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Federal Court Injunction Throws Employers' Plans for December 1 Overtime Changes Into Disarray

    Client Alerts
  • November 28, 2016

On November 22, a federal district court judge in Texas issued a nationwide injunction prohibiting the Department of Labor from enacting its new overtime exemption salary increase on December 1 as scheduled. The judge concluded that by more than doubling the current minimum salary required to qualify for the exemptions, DOL had in effect eliminated the duties test by setting such an elevated pay threshold.

What happens now? Many employers have already increased employee salaries to meet the new minimum, or reclassified previously exempt workers to non-exempt in preparation for the anticipated change. Others have announced upcoming pay plan changes to employees, intended to take effect December 1.

With the injunction in place, the current salary levels required to qualify for the exemptions will remain in place indefinitely. The federal judge’s decision is not final, meaning that DOL and groups challenging the overtime rule changes will have an opportunity to fully argue their legal positions. However, given the fact that he has already issued a preliminary injunction, DOL faces an uphill battle to convince the judge of the merits or their argument. Regardless, the judge’s decision can be appealed to the Fifth Circuit Court of Appeals and eventually to the U.S. Supreme Court.

Predicting the eventual outcome of this litigation is complicated by the impending transition at DOL to the Trump administration. The new President is unlikely to devote DOL resources to defending the current salary increase. While DOL could propose a compromise smaller salary increase, employers have no way of predicting if and when any salary change would take effect. The new DOL could simply decide not to pursue the appeal, in effect killing any salary increase for the present.

Based on these developments, employers have a difficult decision to make. They could rescind or delay planned or already implemented changes in their pay plans pending a final decision on the minimum salary levels. This move could result in significant employee relations problems if a last-minute reversal is viewed by workers as a salary cut. Employers could always justify such reversal on the shifting judicial and political forces affecting the overtime rules.