Client Bulletin: Federal Court Ruling Blocks Overtime Rule Changes

By: Wendy Fischman, Partner in Employment and Corporate practice groups.

In May 2016, the Department of Labor issued a new “Final Rule” drastically changing the calculation for when and how employees may be exempted from the federal law requiring overtime pay.  The Final Rule was set to become effective on December 1, 2016.

Late yesterday, November 22, 2016, Judge Amos Mazzant of Federal District Court in Texas issued a nationwide injunction barring implementation of the Final Rule.  If implemented, the Final Rule would have nearly doubled the minimum salary level for employees to qualify for the “white collar” exemption from mandatory overtime laws, by raising it from $23,660 to $47,476 annually. The Final Rule also included an automatic updating mechanism to adjust the minimum salary level every three years.

Judge Mazzant’s ruling was precipitated by an emergency motion filed on behalf of twenty-one states, which was consolidated with another lawsuit filed on behalf of more than fifty business groups.  These various parties challenged the legality of the Final Rule.  Judge Mazzant agreed.  He ruled that the Labor Department exceeded its authority by raising the salary-level test so substantially, and by adding the automatic updating mechanism.  As a result, the Final Rule will not take effect on December 1.

The injunction is a temporary measure, providing all employers relief from implementation of the overtime rule changes until the judge makes a final decision on the merits of the case. The Labor Department already has declared its intent to challenge the court’s ruling. Congress also has the option of amending the overtime law directly. The future of the exemption test remains uncertain, particularly as the country transitions to a new Administration. We will continue to monitor developments.

In the interim, employers should continue to apply the existing $455 per week threshold (along with the salary basis and duties tests) when classifying employees under the administrative, executive, and professional exemptions. Because the Final Rule was scheduled to take effect in a little more than a week, you may have already taken steps to comply with it.  Those modifications are no longer mandatory, minimally pending the outcome of the full case before Judge Mazzant.  We are available to consult on how best to adapt your employment practices in light of Judge Mazzant’s ruling.