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Texas Judge Blocks Department of Labor's Amendments to Overtime Rules

A Texas judge has blocked the Department of Labor's (DOL) amendments to overtime rules just nine days before they were scheduled to take effect on December 1, 2016.

The nationwide injunction prevents the new amendments to the Fair Labor Standards Act (FLSA) from taking place as scheduled. The new rules were set to increase how much an employee must earn before being considered exempt from overtime requirements under the executive, professional, and administrative exemptions to the overtime rules.

The decision was made by United States District Court Judge Amos Mazzant in connection with a lawsuit filed by the attorneys general of 21 states. Judge Mazzant ruled that the plaintiffs had satisfied all of the requirements for a preliminary injunction and, specifically, that they established a substantial likelihood of success on the merits of the case; namely, that the salary level and the automatic salary updating mechanism that the Department of Labor (DOL) established in the amendments are without statutory authority.

Summary of Amendments

The primary change sought by the amendments was to substantially increase the threshold amount of money that employees must earn in a year before they can be considered exempt from overtime requirements. Specifically, the new rules more than doubled the threshold salary requirement from $23,660 to $47,476. The amendments did not revise the substantive “duties tests” which also must be satisfied in order for an employee to fall within one or more of the white collar (i.e., executive, professional, or administrative) exemptions.

The amendments would increase the threshold amount of the so-called “highly compensated” exemption from $100,000 to $134,004 annually. The amendments also contained a provision whereby the salary level would be updated every three years to maintain a threshold equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. The practical and stated purpose of the amendments, according to the federal government, was to significantly increase the number of individuals eligible for overtime pay.

Takeaways

  1. The decision by the federal district court in Texas may not be the last word on the viability of the amendments. The district court’s decision to preliminarily enjoin the amendments can be immediately appealed to the United Court of Appeals for the Fifth Circuit. Even if the DOL does not appeal the issuance of the preliminary injunction, the district court case in Texas will proceed towards trial.
  2. It is, of course, an open issue whether the DOL, soon to be led by a Republican administration, will appeal the issuance of the injunction or, if an appeal is taken before January 20, 2017, will continue to defend the case once President-Elect Trump takes office.
  3. Congress could decide to enact new legislation to replace the amendments.
  4. The DOL, under a new administration, could choose to withdraw the amendments altogether.
  5. Employers that have already notified some of their employees that their status will be changed from exempt to non-exempt in light of the amendments will need to decide whether to return these employees to exempt status.
  6. Employers that have not yet communicated to any employees that their employment status would be changed from exempt to non-exempt can delay that conversation – at least for now.
  7. Employers that have restructured schedules and made other adjustments to comply with the amendments (such as increasing salary levels, changing work schedules, placing limits on when overtime may be worked) will need to revisit those decisions to determine whether they continue to make business, legal, and practical sense.
  8. Employees should work in concert with experienced employment counsel to analyze appropriate next steps, particularly since many of the compensation and other decisions that will need to be made in light of the injunction may be highly fact specific.
  9. Employers should by no means relax in response to the Texas court’s decision enjoining the amendments. The federal courts have been inundated with overtime claims under the existing structure of the FLSA, and there is no reason to believe that the onslaught of overtime claims will abate anytime soon.
  10. Particularly since the proposed amendments did not change the substantive “duties tests” for the white collar exemptions, it is imperative that employers continue to be vigilant about properly characterizing individuals as employees as opposed to independent contractors, and properly characterizing employees as either exempt or non-exempt.
  11. Many, if not most, employers will remain subject to state overtime and wage payment laws which may pose greater costs and consequences upon employers than the FLSA for failing to properly compensate employees.
     

Conclusion

Regardless of the ultimate outcome of the federal district court litigation in Texas, overtime will continue to be an area where employers will need to exercise great care to ensure compliance with applicable wage and overtime laws. The FLSA and analogous state overtime and wage laws have proven to be extremely challenging even for the most diligent employers. The injunction issued by the federal district court in Texas does not change that reality.

Marc Engel is an employment attorney and litigator at Lerch, Early & Brewer who regularly counsels clients on how to comply with state and federal employment statutes and wage hour laws. For more information on Montgomery County's Earned Sick and Safe Leave Act, contact Marc at (301) 657-0184 or mrengel@lerchearly.com.

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This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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