Federal Judge Stops U.S. Department of Labor’s Overtime Rule

In a massive stroke of irony, a federal judge  —  one appointed by President Barack Obama — entered a nationwide injunction Tuesday to stop the implementation of the U.S. Department of Labor Fair Labor Standards Act overtime rules that would have taken effect on December 1, 2016.

In March 2014, President Obama directed the Secretary of Labor to “modernize and streamline” the existing overtime regulations for executive, administrative, and professional employees” (read: create more overtime $$$ because raising the minimum wage wasn’t working).

Nearly three years later, the crown jewel of President Obama’s HR-compliance legacy is on ice and could be completely undone.

Further down the page, I’ll address the HR implications of yesterday’s remarkable decision in Nevada v. U.S. Department of Labor. But first, I’ll break down Judge Amos L. Mazzant’s opinion (here).

“The Final [Overtime] Rule…is unlawful.”

Back in September, 21 states sued the DOL to block implementation of the overtime rule. Separately, a bunch of business groups brought a similar action against the DOL. Those two cases were eventually consolidated.

Yesterday, Judge Mazzant determined that all of the plaintiffs would likely succeed on the merits of their arguments; namely,  that the DOL had overreached by raising the minimum salary level for these so-called “EAP” employees. Without getting too wonky for you, here are the money shots.

First, Judge Mazzant concluded that Congress intended that the EAP exemptions only account for duties, not dollars:

After reading the plain meanings together with the statute, it is clear Congress intended the EAP exemption to apply to employees doing actual executive, administrative, and professional duties. In other words, Congress defined the EAP exemption with regard to duties, which does not include a minimum salary level.

…

The plain meanings of the terms in Section 213(a)(1), as well as Supreme Court precedent, affirms the Court’s conclusion that Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary.

Second, Judge Mazzant stressed that the DOL had overreached Congress’ clear intent governing the Fair Labor Standards Act:

While this explicit delegation would give the Department significant leeway to establish the types of duties that might qualify an employee for the exemption, nothing in the EAP exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level. Thus, the Department’s delegation is limited by the plain meaning of the statute and Congress’s intent….With the Final Rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test.

Finally, Judge Mazzant underscored that, had Congress wanted to hinge the EAP exemptions on a particular salary level, it should have done so itself:

The Department’s role is to carry out Congress’s intent. If Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change. 

And, this injunction isn’t just for employers in Texas; it’s nationwide!

A nationwide injunction is proper in this case. The Final Rule is applicable to all states. Consequently, the scope of the alleged irreparable injury extends nationwide. A nationwide injunction protects both employees and employers from being subject to different EAP exemptions based on location.

[Update (11/23/16 – 2:24 pm: The injunction includes the part of the final rule covering highly-compensated employees. Thanks to a reader for raising that issue.]

What are business groups and others are saying about the injunction?

From SHRM:

Reaction from @SHRM: Court's decision on #overtime rule welcomed news for #HR and employers who have been struggling with impacts of rule

— SHRM Public Affairs (@SHRMPress) November 22, 2016

From the U.S. Chamber of Commerce:

U.S. Chamber Responds to Court’s Preliminary Injunction Blocking DOL’s Overtime Rule | @USChamber. https://t.co/RGmFnjDGNH

— Rob Engstrom (@RobEngstrom) November 22, 2016

From the DOL:

.@USDOL statement on overtime rule getting blocked: pic.twitter.com/kCMi2ukI1z

— Ben Penn (@benjaminpenn) November 23, 2016

What’s now?

The overtime rule will not take effect on December 1, 2016.

What’s next?

I see a few options:

1. The DOL appeals to the Fifth Circuit, which probably won’t issue an opinion until 2017. If the Fifth Circuit reverses, then the  injunction is lifted (for now) and the matter returns to the lower court to be litigated further.
2. A lame-duck Congress comes up with a compromise bill (maybe something like this), for President Obama’s signature.
3. The DOL does nothing, in which case the case gets litigated and Judge Mazzant likely converts the preliminary injunction into a permanent injunction.
4. President Elect Trump addresses this after his confirmation.

Should your business unring the bell too?

Most of you reading this post have already prepared for the DOL overtime rule. For most of you, that means some combination of: (a) raising salaries; (b) converting salaried employees to hourly; (c) limiting overtime opportunities; and (d) layoffs.

While the overtime rules may eventually change to something resembling the enjoined final rule, what are you going to do now?

• How will you balance the cost savings of a “do-over” for the employees whose salaries you raised against the morale hit lowering their salaries — especially around the holidays — will cause.
• Do you reconvert the salaried employees whom you changed to hourly back to salaried? On the one hand, a salaried employee generally enjoys more freedom (and benefits). But, will there be backlash from depriving these employees of overtime opportunities.
• Will you re-hire some of the folks you laid off when anticipating higher operating costs.

And, I’ll say it. What about those of who may be used the DOL Final Rule as cover to fix some past wage-and-hour transgressions? Does your strategy now change?

These answers aren’t easy and they won’t come overnight. But, when you do decide how to proceed, I’d like to hear from you.

Good luck!