United States: A Moving Target: The Not So Final Overtime Rule

 On November 22, 2016, a federal judge for the Eastern District of Texas issued a preliminary injunction temporarily blocking the U.S. Department of Labor (DOL) from implementing and enforcing its revised white collar overtime regulations on a national basis—sending ripples throughout the employer community. Since then, many employers—some of whom had already prepared to comply with the new regulations and were ready to roll out new payroll practices—have been wondering what to do. Should employers hold off on implementing the overtime regulations or press forward?

Uncertain Next Steps

The short answer for employers is that while this injunction is in effect, employers are not required to pay overtime in accordance with the new rules. But, the injunction is only temporary. The next step is for the judge to consider whether to make his ruling permanent. He can do so by vacating the new overtime rules—i.e., rendering the new rules a nullity as if they had never been issued at all. Such a vacatur seems likely, given his preliminary ruling. While we do not know when the judge will render his final decision in the case, we anticipate that it could be soon. If the judge does vacate the rule, then employers would not be required to comply with the new regulations.

But what happens if the judge changes his mind and lifts the injunction or if an appellate court overturns his ruling? In that case, are the regulations effective retroactively to December 1, 2016, or would the regulations take effect only prospectively from the date the injunction is lifted or a vacatur is reversed? The answer, unfortunately for employers, is very unclear.

Employers must weigh various business and legal risks in deciding whether to comply with the now enjoined overtime regulations. There is a legal risk that if the regulations are later upheld, they may be enforced retroactively. In that event, employers may be liable for overtime payments to employees who were classified as exempt under the current regulations but who are not exempt under the new regulations, plus potential attorneys' fees. In the event of litigation attempting retroactive enforcement of the overtime rule, employers will have difficulty defending against claims if they do not have accurate records of the hours worked by employees. So, an employer that decides to hold off on complying with the new regulations may want to keep accurate records of the hours worked by any employee who is now considered exempt but could be considered non-exempt under the new regulations.

Recent Court Activity

Since the injunction was issued, there has been much activity at the trial court, in addition to the appellate court hearing the appeal of the injunction.

Appellate Activity

  • On December 1, 2016—ironically, the former effective date for the revised regulations—the DOL filed a notice with the U.S. Court of Appeals for the Fifth Circuit announcing its intent to challenge the Texas district court's issuance of the nationwide preliminary injunction.
  • On December 2, 2016, the DOL filed a motion with the Fifth Circuit seeking to fast track the DOL's appeal of the injunction, and, on December 8, the Fifth Circuit announced that it will fast track the appeal.
  • On December 15, 2016, the DOL filed the opening brief in its appeal. In its brief to the Fifth Circuit, the DOL asserted that Judge Amos L. Mazzant III, the federal judge in Texas who issued the injunction, erred as a matter of law by enjoining the overtime regulations.
  • On January 17, 2017, the 21 states that obtained the preliminary injunction submitted their brief in response to the DOL's appeal, urging the Fifth Circuit to uphold the injunction.

Trial Court Activity

  • On December 9, 2016, the Texas AFL-CIO filed a motion to intervene in the lawsuit.
  • On December 15, 2016, the business-plaintiffs that had challenged the overtime regulations filed an opposition to the Texas AFL-CIO's motion to intervene, arguing that the Texas AFL-CIO does not have a right to intervene in this action as "of right" under Rule 24(a)(2) of the Federal Rules of Civil Procedure.
  • The DOL filed a motion to stay proceedings pending the outcome of the expedited appeal to the Fifth Circuit, and, on December 15, 2016, the business-plaintiffs filed an opposition to the DOL's motion to stay the proceedings.
  • On January 3, 2017, Judge Mazzant denied the DOL's Motion to Stay Proceedings Pending Appeal of the court's grant of the injunction.

Administration Changes

Expanding the number of workers eligible for overtime had been a major goal of the Obama administration, so it is not surprising that the DOL has filed a motion to expedite the appeal. However, even with an expedited schedule at the Fifth Circuit, briefing will not be completed and the case will not be argued or decided until after the inauguration of Donald Trump as president. Of course, an appeal of the judge's ruling will fall to the new Trump administration, which may not be as motivated to enforce these Obama administration regulations.

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.

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