Overtime Regulations Stayed – More (a lot more) To Come
November 30, 2016
On Tuesday, November 22, 2016, Judge Amos Mazzant, an Obama appointee to the federal court for the Eastern District of Texas, issued a nation-wide preliminary injunction barring the implementation of the DOL’s well-publicized, proposed overtime regulations. State of Nevada, et al., v. U.S. Department of Labor . Originally to become effective December 1, 2016, the proposed overtime changes would have increased the “salary-level test” of the FLSA’s white-collar exemptions from $23,660 to $47,476 per year. Judge Mazzant’s preliminary injunction creates uncertainty for U.S. employers. Should an employer proceed with new strategies developed to satisfy the anticipated rise in the overtime law’s salary threshold, delay implementation of the new strategies, or punt and start over? Developing a course of action will require consideration of several factors ranging from the likelihood of an appeal to President-elect Trump’s future actions.
In issuing the preliminary injunction, Judge Mazzant found that the “State Plaintiffs [21 states] offered sufficient evidence to establish  a prima facie case that the [DOL’s] salary level under the Final Rule and the automatic updating mechanism are without statutory authority.” Stated differently, the Court ruled that the DOL did not have authority to impose a salary test as an element of the overtime exemptions.
The Court’s injunction comes after courts and employers have applied and followed a salary test as a component of the white-collar exemption for more than 65 years. Currently, the executive, administrative, and professional exemption from the FLSA overtime requirements must satisfy three tests:
- The salary-basis test: (a requirement since 1940);
- The duties test: (a requirement since 1938); and
- The salary-level test: (a requirement since 1949).
Since 2004, the minimum salary level has been $455/week or $23,660 annually. The proposed regulations would have increased the minimum salary level to $913/week or $47,476 annually. Beginning January 1, 2020, the salary-level would increase automatically to equate to the 40th percentile of average wages for full-time salaried employees in the lowest-wage Census region (South).
Predicting an outcome for the white-collar exemption’s salary-test requires consideration of several scenarios. Under federal and most state law, parties have a right to appeal the entry of a preliminary injunction before a final judgment. The Obama Administration is considering whether to pursue an expedited appeal to the Fifth Circuit Court of Appeals. The Fifth Circuit must approve an expedited appeal to raise the possibility of a decision (and a possible reversal) before January 20, 2017, the transition date for the Trump Administration. Once in office, the Trump Administration could drop the appeal, thereby assuring the continuation of the injunction overseen by the Texas District Court until Judge Mazzant issues a final judgment.
The drama underlying the injunction of the white-collar salary test includes the possibility of Congressional action. Under the Congressional Review Act (CRA), Congress has a window of 60 “days-of-continuous-session” from the submission date of the Final Rule for a member of Congress to introduce a joint resolution disapproving the proposed FLSA regulations. The timing of Judge Mazzant’s preliminary injunction, issued after the Presidential election and shortly before the inauguration, may provide the new Republican Congress with an opportunity to issue a joint resolution of disapproval.
Even if the newly configured DOL sought to reissue a new salary-test rule, a joint resolution of Congress issued under the CRA would prevent the DOL from issuing a new FLSA rule in “substantially the same form.” Should the newly configured DOL under the Trump Administration seek a new regulation (not substantially in the same form) containing a new minimum salary level, the effort could attract bi-partisan support. Going through notice and comment under the Administrative Procedure Act would take time, but would allow the winds of change to lessen and permit the structuring of a bi-partisan bill to reset the salary-level between $23,660 and $47,476.
To prepare for the anticipated December 1st salary-raise deadline, employers analyzed the impact of the proposed regulations on current compensation, and then decided whether:
- * to raise an affected worker’s salary above the new salary threshold,
- * to implement alternative pay plans,
- * to budget new overtime payments for previously exempt workers, or
- * to impose new 40-hour work restrictions.
An employer’s reasonable responses to Judge Mazzant’s injunction include:
- Maintain the new changes pending resolution of the preliminary injunction;
- Roll back announced or implemented changes (but read below); or
- Do nothing by those employers who never implemented or announced changes.
Maintaining new compensation changes that would have satisfied the proposed FLSA regulations could result in increased costs for an employer. In addition to the obvious increases in direct compensation, an employer should assess costs in the context of bonuses, welfare and pension benefit calculations, ACA qualifications, and other workplace compliance obligations. Given the anticipated delay in reaching a final resolution of the preliminary injunction and the related political scenarios, preserving the changes triggered by the proposed regulations suggests an employer would incur increased overhead for a significant time.
Although not violating current overtime law, rolling back announced overtime changes should be undertaken only after consideration of other federal and state laws. For example, changes in compensation must adhere to any governing contract terms. For at-will employment, an employer may alter announced or effective compensation terms for prospective work. In other words, an employer must communicate new pay rates before work commences. Some states require changes in compensation to be communicated in writing and announced a prescribed time before the pay change commences. Rolling back announced or implemented changes should be undertaken only after evaluating those changes in the context of disparate impact, promissory estoppel, welfare and pension benefit calculations, ACA qualifications, and other workplace compliance obligations.
More to Come
The unexpected stay of Obama’s proposed overtime regulations portends more unpredictable changes for the workplace. With President-elect Trump’s emotion-laden victory, most employers anticipate the new Administration will roll back many Obama workplace rules and regulations. While the new President has not revealed a detailed list of workplace objectives, Trump has given attention to the concept of paid leave. The President-elect’s immigration “wall” will result in changed human resource procedures. Trump has specifically targeted Obama Care, Dodd-Frank (especially the Consumer Financial Protection Bureau), and federal contractor obligations. Trump’s focus on infrastructure will impact the workplace with new recruiting, training, supervision, and other staffing analytics. The start-stop-limbo state of the DOL’s proposed overtime regulations should only assure employers of “more to come.”
SIO Law Group LLC
SIO Law Group
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