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Federal Judge Pauses Overtime Rule Implementation

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Nov 23, 2016

A federal district court in Texas issued a nationwide temporary hold on implementation of the Overtime Final Rule on Nov. 22. Because of the injunction, the federal overtime rule will not go into effect on December 1. 

The U.S. Departments of Justice and Labor are appealing the decision to the Fifth Circuit U.S. Court of Appeals.

Background

Under the federal Fair Labor Standards Act (FLSA), most employees are entitled to time and a half overtime pay for working more than 40 hours in a week. The FLSA authorizes exemption of “any employee employed in a bona fide executive, administrative, or professional capacity” from the overtime pay requirements (also known as EAP or “white collar” employees).

Exempt employees must meet a duties test -  showing they possess the duties of executives, administrative workers, or professionals - and a salary level test.

The 2016 overtime rule published by the Department of Labor (DOL) would increase the “salary level test” for exempt employees from $455 per week ($23,660 per year) to $913 per week ($47,476 per year).

Court ruling

Twenty-one Governors and Attorneys General filed suit in federal court on Sept. 19, 2016 claiming that the DOL exceeded its authority under the FLSA and unlawfully infringed upon states’ budgets by enacting the new rules. A coalition of business groups led by the U.S. Chamber of Commerce also filed a parallel lawsuit, which was later consolidated with the states’ case. 

Siding with the states, Federal Judge Amos Mazzant held that the exemption is clearly based on the duties that individual employees perform and DOL did not have the authority to create a different or higher standard. 

"Congress gave the Department the authority to define what type of duties qualify [for the overtime exemption] — it did not give the Department the authority to supplant the duties test and establish a salary test that causes bona fide EAP’s to suddenly lose their exemption ‘irrespective of their job duties and responsibilities.’"

The decision imposes a temporary nationwide injunction blocking the new rules from taking effect and prohibiting the DOL from expending any resources to enforce them. The court did not address whether a smaller increase in the current minimum salary might have been permissible or whether a lower minimum salary threshold could be subject to automatic increases.

The injunction does not affect the applicability of existing requirements under the federal Fair Labor Standards Act or state or local employment laws. This includes current rules for coverage of employers and individual employees under the FLSA, overtime pay, federal minimum wage, and exemption of EAP employees based on the duties test. 

The DOL has appealed the decision to the U.S, Court of Appeals. Depending on the outcome of the case, the injunction could be made permanent or could be lifted and the overtime rule could take effect in a matter of weeks or months. 

Independent of the courts' decisions, the new Congress could also take legislative action in 2017 to change the required salary increase or block the rules from taking effect. Also, the White House could issue an alternative rule that changes the salary requirement, or exempts small businesses as the Trump campaign had proposed.

What's next?

  • Effective Jan. 1, 2017, Colorado employers are required to pay $9.30 an hour or more to comply with Amendment 70. 
  • For now, employers are not required to implement changes by Dec. 1 based on the new overtime regulations.
  • Employers still contemplating changes to adhere to the new rule should consider waiting to see what happens to the rule before taking action. 
  • Employers who announced or implemented changes must decide if they will proceed with them or roll them back. This decision can be made now or after the courts make a final decision. 
  • For changes based on this ruling, employers should notify employees that a federal court halted implementation of the rule.
  • Further changes may occur to the rule based on decisions by the courts, the new administration, or Congress.

Employers should handle their communications with employees with care particularly if their decisions rescind pay increases or affect other favorable changes for employees. Because each workplace is unique, employers should consider which approach causes the least disruption and adverse impact on their workplaces.

We will post additional updates on our website when they are available. Thanks to the National Council of Nonprofits and Worksmart Partners for their assistance with the content of this webpage. 

 

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