United States: Texas Judge Halts December 1 Implementation Of Department Of Labor's "Overtime Final Rule"

Last Updated: November 28 2016
Article by Ashlee C. Grant

Christmas came early for many employers yesterday when, in a stunning turn of events, Judge Amos L. Mazzant III of the Eastern District of Texas issued a nationwide injunction halting the implementation of the Department of Labor's Overtime Final Rule. This Overtime Final Rule would have doubled the requisite minimum salary threshold for employees to qualify as exempt from the FLSA's overtime regulations and extended overtime eligibility to an estimated 4.2 million workers. But, in a blow to the Obama administration's economic legacy, a federal judge in Texas granted a preliminary injunction Tuesday delaying the implementation of the Overtime Final Rule and indicating a likelihood that a ruling permanently striking down the regulations is on the forefront.

The Overtime Final Rule

On March 13, 2014, President Barack Obama signed a Presidential Memorandum directing the Department of Labor to "modernize and streamline the existing overtime regulations for executive, administrative, and professional employees," opining that the regulations "had not kept up with our modern economy." On May 23, 2016, after receiving nearly 300,000 comments on the proposed rule, the Department of Labor published its "Overtime Final Rule."

Set to take effect December 1, 2016, the Overtime Final Rule doubled the minimum salary level threshold required to qualify for the FLSA's white collar exemption from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The Final Rule also established an automatic updating mechanism that would adjust the minimum salary level every three years, with the first automatic increase to occur on January 1, 2020.

Twenty One States and More Than 50 Business Groups Challenged the Final Rule and Moved for Preliminary Injunctive Relief.

In September, a group of 21 states, led by Texas and Nevada, filed a lawsuit in the United States District Court for the Eastern District of Texas challenging the Overtime Final Rule, arguing that the Department of Labor did not have the authority to require that employers offer overtime to workers who earn below a certain amount. That suit was then consolidated with another suit brought by the U.S. Chamber of Commerce and more than 50 other national and Texas business groups also challenging the Overtime Final Rule.

On October 12, 2016, the State Plaintiffs filed an Emergency Motion for Preliminary Injunction and Request for Oral Argument and Expedited Consideration. The Plaintiffs argued that the DOL's rule would force many state and local governments, as well as private businesses, to increase their employment costs substantially. The Plaintiffs also took issue with the policy behind the rule change, arguing that the imposition of a salary threshold disregards the text of the FLSA that predicates an employee's exempt status on whether the employee is actually performing bona fide executive, administrative or professional duties, instead of on the salary the employee is paid.

Judge Mazzant heard oral arguments on November 16, 2016 and indicated that he would quickly rule on the issue by November 22, 2016 in light of the impending December 1, 2016 date of implementation.

The Application of the Executive, Administrative, and Professional Exemption Must be Determined by the Employee's Duties Actually Performed, not by Salary.

In his opinion, Judge Mazzant, an Obama administration appointee, stated that the Department of Labor had "exceed[ed] its delegated authority" and had "ignore[d] Congress's intent by raising the minimum salary threshold such that it supplants the duties test."

Applying the "traditional tools of statutory construction" set forth in Chevron U.S.A., Inc. v. Nat. Res. Def. Counsel, Inc., 467 U.S. 837 (1984), the court found the plain meaning of the terms in Section 213(a)(1) established Congress' intent that the exemption depend on the employee's duties actually being performed – not the employee's salary. Judge Mazzant went on to explain that "if Congress intended the salary requirement to supplant the duties test, then Congress and not the Department should make that change."

Pointing to the approximately 4.2 million employees who, under the Final Rule, would have become eligible for overtime under the Overtime Final Rule without any change in their duties, the court described the Overtime Final Rule's significant increase in the salary level as "essentially a de facto salary-only test."

Judge Mazzant also agreed that the State Plaintiffs would suffer irreparable harm due to the costs of complying with the rule if the injunction was not granted.  In addition to the costs associated with compliance, the court also noted that several state agencies had limited resources and strict budget constraints, leaving them with relatively few options to comply with the regulations – all of which would have a detrimental effect on the services provided to the public.

"Due to the approaching effective date of the final rule, the court's ability to render a meaningful decision on the merits is in jeopardy," the judge said. "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."

Implications of the Decision

The long-term legal ramifications of yesterday's ruling will be hashed out in the courts, with the incoming Trump administration's Department of Labor and potentially in Congress. Although the injunction is only temporary, the injunction does buy the court more time to come to a final decision on the overtime rule. Nevertheless, Judge Mazzant's decision signaled a strong likelihood that he'll eventually side with 21 state attorneys general and a coalition of business groups that sued to block implementation of the Overtime Final Rule.

In response to the ruling, the Department of Labor stated that it was considering all of its legal options, explaining "The department's overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule." It is anticipated that the Department of Labor will appeal the ruling to the Fifth Circuit Court of Appeals.  It is expected that the appeals will ensue to the United States Supreme Court regardless of Judge Mazzant's final decision and the final decision of the Fifth Circuit.

Due to the impending December 1 implementation of the Overtime Final Rule, many employers' focus had been turned away from the usual holiday parties and end-of-year financials and instead was focused on the impending December 1, 2016 implementation Overtime Final Rule. The drastic increase in salary level has caused many employers to increase employee compensation or implement new changes to their employee timekeeping, classification and payroll systems.

Those employers that have not yet announced and made changes to their employees' compensation or classifications should consider postponing the effective date of those changes.

There are many employers, however, that have not yet implemented the new changes in employee compensation but have already communicated these upcoming changes to their employees. In these instances, the employer might carefully consider whether to postpone the changes, but at the very least should provide a communication to its employees explaining that the new rules for overtime pay exemptions will not be going into effect as expected due to a court-ordered injunction.

Employers that have already implemented changes to their employee compensation and classification plans, need to proceed with caution before rescinding those changes moving back to their original compensation and classification schemes, as such an abrupt change could cause employees to seek legal counsel.

For now, only one thing is certain – the Overtime Final Rule will not be taking effect on December 1. It remains to be seen, however, whether the Overtime Final Rule will be upheld or become a rule of the past.

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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
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