Federal Judge Blocks US Overtime Rule; What’s Next for Employers?

Federal Judge Blocks US Overtime Rule; What’s Next for Employers?

Amid uncertainty over whether the rule would survive the end of the Obama administration, US District Judge Amos Mazzant in Sherman, Texas issued a preliminary injunction on Tuesday blocking the US Labor Department’s new overtime rule, which would raise the salary threshold at which employees are exempt from overtime pay from $23,660 to $47,476, from being enforced, just nine days before its effective date of December 1, Reuters reports:

Mazzant, who was appointed by President Barack Obama, ruled that the federal law governing overtime does not allow the Labor Department to decide which workers are eligible based on salary levels alone. The Fair Labor Standards Act says that employees can be exempt from overtime if they perform executive, administrative or professional duties, but the rule “creates essentially a de facto salary-only test,” Mazzant wrote in the 20-page ruling.

The states and business groups that challenged the rule applauded the decision. … The Labor Department… remains confident that the entire rule is legal, and it is currently considering its options, department spokesman Jason Surbey said.

Politico’s Marianne Levine discusses the ruling in more detail:

In his opinion, Mazzant said that in issuing the rule, the Labor Department “exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary threshold such that it supplants the duties test.” Under the duties test, an employee is exempt from overtime pay if he or she earns wages in excess of the salary threshold and has duties that are administrative, executive or professional.

Mazzant said that “if Congress intended the salary requirement to supplant the duties test, then Congress and not the Department, should make that change.”

Though the ruling may come as welcome news to many US employers, it comes so close to the deadline that most have already made changes to compensation and scheduling that, the Wall Street Journal observes, may be hard to reverse:

Evan Kelamis, chief executive of the Savoy Restaurant in Tulsa, Okla., had promoted one hourly employee to a salaried management job, giving him a raise of roughly $15,000 to avoid paying overtime under the new rule.

Had the threshold increase been smaller, “we might have been able to put two individuals on a management salary, which would have helped us grow our leadership team,” he said. The manager at the roughly 25-employee restaurant will take on early shifts and extra hours to justify the raise.

A preliminary injunction doesn’t mean the new rule is off the table for good, but particularly with the Trump administration on the horizon, the odds of it being canceled, delayed, or significantly changed have improved. Politico notes that the Labor Department’s options for fighting the ruling “aren’t terribly promising”:

If DOL files an appeal, it will go to the conservative Fifth Circuit, where the chances of success are remote. And who’s to say the Trump Labor Department will even want to appeal? Trump was already on record saying he would like to exempt small businesses from the rule, and the Republican House was getting ready to break early for the holidays, in large part so it could squelch the rule under the Congressional Review Act (a mechanism linked to the length of the legislative calendar). Now such elaborate maneuverings seem unnecessary.

However, many companies have already adjusted compensation and scheduling to comply with the rule, and have communicated those changes to many of the estimated 4.2 million employees it was expected to affect. Some employers, like Walmart, opted to raise salaries for many affected employees to move them over the threshold.

Now, these employers (and employees) face a lot of uncertainty. So what should employers do if they’ve already made preparations for a rule that won’t come into force next week and may not be implemented at all? In some cases, it might make sense to leave those changes in place, one expert suggests to SHRM’s Lisa Nagele-Piazza:

Employers will likely want to leave decisions in place if they have already provided salary increases to employees in order to maintain their exempt status, said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C. and a former acting administrator of the DOL’s Wage and Hour Division. It would be difficult to take that back.

If there are exempt employees who were going to be reclassified to nonexempt, but haven’t been reclassified yet, Robinson said employers may want to postpone those decisions and give the litigation a chance to play out.

One thing to keep in mind is that this regulation may still change in the near future, regardless of this injunction: Legislation introduced in Congress to amend the rule would delay the increase in the salary threshold and phase it in over several years, as opposed to not raising it at all. While the Republican authors of these bills may reconsider their positions once their party controls the presidency in January, there is no guarantee that overtime regulations will remain as they were.

In the meantime, the question for employers that have already made changes, particularly salary increases, because of the rule is this: Do you reverse these changes to save on compensation costs, or keep them in place to maintain employee engagement?