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November 23, 2016Client Alert

Nationwide Injunction Blocks Overtime Pay Regulations

As they say, “everything’s bigger in Texas,” and late yesterday a Federal District Court Judge in Eastern Texas issued a major decision affecting almost every employer in the country. Judge Amos Mazzant granted a group of 21 states’ emergency motion for a nationwide preliminary injunction and blocked all of the U.S. Department of Labor’s (DOL) new overtime pay regulations that were scheduled to go into effect on December 1, 2016.

The court’s order blocks the DOL’s regulations that would have:

  1. more than doubled the minimum salary threshold for the Executive, Administrative, and Professional (EAP) Exemptions from the current level of $455 per week ($23,660 annualized) to $913 per week ($47,476 annualized);
  2. automatically updated the minimum salary level every three years beginning January 1, 2020; and,
  3. increased the “Highly Compensated Employee Exemption” from $100,000 to $134,004 annually.[1]

For many employers struggling to come into compliance with these requirements, this is the judicial equivalent of your team catching a game winning 60-yard touchdown pass on Thanksgiving Day with three seconds left on the clock.

The court’s findings and analysis were no less dramatic in their substance and scope:

  • “Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary.”
  • The DOL exceeded its Congressional authority “by raising the minimum salary level such that it supplants the duties test” and “creates … a de facto salary-only test.”
  • “Because the Final Rule is unlawful … the [DOL] also lacks the authority to implement the automatic updating mechanism.”
  • Plaintiffs have shown “a likelihood of success on the merits, will “suffer irreparable harm if the injunction is not granted,” and “the public interest is best served by an injunction.”
  • A “nationwide injunction is proper in this case” because “the scope of the alleged irreparable injury extends nationwide.”

As its name implies, the “preliminary” injunction does not ultimately seal the fate of the regulations, as the court could still decide not to issue a “permanent injunction” and uphold the regulations in part or whole. However, given the court’s findings and analysis, this seems highly unlikely. Furthermore, an eventual appeal by the DOL would also seem less probable under President-Elect Trump’s administration.

Given this injunction, employers can—for now—hold off complying with the new overtime pay regulations, with two important caveats: First, if an exemption analysis revealed that an employee did not satisfy the current “duties test” for any exemption, the employer should still consider reclassifying that individual as non-exempt and pay overtime (regardless of the employee’s salary level). Second, those employers that have already communicated and/or implemented compensation and exempt status changes in advance of the December 1 deadline will quickly have to decide whether to rescind those changes. Given the potential legal and employee morale risks involved in both situations, it is recommended that you consult with legal counsel to analyze your options and messaging.

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