A nationwide injunction was issued on Tuesday, November 22, blocking the U.S. Department of Labor (DOL) from implementing its controversial rule that expands the number of employees eligible for overtime. The injunction blocks the DOL from enforcing its regulation set to begin December 1, 2016 that raised the salary level for white-collar employees to over $47,000 per year.
The lawsuit
The lawsuit was brought by 21 states (including Iowa) and the United States Chamber of Commerce. It sought to block the new salary levels claiming the DOL had no right to use a salary test in determining whether an employee was exempt from the payment of overtime under the white-collar exceptions (administrative, executive, professional). Despite the fact that the DOL has used a salary test for more than 40 years, the court held that the statute itself did not include a minimum salary level to be exempt under the white-collar rules. Judge Amos Mazzant (an Obama appointee) said that the final rule "exceeded the authority delegated to the DOL and ignores Congress's intent by raising the minimum salary level such that it supplants the duties test." The DOL has promised that it will consider all of its legal options which would include an appeal to the Fifth Circuit.
Where does that leave employers?
If salary increases were given in order to meet the new standards, there is no state law that prohibits an employer from rescinding the salary increase that had been given. While such a decision would not be in violation of any law, the practical impact of such a decision could create serious morale or other problems. Now if a "contract" was created or changed, the contract should be followed.
To the extent that employers used this rule to reevaluate whether an employee was exempt under one of the white-collar exceptions irrespective of the employee's salary level, no change should be made. The DOL earlier had said that the most significant impact of the controversial rule change was that employers were reevaluating whether employees were exempt, irrespective of the salary to be paid. To the extent to the employer has determined that its employee did not meet the white-collar exception, irrespective of the salary, no change should be made.
Finally, if the decision was made the employee was now eligible for overtime, the employer is free to rescind that decision and continue to pay the employee as an exempt employee, so long as the employee meets the criteria as established in the regulations for determination of an exempt employee.
Is this final?
No. Given the December 1 date for the rule changes the DOL could seek an emergency appeal to the Fifth Circuit asking that the Court's injunction be set aside. If the DOL seeks an emergency appeal, the Fifth Circuit could decide the matter before the end of the year. If an emergency appeal is not granted, the injunction will remain in place through the end of January at which time the new administration will take over. At that point, it is unclear what will happen because President Elect Trump has not specifically said anything other than there should be a "small business" exception to the regulations.
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