In a stunning ruling, a federal judge in Texas has issued a nationwide injunction blocking the Obama administration's overhaul of the nation's overtime rules that was set to go into effect on December 1, 2016. The rules, which are summarized here, would have made millions of workers eligible for overtime. The Department of Labor (DOL) changes were focused on the minimum salary requirement that all employees must meet in order to be exempt from the Fair Labor Standards Act's (FLSA) requirement that employees must be paid 1 ½ times their regular rate of pay for hours worked over 40 in a workweek. The new rules would have more than doubled the salary minimum from $23,660 per year to $47,492. Meaning anyone making less than $47,492 a year would automatically have been eligible for overtime, regardless of the job duties. The State of Nevada, along with 22 other states and multiple business groups, had filed an action in the Eastern District of Texas to block the changes. On November 22, 2016, Judge Amos L. Mazzant, an Obama judicial appointee, issued a preliminary injunction blocking the rules from going into effect on December 1, 2016.
In his ruling, Judge Mazzant found that the DOL could not implement changes to the section of the FLSA that defines who is exempt from overtime based solely on minimum salary. Instead, the changes had to be based on the duties performed. The decision was based on the Oxford English Dictionary definitions of "executive," "administrative" and "professional" that existed at the time the statute was enacted in 1938. According to the Court, each of those definitions relate to "a person's performance, conduct, or function without suggestion of salary." The Court also found that the significant increase to the salary levels in the DOL's regulation, "creates essentially a de facto salary only test." Thus, since the DOL's changes to the regulations focused only on the salary and not on any of the duties performed by the exempt employees, they were contrary to the definitions in the FLSA.
The Court held that allowing the rules to go into effect on December 1 would irreparably harm the states that had sued. Conversely, the DOL would not be harmed by the grant of the preliminary injunction, because if the Court's analysis was found to be wrong, the DOL changes would simply be delayed.
Comment: What does this mean? For one, it means that businesses can breathe a sigh of relief. The changes which the DOL estimated would impact 4 million workers (and some industry groups had estimated the number to be closer to 10 million) will not be going into effect on December 1, 2016. It is expected that the DOL will appeal the ruling to the 5th Circuit Court, but that will take some time. Employers are still encouraged to make sure that their employees are properly classified for overtime purposes. Even before these changes, misclassification of employees was a big risk for employers.
Chelsea R. Seidel