On November 22, just a few days before its December 1 implementation date, a Texas court issued a nationwide preliminary injunction stopping implementation of the Department of Labor’s (DOL) rule to more than double the current salary threshold for certain exemptions from overtime pay. Twenty-one states, the U.S. Chamber of Commerce, and other business groups filed lawsuits, later consolidated into one, arguing that the DOL exceeded its statutory authority in raising the salary threshold and by providing for the automatic adjustment of the threshold every three years. The DOL rule raises the salary threshold from $23,660 to $47,476 annually, which more than doubles the minimum annual salary a worker can earn and qualify for an exemption from the overtime pay provisions of the Fair Labor Standards Act. The rule will also adjust the threshold every 3 years based on the 40th percentile of wages for full-time salaried workers in the lowest wage earning geographic area captured by the Census.
Judge Mazzant of the Eastern District of Texas cited concerns that the rule improperly created a salary test that would consume congressional intent that the exemption be based on the type of duties performed. Additionally, Judge Mazzant found merit in plaintiffs’ argument that states would be irreparably harmed by implementation of the rule before a final decision by the court because states facing budget restraints would have to expend a substantial sum of unrecoverable public funds to increase salaries or pay overtime to employees and may possibly have to layoff or reorganize workforces causing a substantial interference in government services.
A preliminary injunction is not permanent, but it does preserve the current rule while the court deliberates the merits of the case. As a result, the new rule will not take effect on December 1 and employers may continue to classify employees as exempt if they pay employees at least $23,660 annually on a salary basis and if the employees meet the appropriate duties test. However, the new rule could still become effective if the court does not issue a permanent injunction or otherwise rule against the DOL. DOL is expected to challenge the ruling.
To the extent employers have already implemented salary changes to meet the rule’s requirements; employers should consider leaving those changes in place. However, if employees have not yet been reclassified, employers may want to consider waiting to see how the litigation unfolds. Because the preliminary injunction could be lifted on short notice, employers should continue to prepare for change. Critical preparation considerations are discussed more fully here in a recent blog article.
About the Author: Nichole Atallah is an attorney with PilieroMazza in the Labor & Employment Law Group. She may be reached at [email protected], or at 202.857.1000.