On Tuesday, November 22, 2016, Federal Judge Amos Mazzant (Eastern District of Texas) issued a nationwide injunction blocking the Department of Labor’s rule requiring overtime pay. The December 1 deadline for implementation has now been put on indefinite hold.
The legal challenges to the rule originated as two separate complaints—one by a group of 21 states and the other by a coalition of more than 50 business groups. The plaintiffs, whose cases have since been consolidated, sought an emergency preliminary injunction to stop implementation of the rule on December 1.
In a 20-page decision, Judge Mazzant ruled that the states and business groups stood a significant chance of success on the merits of their case and would suffer serious financial harm if the rule was put into effect as scheduled on December 1. Judge Mazzant found that the Obama administration had overstepped its authority by raising the salary cap for executives, administrative personnel, and professionals from $455 a week ($23,660 a year) to $913 a week ($47,476 a year).
Many in the employment law field did not think Mazzant, who was appointed by President Obama, would enjoin the rule, but the plaintiff states’ concerns about how to adjust wage and hour processes for the thousands of government employees who would be affected may have swayed the court. The judge rejected the government’s plea to hold off on an injunction, saying the states would suffer immediate harm as they were forced between raising the salaries of thousands of managerial employees or cutting back on services and work hours.
Mazzant also expressed concerns about the automatic updating clause within the rule, which would call for further increases of the threshold every three years (also called indexing). The Department of Labor argued that it was merely updating the rule to keep up “with our modern economy,” but the judge said the automatic increase effectively eliminated the exception in labor law for “bona fide executive, administrative or professional” employees. Judge Mazzant focused on the fact that, under the FLSA, the Department of Labor must examine the duties of employees to determine who fits the exception, not simply their salaries. Mazzant wrote that by raising the cap so high, “the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test.”
The injunction halts enforcement of the rule until the government can win a countermanding order from an appeals court. Given Texas is in the conservative Fifth Circuit, that could be a challenge.
While this ruling, on its face, may now save employers significant money if they choose not to make changes to their workforce, the ruling also leaves many employers in a bind. Employers have spent months adjusting employee schedules, job duties, and pay and implementing new processes ahead of the rule’s implementation. Some employers may choose to immediately reverse course while others, fearing a significant workforce morale hit, may choose to go forward with salary increases and job description changes that have already been communicated to employees.
There’s no doubt that this ruling may cause some cultural and procedural issues in your workplace, but careful planning and management can help minimize that impact. As always, if you’d like help working through your workplace compliance issues, give us a call.
Erik Moskowitz is Director of HR and an attorney at Reed & Scardino where he specializes in civil trial law, including employment law, business law, and commercial litigation. Erik advises employers on regulatory compliance and litigation avoidance and represents individuals and businesses in litigation at all levels of the state and federal court system.
For further information about the effects of this ruling or other compliance issues, please contact us.