Federal Court Halts DOL Final Overtime Rule, Nationwide: Rule will not take effect December 1

What Just Happened?

Many employers have been gearing up for months to comply with the DOL’s Final Overtime Rule (Final Rule), but on November 22, 2016, a federal court put the brakes on the Final Rule.  Specifically, U.S. District Court Judge Amos Mazzant, United States District Court for the Eastern District of Texas, issued a nationwide preliminary injunction, prohibiting the U.S. DOL’s Final Rule from being implemented or enforced on December 1, the date the new rules were slated to take effect.

What Was the Reason for the States’ Challenge?

As noted in an earlier Perlman & Perlman blog, in September, twenty-one States brought a lawsuit against the U.S. DOL, challenging the lawfulness of the Final Rule and the DOL’s authority to issue it, including:

1) the setting of a higher salary threshold from $455/week (or $23,660, annually) to $913/week ($47,476, annually) for determining whether an employee is “non-exempt” and therefore, entitled to overtime pay under the federal Fair Labor Standards Act (FLSA), and

2) requiring automatic salary updates every three years.  The States argued that the automatic update violated the Administrative Procedures Act as it was not subjected to a public notice and comment period.

At the same time, at least 50 business groups, including the U.S. Chamber of Commerce, filed a lawsuit against the DOL in the same court, also challenging the Final Rule and seeking expedited summary judgment.  The Judge considered the business groups’ motion for summary judgment as an amicus curiae (“friend of the court” brief) in the context of his decision in the States’ action.

The States sought a preliminary injunction, a mechanism to stop the Final Rule from taking effect on December 1 while the Court could consider the merits of the States’ claims.  In granting the States’ emergency motion for a preliminary injunction, the Judge ruled that the States had shown: 1) a substantial likelihood of success on the merits; 2) a substantial threat of irreparable harm if the injunction were not granted; 3) that the threatened injury to outweighs any harm the DOL might suffer; and 4) that the injunction will not disserve the public.  Notably, in finding the Final Rule unlawful, the Court concluded that, among other things, the DOL’s action of raising the minimum salary level was an overreach of its authority and that such action effectively supplanted the duties test required by Congress for determining whether an employee is exempt from the overtime pay requirements of the FLSA.  Because it found the Final Rule unlawful, the Judge also concluded that the DOL lacked the authority to implement automatic updates to the salary threshold levels.  The Court also found that the States would suffer irreparable harm if the preliminary injunction were not granted.   The States argued that they would have to spend “substantial sums of unrecoverable public funds” as a result of the Final Rule and that compliance would cause interference with the provision of government services and programs, disruption and harm to the public.

The preliminary injunction preserves the status quo as December 1st approaches.  Now, the Judge must determine whether the DOL had the authority to issue the Final Rule and if so, whether the Final Rule is valid.   If the Judge decides to issue a permanent injunction, that ruling would permanently bar the Final Rule from taking effect.  A decision on the permanent injunction is expected soon so stay tuned for further updates.  It is likely that the DOL will appeal the preliminary injunction ruling to the Fifth Circuit Court of Appeals.

This preliminary injunction decision follows a decision by another federal district court in Texas (Senior District Court Judge Sam R. Cummings, United States District Court, Northern District of Texas) against the DOL, just a week ago–on November 16, 2016, issuing a nationwide permanent injunction against the U.S. Department of Labor’s “Persuader Rule.”  The Persuader Rule would have forced employers to inform the DOL whenever they hired consultants or other advisors, including their own labor attorneys, to educate their workforce about and challenge union organizing drives.  The DOL has appealed the preliminary injunction to the Fifth Circuit Court of Appeals in the Persuader Rule case and is awaiting a decision.  It is unclear that either case will be decided before a new President takes office.  With a Republican President taking office in January 2017, it is anyone’s guess whether either of these DOL rules will endure.

What Should Employers Do?

For now, employers and/or their employees covered by the federal Fair Labor Standards Act (FLSA)—not-profit and for-profit alike– may continue to adhere to the existing FLSA regulations (and not those that were slated to take effect on December 1), and their own State’s wage and hour laws.  Stay tuned for further developments.


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