Employers Cautiously Rejoice as Federal Judge Suspends New Overtime Rule

By Michael A. Shadiack & Lauren F. Iannaccone

On November 22, 2016, a federal judge in Texas issued a preliminary injunction enjoining the enforcement of the United States Department of Labor's new overtime rule, which nearly doubled the salary threshold applicable to the "white collar" overtime exemptions.  The rule, which was set to go into effect on December 1, 2016, requires that employees earn an annual salary of at least $47,476 (to be increased every three years) in order to meet the salary test under the executive, administrative and professional exemptions from overtime pay requirements. Currently, the applicable annual salary threshold is $23,660.  For more information on the rule, please see our prior legal update.

The ruling stems from a legal challenge that was asserted by a coalition of 21 states and many businesses and chambers of commerce who collectively fought to prevent the implementation of the Department of Labor's rule. Judge Amos L. Mazzant III of the Eastern District of Texas held it was in the public's interest to issue an injunction to maintain the status quo as to the salary threshold while the court determines the Department of Labor's authority to issue the new rule, as well as the rule's validity. Under the Fair Labor Standards Act, in order to be classified as exempt, an employee must be paid on a salary basis at a level that meets the threshold amount (currently $23,660), and perform executive, administrative or professional duties.  Judge Mazzant stated that by nearly doubling the salary threshold to $47,476, the regulation "creates essentially a de facto salary-only test."

During the last several months, in preparation to comply with the new rule, employers nationwide have analyzed their salary structure to determine if their employees who are presently exempt (and not entitled to earn overtime) would meet the new salary threshold of $47,476 come December 1, 2016 and, if not, have had to strategically plan to address that reality.  In light of Judge Mazzant's ruling, employers have a reprieve from that December 1, 2016 deadline.  How long the reprieve will last is yet to be known.    

Employers should keep in mind that while the injunction is nationwide, it is only preliminary, meaning that it is not permanent. Judge Mazzant still needs to rule on the merits of the Department of Labor's authority to establish the new salary threshold and, thus, the validity of the rule.  In addition, the Department of Labor may decide to appeal the decision.  Until the legal proceedings are concluded, the injunction will remain a temporary measure to suspend the rule. Adding further intrigue is what President-elect Trump and his administration will do with this Obama administration rule.  Employers are well-advised to be cautious, and to continue to prepare for the possibility that the rule could take effect on a future date.