Yesterday afternoon, November 22nd, a federal district court in Texas issued a nationwide injunction prohibiting the U.S. Department of Labor (“the Department”) from implementing or enforcing its Final Overtime Rule set to take effect on December 1, 2016.
Under the Final Overtime Rule, the Department increased the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $913 per week ($47,476), effective December 1, 2016. The new salary level is based upon the 40th percentile of weekly earning of full-time salaried workers in the lowest wage Census region in the United States (the South). The Department also increased the new total compensation level for highly compensated individuals from $100,000 annually to $134,004 annually. This new highly compensated salary level is based upon the 90th percentile of annual earnings of full-time salaried workers in the United States. Finally, the Final Rule includes a mechanism to automatically update the minimum salary level every three years, with the first automatic update to take effect January 1, 2020. The Department opined that 4.2 million workers would become eligible for overtime protections under the Final Rule. The Court’s decision yesterday enjoined these provisions from taking effect on December 1st.
In issuing the nationwide injunction, the Court found that the Department exceeded its statutory authority in promulgating the Final Rule. Specifically, the Court found that in enacting the Fair Labor Standard Act (“FLSA”), Congress authorized the Department to define the duties that might qualify employees from being exempt from overtime under for the Executive, Administrative and Professional exemptions. However, the Court also found that nothing within the FLSA indicates Congress intended the Department to define a minimum salary level to meet those exemptions. Thus, the Court found the Department exceeded its statutory authority when it issued its Final Rule requiring white collar employees to earn a minimum salary of $913 per week irrespective of their job duties. For similar reasons, the Court found the mechanism to automatically update the minimum salary level every three years unlawful.
In sum, based upon the Court’s nationwide injunction, the Department is preliminarily barred from implementing or enforcing the FLSA White Collar Exemption Final Rule as of December 1, 2016. Although the Department can continue to litigate this matter, with President-elect Trump taking office in January, it is uncertain what the Department’s next steps will be. Additionally, while employers are not required to comply with the Final Overtime Rule at this time, they should still audit their overall compliance with the FLSA based on the current overtime rules as the duties test has not changed. Expensive and time consuming wage and hour litigation can be minimized, and/or avoided altogether, by conducting a thorough audit.