Federal Judge Puts Brakes On Overtime Rule

Just 10 days before the anticipated implementation date, a federal judge in Texas halted the U.S. Department of Labor’s new federal overtime rule, which would have doubled the Fair Labor Standards Act’s salary threshold for exemption from overtime pay.

The rule was set to take effect Dec. 1, doubling to $47,476 the salary threshold under which virtually all workers receive time-and-a-half pay whenever they work more than 40 hours in a given week.

Twenty-one states filed an emergency motion for a preliminary injunction in October to halt the rule. Claiming the DOL exceeded its authority by raising the salary threshold aggressively and beyond reason, these states consolidated a case last month with another lawsuit filed by the U.S. Chamber of Commerce and the International Franchise Association, among other business groups.

“A preliminary injunction preserves the status quo while the court determines the department’s authority to make the final rule as well as the final rule’s validity,” said Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas in a Nov. 22 ruling.

For now, the overtime rule will not take effect as planned Dec. 1, however it could still be implemented later down the road. Employers, such as franchise owners may continue to follow the existing overtime regulations until a decision is reached although the court, after hearing the full case, could allow the rule to go forward. Additionally, the incoming Trump Administration now has more time to make changes and end the rulemaking permanently or issue a new rule. Further, Congress could address the final overtime regulations during the current lame duck session or in the beginning of the 115th Congress.

IFA President & CEO Robert Cresanti, CFE, lauded the surprise injunction in a statement: “This ruling is a serious and significant victory for the rule of law. While a modest increase in the overtime threshold would have been appropriate, many franchises were faced with difficult and costly decisions about how to reclassify their greatest assets — their employees.”

He went on to say that the franchise community is “breathing a collective sigh of relief. Franchise owners who had been facing significant costs and questions about the impact the overtime rule was creating for compliance with an unreasonable new threshold and automatic increases.”

“Moving forward, IFA looks forward to working with the Trump administration and congressional leaders to ensure additional regulations that exceed statutory authority are addressed in short order,” Cresanti said.

Littler P.C. Co-Chair of the Workplace Policy Institute and IFA Labor Counsel Michael Lotito weighed in on the ruling, saying, "A preliminary injunction is only temporary however, as it simply preserves the existing overtime rule — which was last updated in 2004 — until the court has a chance to review the merits of the case objecting to the revisions to the regulation. For managers who are clearly exempt, there is no obligation as the law now stands to make any change in the salary level to comply with the rule. This might change as the litigation plays out so stay informed through the IFA and other resources. But for those who have not implemented any changes in light of what the rule was attempting to do, there is no reason to implement an inherently flawed rule as found by the Judge."

Lotito continued, "Some companies have already implemented changes to comply with the rule or announced they will do so. While legally one could revert to the former formulations of overtime amounts and eligibility, there are serious employee relations considerations in doing so. It may be wise to continue down the announced path and then making future adjustments in pay and the like with these unprecedented circumstances in mind."

Posted November 23rd, 2016