Federal Court Preliminarily Enjoins DOL From Enforcing Overtime Exemption Rules

On November 22, 2016, in Nevada v. United States Department of Labor, et al., a judge in the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction enjoining the United States Department of Labor (“DOL”) from implementing and enforcing the Fair Labor Standards Act (“the FLSA”) final overtime rule that would otherwise become effective on December 1, 2016.

Brief Background
The final overtime rule, published on May 23, 2016, significantly increases the minimum salary threshold for the executive, administrative, and professional overtime exemptions (“the EAP exemptions”) under the FLSA from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) and introduced other changes related to the new salary level discussed in detail in our earlier blog.

In response to the final overtime rule, the state of Nevada and 20 other states challenged the final rule by filing suit in the Eastern District of Texas on September 20, 2016 and moved for emergency preliminary injunctive relief on October 12, 2016. Over 50 business organizations also filed suit in the Eastern District of Texas to challenge the final rule, and the court consolidated the two actions on October 19, 2016.

The Court’s Ruling
Following a November 16, 2016 hearing to decide whether to grant a preliminary injunction, the court determined that the plaintiffs demonstrated a likelihood of success on the merits because the final rule exceeded the DOL’s authority. The court explained that Congress intended the EAP exemptions to be “based upon the tasks an employee actually performs,” and not an employee’s salary. The court reasoned that by the DOL significantly increasing the minimum salary level, it essentially created “a de facto salary-only test,” which Congress did not intend. The court also found that the plaintiffs demonstrated irreparable harm and that the balance of hardships weighed in favor of the injunction. In so holding, the court focused on increased cost and the detrimental effect the final rule would have on government programs and services for the public benefit. The DOL failed to provide any evidence of harm suffered were the implementation of the final rule delayed. Notably, although the court’s decision seems to heavily rely on the potential disruption the final rule could have on government operations, the court did not address the obvious distinction between the final rule’s impact on the public and private sectors. The court also found the public interest would be best served by an injunction to preserve the status quo until the court renders a final decision.

While the court’s ruling temporarily stops the DOL from enforcing the final overtime rules nationwide, the court must still issue its final decision on the merits, and it is likely there will be an appeal to the Fifth Circuit, and, eventually, to the Supreme Court of the United States. The court’s ruling did not distinguish between public and private sector employers, thus creating a temporary reprieve for private sector employers as well. In the meantime, employers are left to either maintain the status quo until further guidance is provided or to implement any classification changes initially planned to comply with the December 1st effective date of the overtime final rules. The bottom line is that employers are not required to implement changes by December 1st and have some breathing room pending the outcome of this case.

For answers to any questions regarding this blog or wage and hour compliance matters, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department. We will continue to update you on future developments.

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