TRO, preliminary injunction, temporary restraining orderA Texas federal judge has stopped the U.S. Department of Labor’s new overtime rules from taking effect as scheduled for December 1, 2016. Significantly, the court issued a nationwide injunction. The decision to enjoin the Department’s overtime rules was issued earlier today, and a copy of the Order is available here (Nevada v U.S. Department of Labor – Injunction Order).

The district court judge concluded that the applicable statute (29 U.S.C. § 213(a)(1)) does not grant the Department the authority to use a salary-level test or an automatic updating mechanism under its revised overtime rule.

The Revised Overtime Regulations

The revised rules were scheduled to become effective December 1, 2016. It would have increased the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $921 per week ($47,892 annually). This means that workers who earn an annual salary of less than $47,476.00 would automatically be eligible for overtime pay. The Department’s revised overtime rule also establishes an automatic updating mechanism that adjusts the minimum salary level every three years. The first automatic increase will occur on January 1, 2020.

Background of the Federal Litigation

As we previously noted, in September 2016 two lawsuits were filed in the Texas court challenging the Department’s authority to revise the overtime rules. The revisions would have more than doubled the exempt salary threshold to $47,476 and other changes. Twenty-one states filed one lawsuit, including Michigan. The other was filed by the U.S. Chamber of Commerce and similar business groups.

The cases were later consolidated in October, and the combined plaintiffs moved to issue a preliminary injunction that would halt the new regulations on an expedited basis, which was heard on November 16.

The Order Enjoining the Overtime Regulations

The plaintiffs sought a preliminary injunction to enjoin the Department from implementing its revised rule on December 1, 2016. In granting the injunction, the district court judge issued a lengthy opinion. But the key determinations for employers and employees are:

  1. The Department’s revised rule exceeded its delegated authority to interpret the type of employees exempt from overtime and the considerations to evaluate such employees.
  2. The Department lacked the authority to implement the automatic updating mechanism.
  3. The district court issued a nationwide injunction – not just for the states that sued.

In reaching these conclusions, the court reasoned:

Directly in conflict with Congress’s intent, the Final Rule states that ‘[w]hite collar employees subject to the salary level test earning less than $913 per week will not qualify for the [] exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities.’ With the Final Rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test.

In other words, Congress defined the exemption regarding duties, which includes no minimum salary level.

What Does This Mean

The Department estimated 4.2 million workers are ineligible for overtime but would have automatically become eligible under its revised overtime rule with no change to their duties. The Department estimated that the new rule would have boosted wages by $12 billion over the next 10 years.

But this is now all in jeopardy. This is because the injunction gives time for the Trump administration to direct the Department to withdraw the rule altogether. While withdrawing the rule would require time for notice and comment, which takes many months, the injunction may set the stage for this to now happen. And even if the Trump administration did nothing, the court’s opinion would not bode well for the Department in regard to ultimately prevailing in the suit.

Another interesting question is what businesses will do who already revamped their payroll and workforce in anticipation of the rule going into effect on December 1, 2016. Even with the unexpected Trump victory, many businesses continued to prepare for the revised rule. Such preparation included raising workers’ salaries above the new threshold to avoid overtime requirements. Do those companies now go back to their old compensation plans?  That would do wonders for employee retention.

Contact employment attorney Jason Shinn for more information about federal overtime laws and this significant overtime ruling. We will continue to monitor this decision and assess what it means for businesses and employees.