Texas Court Stops US DOL Again – Eastern District Enjoins Overtime Rule Only Days Before Scheduled Effective Date, by Debbi M. Cohen*

In case you missed it while taking a little break for the Thanksgiving holiday, on November 22, 2016, the United States District Court for the Eastern District of Texas gave employers, business groups, states, and other interested parties the relief they had sought from imminent implementation of the US Department of Labor’s (DOL’s) new overtime rule when it temporarily stopped the new rule from taking effect as scheduled on December 1. As discussed in previous blog posts, the new Fair Labor Standard Act (FLSA) “white collar” overtime rule would have more than doubled the salary threshold for exempt status under the FLSA overtime pay exemption. The rule had been challenged in two lawsuits consolidated before the court. In granting the Plaintiffs’ requested relief, the judge stated, "A preliminary injunction preserves the status quo while the court determines the department's authority to make the final rule as well as the final rule's validity."

The temporary injunction is national in scope, blocking the new overtime rule from going into effect anywhere. In granting the temporary injunction, the judge indicated in his opinion his belief that the Plaintiffs in this case are likely to prevail on the merits. Of course, the DOL is likely to appeal the court’s decision and to continue to pursue its position on the merits in the lower court so the judge’s decision at this point is not final. Nonetheless, it may be a while before another decision is made.

What this means for employers is that, for now, the existing “white collar” overtime rule that has been in place since 2004 will remain in place, including the current lower salary threshold combined with a duties test. In the meantime, employers who were in the process of changing their pay practices in time for the December 1 implementation deadline of the new rule may find themselves between a rock and a hard place wondering whether to continue with pay changes or to revert to past practices. The court’s decision does not require employers who have already reclassified employees or made salary increases in anticipation of compliance with the higher threshold levels of the new rule to revert to the current rule. Employers generally also cannot recoup payments made to employees in anticipation of the required changes. Further, for those employers who have not yet implemented changes, while changes may no longer be legally mandated, at this late date, it may be prudent to consider what communications have already been made to employees, what other employers are doing and whether additional changes to your practices will have employee relations or administrative consequences. For specific questions about your own compliance efforts in light of this new development, consult counsel.

*Debbi M. Cohen is Counsel to Benton Potter & Murdock, P.C.

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Lawsuits Raise Eleventh Hour Challenges to DOL Final Rule On FLSA Overtime Regulations, by Debbi Cohen

With the Department of Labor’s (DOL’s) Final Rule updating the Fair Labor Standards Act (FLSA) overtime regulations scheduled to take effect barely two months from now on December 1, two lawsuits have just been filed seeking to stop the Rule from being implemented as planned. Both lawsuits, one of which was filed by 21 primarily Republican led states, and the other of which was filed by a consortium of business groups including the U.S. Chamber of Commerce, the National Association of Manufacturers and the National Retail Federation, were filed in the same federal court in the Eastern District of Texas. While each group of plaintiffs makes legal arguments specific to its own circumstances, both groups essentially attack the wide-scale workforce restructuring compliance with the New Rule will require along with the potential for hardship they argue could result from new labor costs and decreased workforce flexibility, particularly for smaller employers or organizations with budgetary constraints.
Shortly after the lawsuits were filed, the DOL issued a statement in which Secretary of Labor Thomas E. Perez stated, “We are confident in the legality of all aspects of our final overtime rule.”

As discussed in a prior blog post, the Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative and Professional (“white collar”) workers to be exempt. Key provisions of the Final Rule include:

1. It sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, which is currently the South, at $913 per week or $47,476 annually for a full-year worker;

2. It sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally, which is currently $134,004; and

3. It establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

The Final Rule also amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new salary level.

Even though it is highly likely that the lawsuits were filed in Texas because the court there is viewed as both potentially favorable to the plaintiffs in these cases and known to move quickly, employers should not stop preparations they may have already begun, if any, to comply with the new regulations, as there has been no change as yet in the December 1 effective date of the Final Rule. For specific questions you may have regarding ongoing compliance efforts, consult counsel.

Debbi Cohen is Counsel to Benton Potter & Murdock, P.C.

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