Judge Blocks White Collar Overtime Exemption Rule from Taking Effect Nationwide

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November 22, 2016

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Since the U.S. Department of Labor issued the finalized White Collar Overtime Exemption Rule (the “Rule”) in May this year, employers across the country have been preparing to comply with the Rule’s requirement for white collar employees to earn $47,476 annually in order to maintain exemption status rather than being paid overtime.  In an eleventh hour ruling, just days before its effective date of December 1st, a Texas federal judge ordered a preliminary injunction on the Rule, preventing the Rule from going into effect nationally on its slated December 1st start date.  The Rule was expected to result in millions of workers either (a) being re-classified as non-exempt, and therefore entitled to wage and hour protections, including overtime pay; or (b) receiving dramatic salary increases to keep workers classified as exempt.

In ruling on the injunction, Texas Judge Amos Mazzant stated that the Rule was, in effect, a “salary-only” test that failed to account for different workers’ actual duties. In particular, Judge Mazzant noted that the FLSA traditionally examines both salary and duty to determine if an employee is exempt, and implementation of the Rule as-is would essentially result in classification of white collar workers based on salary alone.  Moreover, the judge indicated that the Department of Labor exceeded its authority to make such a change.

 

What are the next steps for the Rule?

Currently, the future is uncertain for the Rule.  The injunction was a preliminary move in the consolidated federal lawsuits currently pending in the Eastern District of Texas.  The lawsuits are still being litigated and may lead to a reversal of the injunction on further consideration by the presiding judge.  Parties may also seek to appeal the ruling, and the 5th Circuit may weigh in on the matter.  There are also bills currently pending in Congress to modify the Rule, including preventing or further delaying its implementation.  Even if the Rule survives its current status, it is possible that the Rule could be further delayed, modified or discarded altogether by the incoming Trump Administration.

 

What do I do now?

Since employers all over the country have either made adjustments to affected employees already or have informed employees of salary or status changes, this ruling—although considered a relief to many employers—has now left a significant employee relations issue for employers who may wish to return to previous pay rates or exempt classifications.

Employers who have already made changes to comply with the Rule may be able to reverse changes to their workforce depending on the circumstances, or may wish to consider waiting until a final decision is reached in court, Congress or the White House before taking further action.

Employers who have been waiting for the December 1 deadline to effect changes (1) may delay making any changes until further developments occur; (2) may still implement changes to address employee expectations, prior employee misclassifications, or competitive market considerations within certain industries; or (3) may consider other actions to dampen employee disappointment, such as smaller increases in the interim or other enhanced employment benefits.

Regardless of the path taken, employers should take care to communicate with employees about any internal actions taken as a result of the ruling in order to minimize workforce reactions.  ManagEase will continue to report changes or new developments in this area. Look for further updates on the future of the Rule.

 

Action Items

  1. Strategize on a response to the ruling, and communicate the response to employees.
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2016 ManagEase, Incorporated.

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