Why Implementation of the Fair Labor Standards Act New Overtime Regulations Was Halted

Days before the “Final Rule” from the US Department of Labor that would have dramatically altered the application of federal overtime wage law across the country was to become effective, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction halting its implementation. Nevada v. U.S. Department of Labor, Dist. Ct. E. Dist. of TX, No. 16-cv-731 (November 22, 2016).

Twenty-one states, the over fifty business organizations and chambers of commerce (inclusively referred to here as “States”) sought an emergency preliminary injunction to halt the implementation on December 1st of the US Department of Labor’s Final Rule altering the overtime exemption rules.

Despite the many attorneys, myself included, advising employers to prepare and make changes to the compensation or job duties of their employees, those employers who waited until the last minute were rewarded through cost savings and the avoidance of having to make changes because the federal district court in Texas was persuaded that the state and business plaintiffs demonstrated a substantial likelihood of success on the merits and granted an emergency preliminary injunction to apply nationwide halting implementation of the regulations.

Why?

The federal district court in Texas concluded that the law that permits an exemption to the Fair Labor Standards Act overtime requirement, 29 U.S.C. § 213(a)(1), was intended “to depend on an employee’s duties rather than an employee’s salary.” And, the Final Rule created an increase in the “salary-level” test so significant that it effectively applied the exemption to millions of workers based solely on their salary level and regardless of their job duties. In doing so, the Final Rule salary-level test would supplant Congress’s intent that the exemption be based on job duties.

“For instance, the Department estimates 4.2 million workers currently ineligible for overtime, and who fall below the minimum salary level, will automatically become eligible under the Final Rule without a change to their duties. Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 81 Fed. Reg. 32,391, 32,405 (May 23, 2016). Congress did not intend salary to categorically exclude an employee with EAP [Executive, Administrative, and Professional] duties from the exemption.”

Therefore, in promulgating the Final Rule, “the Department exceeds its delegated authority and ignores Congress’s intent….”

Can an employer change its decision if it already made changes?

Wage and hour laws vary among jurisdictions, but if the state or local law doesn’t otherwise prohibit it and there is no contract that would be breached, then, legally, yes, an employer can go back to the compensation and job duties that they had in place prior to the publication of the Final Rule. (However, work conducted while the employee was working under any altered compensation must be compensated as promised and otherwise handled accordingly.) The decision, however, is ultimately a business decision taking into account employee morale, the value placed on keeping one’s promise, maintaining talent, and the cost of going the new route.

To learn more about how wage and hour laws or other employment issues affect your company, contact Mona K. McPhee at 206.777.7556.

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