Employers who had been searching for a way to best  implement the Department of Labor’s new overtime regulations (the “Final Rule”), which are set to go into effect on December 1, 2016, received an early holiday gift on Tuesday, and from one of President Obama’s appointed jurists, no less.  On November 22nd, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction against implementation of the overtime regulations.  As a result, the Department of Labor will not  be able to enforce the regulations as of  December 1, 2016.

The Final Rule, issued on May 18th of this year, under the direction of a memorandum signed by President Obama, has been controversial since its inception. Changes under the new regulations  were set to raise the minimum salary threshold for the FLSA’s white-collar exemptions from $455 per week ($23,660 annually) to $913 per week ($47,476 annually).  The DOL  was also set to update the salary threshold every three years to reflect the 40th percentile of full-time, salaried wage earners in the lowest-wage Census region, with the first update being on January 1, 2020.  These changes were set to affect more than 4 million workers  nationwide.  Although the new regulations  did not modify the FLSA’s duties test, they significantly changed the scope of the white-collar exemptions.

More than four months after the final rule was announced and only two and half months before it was set to go into effect, Nevada and Texas, along with  19 other states, sued the Department of Labor in the Eastern District of Texas to challenge the new overtime rules in Nevada v. U.S. Department of Labor.  The state plaintiffs alleged that the new regulations, which more than double the minimum salary threshold,  obliterated the text of Section 213(a)(1) of the FLSA and congressional intent to exclude employees who work in a “bona fide executive, administrative, or professional capacity.”

The Department of Labor, on the other hand, argued that it had the authority to define and limit the scope of the white-collar exemptions, that the new salary threshold was reasonable, and the regulations warranted deference under the U.S. Supreme Court’s 1984 decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.  In October, the state plaintiffs moved for an emergency preliminary injunction during the pendency of the litigation.

On November 22nd, Judge Mazzant  issued an order granting the state plaintiffs’ motion for a nationwide preliminary injunction.  Judge Mazzant concluded that the FLSA  did not grant the Department of Labor the authority to supplant the FLSA’s duties test by focusing instead on a  minimum salary threshold.  The injunction effectively  precludes the Department of Labor from implementing and enforcing the new regulations against employers.  That being said, the Department of Labor has stated that it is considering all its options and thus may appeal  Judge Mazzant’s Order  to the U.S. Court of Appeals for the Fifth Circuit.

Because of the intervening Thanksgiving holiday and the fact that the new rule’s implementation date was set to take place in eight (8) days, employers need to be vigilant for any developments from the Department of Labor during the early part of next week.  Employers also need to understand that Judge Mazzant only issued a preliminary injunction – not a permanent one – so it is difficult to predict how long the rule will be stayed or whether the overtime rule will actually be overturned.

Employers who were waiting and had not yet implemented a compensation plan to comply with the proposed rule are in the best possible position since they can refrain from implementing those plans until the 5th Circuit or possibly the U.S. Supreme Court reach a decision on the matter. However, employers who have already implemented their new compensation plans in a real quandary.  Do they leave such plans in place, in order to avoid a loss of employee morale and retain the best talent, or do they rescind them – especially if their competitors are doing the same?  That is a business consideration, rather than a legal decision, companies will have to make, depending on their respective circumstances.  Norton Rose Fulbright’s employment and labor team will continue to closely monitor every development in this area and provide additional updates.

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