Just days before the Department of Labor’s (DOL) final overtime rule was scheduled to go into effect, a U.S. District Judge in the Eastern District of Texas issued a preliminary injunction, blocking the rule from taking effect across the country. Employers now face a number of legal, practical, and morale issues as they await a final decision in the matter.

In 2014, President Obama issued a Presidential Memorandum directing the DOL to update its regulations defining which white-collar workers are protected by the minimum wage and overtime standard in the Fair Labor Standards Act (FLSA). On May 18, 2016, the President and Labor Secretary Tom Perez announced the adoption of the DOL’s new final rule, which was to make an additional 4 million employees eligible for overtime as of December 1, 2016.

Coupled with the results of the 2016 presidential election, this injunction puts the future of this new overtime rule in doubt.

The new regulations would have required employers to pay time and a half to employees who earned less than $47,476 (raised from $23,660) and worked more than 40 hours a week.

In his decision, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas agreed with the 21 states that filed for preliminary injunctions and claimed that the DOL exceeded the authority provided to it by the FLSA by raising the salary threshold too high and providing for automatic adjustments to the threshold every three years. The injunction will allow the current overtime policies to stay in effect while the court makes a final ruling on the DOL’s authority.

Many employers raised employee salaries above the new $47,476 threshold in order to keep those employees exempt from the overtime requirement under the new rules. Other employees have been told that their salaries would be increased when the new rules were scheduled to take effect on December 1, and others were told that they would be eligible for overtime starting on December 1. While nothing prohibits an employer from making such changes, the injunction frees employers of the requirement to make one of these changes under federal law.

Many states, including New York, have their own rules that set forth a different salary test than the $23,660 in the federal regulations. Employers must make sure that their wage and hour policies comply with both applicable state and federal laws.

The injunction does pose a practical problem for employers who have already raised employee salaries to meet the new threshold amount in an effort to keep the employees at their exempt status. While not legally obligated to continue to pay employees at this new level, a reduction in salary in light of the injunction is likely to have a significant impact on employee morale and labor relations.

Employers should note that while the new DOL rule is presently enjoined, it is not yet dead. A final decision on the legal challenge brought by 21 states is still forthcoming, and the new administration must decide whether it will continue to defend the new regulations in court after January 20, 2017.

We will continue to monitor all developments in this regard and will keep you updated.

If you have questions about the impact of this development, please contact:

• Caroline J. Berdzik (609.986.1314; cberdzik@goldbergsegalla.com)
• Reshma Khanna (646.292.8765; rkhanna@goldbergsegalla.com)
• Or another member of Goldberg Segalla’s Employment and Labor Practice Group.

November 30, 2016