Next Steps: How Employers Should Respond After Texas Judge Blocks New Overtime Regulations
By now you likely have heard that a Texas judge sent employers back to the starting line on November 22, 2016 when he issued a nationwide preliminary injunction blocking enactment of new Fair Labor Standards Act regulations set to go into effect on December 1—only nine days later.
These new regulations were set to change the salary basis required for an employee to qualify as exempt—from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). As a result, employers had to decide whether to: (i) increase exempt employee salaries over the new $47,476 threshold; or (ii) reclassify exempt employees, who were not earning the new threshold salary, as non-exempt in order to comply with the new law.
Following the court’s issuance of the injunction on November 22, however, employers must wait for either the courts or the new Trump administration to resolve this matter. In the meantime, employers must determine what to do with the changes they had either made or planned to make to comply with the new regulations.
What Did the Court Do?
Before addressing this question, an additional explanation of what the federal court actually did is necessary. Before the Texas court were two complaints—one brought by the attorneys general of 21 states and the other brought by about 50 national and Texas-based trade and employer associations. The complaints both generally alleged, among other things, that in issuing the regulations, the Labor Department, exceeded its congressionally delegated authority. The court granted the request for a preliminary injunction, blocking implementation of the new regulations in its current form, until the case is resolved. Although this order is temporary, as it only exists for the duration of the case, it certainly could last for many months as the case moves through the various stages of litigation.
On December 1, the Department of Labor appealed the case to the Fifth Circuit Court of Appeals. However, the Fifth Circuit has rarely overturned a district court’s issuance of a preliminary injunction, and the appeal could take a significant amount of time.
As a result, the case, either on appeal or at the district court level, likely will not be resolved before President-elect Trump takes office on January 20. This leaves open the possibility that President Trump will either allow the case to continue, likely resulting in the regulations being permanently blocked and the Labor department appealing the final order, or resolve the matter by suspending or further revising the regulations, eliminating the need for the litigation.
What Should Employers Do?
So now that we don’t know exactly what is going to happen to the regulations, how should an employer adjust the changes it had already made or planned to make?
Recommendations in that regard depend on where the employer was in the process of complying with the regulations.
For those employers who had already made changes there are several options:
- First, the employer could completely roll back all changes including returning increased salaries to their prior levels, and stopping payment of overtime to employees who have been reclassified as non-exempt, because they made less than the new salary threshold of $47,476 but more than the existing threshold of $23,660. Employers choosing to do this could simply explain to affected employees that a federal court has blocked the new law requiring the change from going into effect. However, this most certainly will have a drastically negative effect on employee morale. And when employees are unhappy, they tend to look for potential claims to file against an employer. Thus, that course of action comes with a high level of risk.
- Another approach would be to explain to exempt employees whose salaries were increased to or above the new $47,476 threshold— that because of the court’s issuance of the injunction, the changes that had recently been implemented will not be permanent. As a result, while the employer will not be maintaining their increased salaries, the employer will provide a bonus to those employees. An employer could calculate such a bonus based on the amount of the employee’s anticipated increased compensation over a certain time period, e.g., 6 months. However, this too could result in discontent among employees.
For those employees who were re-classified as non-exempt on the basis of salary alone, an employer could provide them with a bonus in an amount approximately equivalent to what they would have earned in additional overtime compensation (for a certain time period), but return them to exempt status, resulting in no payment of overtime going forward.
- The easiest, but most costly response to this situation is to continue operating with the implemented changes. This means maintaining any increase made to an employee’s salary to meet the $47,476 threshold. In addition employers could also choose to continue to pay employees who were reclassified as non-exempt only because their salary did not meet the new minimum threshold, though this seems a bit extreme and a better approach is to probably maintain those employees as exempt until the matter is resolved, possibly with the payment of a bonus as described above.
For those employers that had undertaken an analysis but not implemented any changes, we recommend continuing to wait and see what happens in the courts and with the administration. If proposed changes had been communicated to employees, an additional communication should be distributed explaining that as a result of the court’s blocking implementation of the new law, the company is not moving forward with the changes and instead waiting to see what happens with the law both in the courts and in the new administration. Of course, as an alternative, where an employer had communicated planned changes, the employer could provide the bonuses suggested in the second bulleted item above.
For those employers who had not done anything in anticipation of the new regulations– shame on you but congratulations! Procrastination (in this and only this instance) paid off! However, we recommend that you stay abreast of developments in the event that adjustments are necessary in the future.
Julie Reddig is an employment attorney who defends management in a broad range of matters and disputes involving employment and the workplace. To learn more about overtime issues facing employers, contact Julie at (301)961-6099 or firstname.lastname@example.org.