Federal Judge Stops U.S. Department of Labor’s Overtime Rule

  
                          
 

In a massive stroke of irony, a federal judge  —  one appointed by President Barack Obama — entered a nationwide injunction Tuesday to stop the implementation of the U.S. Department of Labor Fair Labor Standards Act overtime rules that would have taken effect on December 1, 2016.

In March 2014, President Obama directed the Secretary of Labor to “modernize and streamline” the existing overtime regulations for executive, administrative, and professional employees” (read: create more overtime $$$ because raising the minimum wage wasn’t working).

Nearly three years later, the crown jewel of President Obama’s HR-compliance legacy is on ice and could be completely undone.

Further down the page, I’ll address the HR implications of yesterday’s remarkable decision in Nevada v. U.S. Department of Labor. But first, I’ll break down Judge Amos L. Mazzant’s opinion (here).

“The Final [Overtime] Rule…is unlawful.”

Back in September, 21 states sued the DOL to block implementation of the overtime rule. Separately, a bunch of business groups brought a similar action against the DOL. Those two cases were eventually consolidated.

Yesterday, Judge Mazzant determined that all of the plaintiffs would likely succeed on the merits of their arguments; namely,  that the DOL had overreached by raising the minimum salary level for these so-called “EAP” employees. Without getting too wonky for you, here are the money shots.

First, Judge Mazzant concluded that Congress intended that the EAP exemptions only account for duties, not dollars:

After reading the plain meanings together with the statute, it is clear Congress intended the EAP exemption to apply to employees doing actual executive, administrative, and professional duties. In other words, Congress defined the EAP exemption with regard to duties, which does not include a minimum salary level.

The plain meanings of the terms in Section 213(a)(1), as well as Supreme Court precedent, affirms the Court’s conclusion that Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary.

Second, Judge Mazzant stressed that the DOL had overreached Congress’ clear intent governing the Fair Labor Standards Act:

While this explicit delegation would give the Department significant leeway to establish the types of duties that might qualify an employee for the exemption, nothing in the EAP exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level. Thus, the Department’s delegation is limited by the plain meaning of the statute and Congress’s intent….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.

Finally, Judge Mazzant underscored that, had Congress wanted to hinge the EAP exemptions on a particular salary level, it should have done so itself:

The Department’s role is to carry out Congress’s intent. If Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change. 

And, this injunction isn’t just for employers in Texas; it’s nationwide!

A nationwide injunction is proper in this case. The Final Rule is applicable to all states. Consequently, the scope of the alleged irreparable injury extends nationwide. A nationwide injunction protects both employees and employers from being subject to different EAP exemptions based on location.

[Update (11/23/16 – 2:24 pm: The injunction includes the part of the final rule covering highly-compensated employees. Thanks to a reader for raising that issue.]

What are business groups and others are saying about the injunction?

From SHRM:

 

 

From the U.S. Chamber of Commerce:

 

 

From the DOL:
 
 
 

What's now?

The overtime rule will not take effect on December 1, 2016.

What’s next?

I see a few options:

  1. The DOL appeals to the Fifth Circuit, which probably won’t issue an opinion until 2017. If the Fifth Circuit reverses, then the  injunction is lifted (for now) and the matter returns to the lower court to be litigated further.
  2. A lame-duck Congress comes up with a compromise bill (maybe something like this), for President Obama’s signature.
  3. The DOL does nothing, in which case the case gets litigated and Judge Mazzant likely converts the preliminary injunction into a permanent injunction.
  4. President Elect Trump addresses this after his confirmation.

Should your business unring the bell too?

Most of you reading this post have already prepared for the DOL overtime rule. For most of you, that means some combination of: (a) raising salaries; (b) converting salaried employees to hourly; (c) limiting overtime opportunities; and (d) layoffs.

While the overtime rules may eventually change to something resembling the enjoined final rule, what are you going to do now?

  • How will you balance the cost savings of a “do-over” for the employees whose salaries you raised against the morale hit lowering their salaries — especially around the holidays — will cause.
  • Do you reconvert the salaried employees whom you changed to hourly back to salaried? On the one hand, a salaried employee generally enjoys more freedom (and benefits). But, will there be backlash from depriving these employees of overtime opportunities.
  • Will you re-hire some of the folks you laid off when anticipating higher operating costs.

And, I’ll say it. What about those of who may be used the DOL Final Rule as cover to fix some past wage-and-hour transgressions? Does your strategy now change?

