Employers (and some Employees) Thankful as Federal Court Stays New Overtime Laws

For the past few months, business owners have been frantically preparing for a major change in the Department of Labor (DOL) regulations implementing the Fair Labor Standards Act (FLSA) which would greatly increase the number of employees eligible to receive overtime pay for work in excess of 40 hour per week. These changes, were due to become effective Thursday, December 1. However, business owners will now be giving thanks to a Judge Amos Mazzant of the United States District Court for the Eastern District of Texas, who has issued a permanent injunction staying the effectiveness of the changes.

To emphasize: these changes are not going into effect on December 1; employers do not need to reclassify employees in response to the changes. What remains to be seen is whether these rules are implemented at all, given the upcoming presidential transition and the clear opposition of House and Senate Republicans to the changes.

I discussed these changes in two different posts earlier this year, both pre-and and post-approval. The latter, in particular, explained the effect the new rules would have on media companies, especially with regard to journalists, who rarely adhere to a conventional 40 hour workweek.

The new rules, published in the Federal Register on May 23, 2016 with an effective date of December 1, contained several changes. But the biggest was clearly the new minimum threshold for the "salary level" portion of the test to determine whether an employee is exempt or non-exempt for purposes of receive overtime pay. Under the new rules, the minimum salary necessary to exempt someone from overtime pay would increase from $23,660 per year ($455 per week) to $47,476 per year ($913 per week). Anyone making under that amount would automatically be eligible for overtime pay for every hour worked beyond 40 in a single week. The change was estimated to move 4.1 million employees from "exempt" to "non-exempt", while another 100,000 or so were likely to receive a salary increase, according to the Department of Labor. This salary threshold would be readjusted every three years going forward, to equate to the 40th percentile of salaried workers around the country.

Opposition with swift and widespread. Two bills were introduced in Congress:

• HR 6094, the Regulatory Relief for Small Businesses, Schools, and Nonprofits Act, would delay implementation for 6 months (until June 1, 2017). It passed the House of Representatives by vote of 246-177 on September 28 (Mainly a party line vote but with 5 Democrats voting in favor). There is a companion bill in the Senate (S 3462).
• S. 3464, the Overtime Reform and Review Act, would phase-in the DOL's new salary threshold in four stages over five years, with an increase to $36,000 on December 1, a "pause year" in 2017 and further salary increases each year thereafter until reaching the new rule's new threshold of $47,476 on December 1, 2020.

More important for our purposes, two lawsuits were filed, both in the United States District Court for the Eastern District of Texas. They are:

• State of Nevada et al v. United States Department of Labor et al (filed by 21 state attorney generals).
• Plano Chamber of Commerce et al v. Perez et al (filed by 50 business groups including U.S. Chamber of Commerce, several State Chambers of Commerce, the National Association of Manufacturers, the National Retail Federation, National Automobile Dealers Association, and the National Federation of Independent Business).

These were quickly consolidated into a single lawsuit (for the record, the case is going forward as State of Nevada et al v. United States Department of Labor et al) and the court began consideration of an Emergency Motion for Preliminary Injunction filed by the plaintiffs in an effort to stay implementation of the rules. On November 22, Judge Mazzant granted that Motion for Preliminary Injunction, holding that:

• The plaintiffs are likely to ultimately win this case on the merits because imposing these new rules on state and local government agencies is likely to violate the 10^th Amendment to the United States Constitution (which many people refer to as the amendment protecting "state's rights"). This is due, in part, to the fact that the higher salary threshold creates an "evaluation 'based on salary alone'" rather than really looking at what is an executive, administrative or professional employee. It is also because the automatic updating mechanism involves periodic adjustments to rules without a notice and comment period.
• This is likely to result in irreparable harm to the state plaintiffs. This harm goes beyond a simple financial injury. For many states, the increase - which will range into the millions of dollars - will be impossible given state budgetary constraints.
• The "balance of hardships" favors granting a preliminary injunction. While the states identified various hardships that rise to the level of "irreparable harm" if the rules are implemented on December 1 while the federal government could not articulate a true hardship that would result from a stay.
• The public interest favors a stay because the potential for disruption of state budgets, resulting in possible layoffs and disruption of government functions outweighs the benefits that might accrue to 4.2 million workers around the country.

Judge Mazzant, noted that "[d]ue to the approaching effective date of the Final Rule, the Court's ability to render a meaningful decision on the merits is in jeopardy. A preliminary injunction preserves the status quo while the Court determines the Department's authority to make the Final Rules as well as the Final Rules' validity." While the DOL argued that the injunction should apply narrowly, only in those states demonstrating evidence of irreparable harm, Judge Mazzant is applying the injunction nationwide.

While many of our readers will certainly welcome this injunction, we caution against dropping all preparations for an eventual change. This is a preliminary injunction, meaning the rules are simply stayed pending the entire trial. Yes, that trial may take several months but the end result could be that these very rules go into effect in 2017 or 2018. (To the extent you have already changes employees' statuses in response to the rules, it might be hard to do an immediate reversal - you should absolutely consult with an experienced employment attorney - and now is a good time to remind you that we are not employment attorneys).

We can't ignore that a big change has occurred since these changes were announced - indeed, since these lawsuits were filed. These changes were a priority for President Obama; there is every indication that his successor opposes the changes and that the new rules were already being targeted for repeal. The fact that the House had passed HR 6094 was largely irrelevant given that the 246-177 tally amounted to only 58% in favor, short of the 2/3 needed to override a likely Presidential veto. The change in Administration increases the prospects for HR 6094 and, in fact, introduction and passage of legislation to fully repeal the changes, which could certainly happen before the court case is finished.

Of course, nothing is certain. It would be foolish to assume this means the rules will be scrapped altogether. My advice for those who were dreading these new rules (and remember: this shouldn't be considered legal advice): hope for the best but continue to prepare for the worst.