United States: With DOL's OT Rule Blocked, Employers Are Left Asking "What's Next?"

Last Updated: November 28 2016
Article by David Barmak and Michael S. Arnold

Employers across the country woke up this morning to news that a Texas District Court judge has blocked the DOL's overtime rule from taking effect on December 1, 2016. This represents a stunning turn of events for employers. They will now be able to continue to treat as exempt from overtime “white collar” workers who are paid a salary of at least the current minimum level of $23,660 per year without raising their salary to the proposed new minimum of at least $47,476, as the new rule had required. But, anticipating the new rule taking effect on December 1, many employers had already re-classified employees as non-exempt or raised their salaries to maintain the exemption or communicated the anticipated changes to their workforce. And even those employers who have waited until the last minute to ready themselves for compliance have been left scratching their heads as to next steps, now that the rule will not, at least for now, take effect. This post explores the court's decision and employer's potential responses to it.

What Did the Court Say?

The Court reasoned that when Congress enacted the Fair Labor Standards Act’s so-called "white collar exemptions," it intended to exempt from the FLSA's minimum wage and overtime rules, workers who performed executive, administrative, and professional (“EAP”) duties. It ruled that while Congress gave DOL the authority to “define and delimit” what types of duties might qualify as EAP duties, "nothing in the EAP exemption indicates that Congress intended the [DOL] to define and delimit with respect to a minimum salary level." The Court found that DOL had essentially supplanted the EAP duties test by extending the EAP exemptions only to those paid a weekly salary of at least $913 per week ($47 476 annually).

Quoting from the DOL’s Final Rule itself, the Court noted "white collar employees . . . earning less than $913 per week will not qualify [under the new rule] for the EAP exemption, and therefore will be eligible for overtime regardless of their job duties and responsibilities." Thus, the Court found the new rule had the effect of denying the exemption to employees being paid a salary less than $47,476 even though those employees performed exempt EAP duties. This, according to the Court, violated Congress’s intent to exempt all employees who performed EAP duties, rendering the new rule unlawful.

The Court was careful to note that it was not limiting the ability of the DOL to utilize a salary-level test entirely; rather, it was focused on whether the amended salary-level the DOL utilized in this instance was unlawful. Although speaking from the Eastern District of Texas, the judge issued the enforcement ban on a nationwide basis impacting all employers.

Thanks for the legal analysis, but what I really care about is what I should do now!

The Legal Implications

Legally, for most employers, there is nothing further you need to do, and you can, for all intents and purposes, just sit tight. For one thing, the injunction could be appealed to the Fifth Circuit or the Supreme Court and that could take some time. We haven't even heard from DOL what it plans to do next, including whether it plans to appeal. It is still considering its options.

Further, this ruling will not impact employers' need to comply with applicable state law, where it differs from the federal law. For example, California and New York's minimum salary levels are scheduled to increase in the coming years regardless of what happens to the DOL's overtime rule.

For those employers who were utilizing the new rule as an opportunity to conduct a more thorough audit of your classification decisions with a focus on the job duties test, which the new rule did not propose to change, we advise that you consult with counsel regarding next steps with respect to those audits. Regardless of whether the rule ever goes into effect, if you misapply the job duties test and thereby misclassify employees, it could be very costly.

Lastly, employers must understand that reversing course must be a forward, not backward, looking exercise. You cannot try to recoup any wages previously paid to employees, whether in the form of a salary raise or in additional overtime, without facing potential wage and hour violations.

Other Factors to Consider

Employers must also consider the business implications of unwinding the changes you have already made or announced you would make. Consider what costs would be incurred in the form of lower employee morale, productivity and turnover and any administrative costs you will incur, if the changes are rolled back. Would the employee welcome being converted back to overtime exempt? For example, some may value the long-term career growth opportunity over the short-term bump in overtime pay. If you raised salaries, how would the employee react to reducing that salary back to its previous level? If those costs will outweigh the labor cost savings you will enjoy, think twice before switching course. Consider also whether reversing course will put you at a competitive disadvantage as to your industry peers who may have committed to keep the changes in place. The same goes for employers who have not made any changes or notified employees about any contemplated changes to date. These employers must ask if continuing to "do nothing," will it make them less competitive in the market.

Further, employers should consider whether their employees will be talking about this new development at the water cooler or over social media. Consider whether it makes sense to send an appropriately-tailored communication to the workforce or an appropriate segment of the workforce that aligns expectations accordingly. Try to use this as an employee relations opportunity in the face of the uncertainty created by this decision, including where employees may have spent months developing certain expectations and engaging in financial planning.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
David Barmak
Michael S. Arnold
Similar Articles
Relevancy Powered by MondaqAI
Benesch Friedlander Coplan & Aronoff LLP
Kramer Levin Naftalis & Frankel LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Benesch Friedlander Coplan & Aronoff LLP
Kramer Levin Naftalis & Frankel LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions