Federal judge in Texas blocks implementation of new overtime regulations: what does this mean?

Just a few days ago (November 22, 2016), a federal judge in Texas granted an injunction against enforcement of a change in Department of Labor overtime regulations scheduled to go into effect next week, on December 1, 2016.

By way of recap, the regulation would  double the minimum salary requirement for a worker to be considered exempt from overtime, from $455 per week to $913 per week.  What that would mean is that anyone who earns less than the new threshold must be paid time and a half for overtime, regardless of the kind of duties they perform (see post below for further explanation of the regulation).  The Department of Labor had estimated that 4.2 million U.S. workers would become entitled to overtime pay on December 1 based on the new threshold earnings alone.

That was a game changer in itself, and it seems like the game has changed again.

Here is what happened.  A group of states brought a lawsuit in September seeking to enjoin enforcement of this rule, arguing, among other things, that the Department of Labor exceeded its statutory authority by raising the salary threshold.

Judge Amos Mazzant of the United States District Court for the Eastern District of Texas ruled yesterday that the two-fold  increase in the threshold salary was beyond the authority delegated to the Department of Labor  by Congress, and issued a preliminary injunction barring enforcement of the rule pending a final determination on the merits of the case.

By way of background, the Department of Labor, as an administrative agency,only has the authority to make rules when Congress delegates that authority to it.  The federal statute that created the overtime rules stated that employees were exempt if they were "bona fide executive, administrative, or professional" employees, and delegated to the Department the responsibility for defining what kinds of employees fell into those categories.

The Department of Labor did so, ultimately creating a labyrinth of regulations addressing the kinds of duties that would be considered exempt. The Department has also employed a minimum salary test, at varying amounts, since 1940 as a threshold requirement for exemption from overtime.

The state plaintiffs in this case argued that, though the salary test has been in use for decades, this was "always as a DOL invention" and "has never been ratified by Congress." They further suggested that the reason the salary test had not met with serious challenges before now was because "the threshold was set low enough that the DOL’s perversion of the statute, in practical terms, affected so few actual EAP employees."  In other words, the explanation for the fact that this structure (a threshold salary plus an evaluation of exempt duties) has been in place and accepted for over 75 years is that the previous salary threshold only excluded the lowest paid employees from overtime rights.

Interestingly, according to the Department's brief, in the extensive period allowed for comments on the proposed regulations, many opponents (including states like the plaintiffs) had submitted comments critical of the regulations, but none had questioned the existence of the threshold salary test, instead criticizing the degree to which the Department proposed to raise that number.

It also appears that the plaintiff's assertion that the salary test had not "met with serious challenge" is not altogether true: both the Department and Judge Mazzant cited a Fifth Circuit Court of Appeals decision from 1966 in which the court specifically upheld the use of a salary test as a legitimate exercise of the Department's discretion (Wirtz v. Mississippi Publishers Corp., 364 F.2d 603), an opinion that seems to have been followed by several trial courts over the years, and does not appear to have been overruled or questioned by the Court of Appeals.

What does this mean for employers still trying to figure this out?  It is hard to say.  On the one hand, December 1 will now come and go without the new requirements being put into place.  On the other hand, the Department has the right to appeal, and from a preliminary look at the papers in the case, it appears there they would have a reasonable argument if they did.  If the injunction is overturned, there is a possibility the the effect of the regulations would still be retroactive to December 1.  The Department may choose not to go after employers for noncompliance during that interim period, but it is a separate question whether individual employees who believe they should have been paid overtime would bring private lawsuits.

Workers who stood to benefit from this change (people currently earning between $455 and $913 per week) will be understandably frustrated by this new development.  Employers, however, may be equally frustrated.  Many employers have already implemented pay increases to bring exempt employees above the new threshold, or otherwise modified their compensation structure to be in compliance with the new regulations. And everyone faces uncertainty in the interim, with no way of knowing whether or to what extent the Department of Labor regulations will have the force of law after the trial and/or appeal process play out.

Then there is the additional wrinkle of a new Presidential administration, one that has already promised to roll back many federal regulations.

Perhaps the best way to manage this uncertainty is to take steps to manage the amount of overtime worked in your business.  There is nothing wrong with a strict policy that requires management approval of overtime, and that approval can be denied.  If all the things that need to get done can't get done without any employee working more than 40 hours in a week, there is also nothing wrong with bringing on new employees, even temporary employees, to ensure that all time worked is "straight" time, not overtime, regardless of the exemption status of your employees.

Another  point that many employers miss is the importance of accurately tracking hours.  If the new regulations stand, they will affect a large number of workers who don't traditionally punch time cards. If overtime pay becomes an issue for them, and you do not have a system for tracking how much they worked, you may find yourself in a contest of credibility if they later claim to be entitled to overtime pay.



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