Nationwide Injunction Prohibits Implementation of the Department of Labor’s New Overtime Rules

Summary

A nationwide junction was issued Tuesday evening blocking implementation of the U.S. Department of Labor’s new rules increasing the minimum salary levels required for most white collar exemptions. These new rules had been scheduled to go into effect on December 1, and would have raised the minimum annual salary level for most exemptions from $23,660 to $47,476. The injunction halts enforcement of the rule until the Department of Labor receives a contrary order from the issuing court or an appellate court. But, since Texas is in the Fifth Circuit, which is a traditionally conservative court, the Department of Labor faces an uphill climb and it is unlikely that the new rules will go into effect in the foreseeable future.

The Injunction

The injunction was issued on November 23 by Judge Amos Mazzant, U.S. District Judge for the Eastern District of Texas, in a case that was filed by twenty-one states and joined by the U.S. Chamber of Commerce and others. The plaintiffs in this lawsuit had filed a motion for a preliminary injunction in late October asking the Judge to block the new rules.

In his ruling, Judge Mazzant explained that an injunction was appropriate because the plaintiffs in the case stood a significant chance of success on the merits of their claim. Specifically, the Judge found that the Department of Labor’s new salary requirements are so onerous that they “supplant the duties test” that is at the heart of the exemptions for executive, professional and administrative employees, creating a “de facto salary-only test.” And, since minimum salaries are not mentioned in the text of the Fair Labor Standards Act itself, Judge Mazzant held that the plaintiffs were likely to succeed in proving that the Department of Labor had overstepped its authority by issuing the new rules.

The Judge also found that the states would suffer significant financial harm and other forms of irreparable harm if the new rules were implemented. Specifically, Judge Mazzant noted that many state agencies which provide critical services to the public would have no choice but to cut services in order to have funding available to pay salaries in compliance with the new rules. The Judge concluded his order by explaining that the injunction should be applied nationwide since the threat of irreparable harm extended throughout the United States.

Next Steps

The Department of Labor may immediately appeal the Court’s decision to the Fifth Circuit, or it may wait until the case is resolved on its merits, either at trial or on summary judgment.

If the case has not been resolved by the time the new administration takes office (which is unlikely), Donald Trump could order the Department of Labor to capitulate in the case and voluntarily agree to an order making the temporary injunction a permanent one, effectively nullifying the new rules. Donald Trump could then: (1) do nothing – thus maintaining the existing rules, (2) instruct the Department of Labor to restart the rule-making process to create new, presumably less onerous rules for the white collar exemptions replacing the current ones, or (3) encourage Congress to amend the Fair Labor Standards Act to more clearly outline the requirements for the white collar exemptions.

Advice to Employers

At this point, the Department of Labor is prohibited from implementing the new rules and raising the minimum salary threshold for the white-collar exemptions. Employers are thus not required to comply with the new minimum salary thresholds at this time.

Many employers, however, have already made changes within their organizations to comply with the new rules by either switching employees who were previously exempt but who fall below the new salary minimum to non-exempt status or by bumping those exempt employees’ salaries up to meet the new minimums. Rolling back salary increases that have already been implemented or announced may significantly impact employee morale – especially given the impending holiday season.

It will likely be easier for employers to undo the effects on employees who were previously exempt, but who have been told that they will not meet the exemption after December 1. Many employers will likely inform such employees that due to the change in the legal status of the new rules, their exempt status will not be changing December 1 and they will not be required to track their hours and will not receive overtime. The situation is more complicated for employers who have already changed these employees’ status to non-exempt in anticipation of the new rule. Such employers may decide to let these changes stand (as employees may always be classified as non-exempt and paid overtime, even if they might qualify for an exemption). Or these employers may decide to reinstate these employees’ exempt status, blaming the flip-flop on the government and the legal system. Ultimately, each employer must decide whether the morale costs and other intangible costs associated with rolling back the changes are worth it to the organization.