Last week, we reminded you that the new Fair Labor Standards Act (FLSA) overtime regulations, which raised the minimum salary for exempt employees to $47,476 (more than double the current threshold) were still slated to take effect on December 1, 2016. At the same time, we warned you that the regulations could be enjoined by a federal district court judge presiding over a lawsuit brought by 22 states and several employer groups.
Late yesterday, the district court issued its ruling, granting a preliminary injunction to the multi-state coalition challenging the regulations. In doing so, District Court Judge Amos Mazzant held that the plaintiffs had shown “a likelihood of success on the merits because the Final Rule exceeds the Department’s authority.” Judge Mazzant did not put a timeline on the length of the injunction, however, his ruling and the language he chose signal that there is a strong likelihood he will ultimately side with the multi-state coalition over the Obama administration. Currently, the Department of Labor is deciding whether to appeal this decision to the very conservative Fifth Circuit. The standard for overturning an injunction is very high – requiring a finding that the lower court abused its discretion. Accordingly, the Fifth Circuit would be unlikely to overturn the ruling. However, it could open the door for other circuits to issue conflicting decisions.
We will keep you posted on any further developments in the litigation and on this issue, including whether the Republican Congress takes additional steps to halt the regulation or whether President-Elect Trump signals what position his administration takes on these regulations. Previously, his only comment on the subject was that he would support exceptions for small businesses.
The immediate result of this ruling is that employers need not comply with the new regulations on December 1st.
However, we know this raises many questions for employers who have spent many months preparing for these regulations to go into effect. Here are some issues we know our clients face:
- If you have not yet made any announcement, you can postpone the impending changes until we learn more.
- Some clients have already announced their plans to raise salaries, move employees from salaried (exempt) to hourly (non-exempt).
- These employers should decide whether it is advisable to immediately issue a revised communication citing the court’s decision.
- Some clients have already made changes to pay structure and rates.
- These employers should think hard before walking back changes they have already made. First, over the course of this year, when reviewing salaried employees, many of our clients determined that some of their lower paid salaried employees were potentially not accurately classified under the duties test (i.e. administrative, professional, and executive tests). These employees should remain as hourly employees regardless of the outcome of this litigation. Second, when you make negative changes to an employee’s compensation, it invites them to meet with an attorney and potentially investigate other potential claims. Third, any negative changes to an employee’s compensation will undoubtedly effect morale and employee satisfaction.
As always, please feel free to contact us if you have any questions about how these changes affect your work force. We know this has been a tumultuous process and we are available to assist in any way that we can.