These answers aren’t easy and they won’t come overnight. But, when you do decide how to proceed, I’d like to hear from you.

Good luck!

 

Originally published on Employer Handbook blog.

 

 

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COMMENTS 6

Comments

Employers should continue to watch for news of developments related to the overtime rule, as some uncertainty remains. Until a final decision is reached in the case, employers can rely on existing overtime exemption rules.
Employers that have already made adjustments to comply with the new rule may find it difficult to reverse any changes. However, employers may decide to postpone any changes that have not yet been made. Check out our overview at http://www.smallbizinsure.com/overtime-rule-blocked-federal-court/

Where I work all mid-level managers/assistant managers make anywhere between 35k and 46k and work 45-60 hours a week. My company decided that if you made 45k+ you would go up to the 47k and remain exempt. All other managers would go to hourly and be expected to work at least 45 hours to maintain their current salary. I currently make 43k, so I signed a form on Wednesday stating I would go to hourly, but on Friday I was told "never mind" by my HR department.

Do you know what that does to employee morale? I'm furious. I work at least 50+ hours a week. I'm the one that is called at 2am to come in to work to fix a problem or the one that covers when someone is sick or can't work. This past month I worked 6+ days each week.

I was thrilled when I heard that I would be going to hourly, but it turns out my company does not believe I deserve an honest days pay for an honest days work. They only did so because they had to.

How do you think I feel now going back to work? Do you think I am going to have that same pride in my work as before? Do you think I'm going to answer the phone at 2am now? Do you think I'm going to be eager to come in early and stay late?

How will this affect MY employees as well as my assistant manager? Will our quality output be the same? What I've learned is that I am just affecting labor costs, at least that is how I feel now. Well to me, my company is now just a source of income.

I've been following this overtime rule since the summer, and what I've realized is that I am underpaid. I've stuck around because I like the people I work with, I have a 4 minute commute, and many other factors especially the impending overtime rule. Well that was taken away from me, and my dignity took a hard hit. If my company doesn't make this right, I will be leaving.

My place of employment reclassified us from exempt to non-exempt in preparation for the rule to take effect. Not only that, they also said NO overtime allowed. This means we will have to make sure our clock in & out time do not exceed 8 hours a day, 40 hours a week. I was hoping they will revert us to being exempt employee when I found out about this injunction, but, unfortunately, our status will not get reversed. Get ready for having to punch in and out from now on. I don't know how many employees the DOL hoped their new FLSA rule will potentially help but I do know the rule doesn't help anyone at my work place one bit. We went from having the flexibility of not having to clock in and out to having to watch our hours otherwise we will be reprimanded. Remember, employers usually alsways come out winning regardless...

I was happy with my exempt status. I worked late because I WANTED to. Now, I'm FORCED to leave after 8 hours or face the consequences. Oh, and no, we can not clock out then stay back and work off the clock. That will get both the company and employee in trouble because that's illegal.

I work for a large non-profit. I make $39,900 a year and since I am a fundraiser/event planner I work nights and weekends. Our company knew that we couldn't change to 40 hours weeks because its impossible for the job that I do so they bumped all their event staff up to $47,500. I was thrilled! That was a 15% increase in my salary! Finally!! I was getting paid for my long nights and weekends. We had already had so many layoffs and I was already promised a merit increase last year and they didn't deliver on that either. I am buying my first townhouse this month too because I thought I would be having a lot more money coming in.

Then the news came out. Of course we got a company wide email stating that we would NOT be getting any raises, DAYS before they were suppose to hit. What's the point.. I love my job but the money is terrible. I hate that Judge. No company will pay you a fair amount unless the government forces them too. How come one man can change the fate of 4.2million people. I thought we lived in America?

As a person who was set to get this raise I am somewhat a little pissed off by this 11th hour freeze. This could have been solved 3 years ago instead of now. Now because of this I will not have my raise which pisses me off not to mention what do I do now. I have been working 1 full time job and 1 part time job. Its killing my family life. Looks like I will have to continue this pattern and hope I don't kill myself in the process. Thanks for nothing Federal Government. YOU SUCK!!!!

The DOL hoped their new FLSA rule would help out 4.2 million Americans. Are you getting paid the same as before? I don't see how getting paid the same and working less hours is bad for the employee. If your company is paying you $650 per week, would you rather work 40 hours ($10.83 per hour) or 60 hours($16.25 per hour)?

The employee benefits by more pay OR less hours, but either way the hourly rate goes up.

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