what should employers do now that the implementation of new the regulations has been delayed? Consider the following: Employers who have not made changes to compensatory arrangements with their employees have more time to address the new requirements.
- Employers who have adjusted salaries of employees to avoid paying overtime now find themselves in a position where those increases are not required. If those adjustments are to be undone, be sure to consider non-monetary, intangible costs of changes such as effects on organizational culture and employee morale. States may require a pay period notice for any pay reduction.
- Employers who have adjusted work schedules by hiring additional employees may find that the new employees are no longer needed.
- Employers who have told exempt employees they will no longer be exempt and therefore will be required to keep time records may find that unnecessary. Some organizations may consider tracking hours anyway just in case regulations are reinstated.
Making the new regulations effective retroactive to December 1 is highly unlikely. Ultimately, the new overtime regulations face an uphill battle in the current political climate.
Organizations are encouraged to consult with an attorney specializing in employment law if they are making significant changes to their entity’s employment practices.
For the latest information, visit the US Department of Labor’s Wage and Hour Division website.
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