Employers Decide How to Respond to Nixed Overtime Rule

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For both employers and employees, December 1, 2016 was a highly anticipated day.

Under a new rule, employers would have had to pay most "white collar" employees a minimum salary of $913 per week - $47,476 annually - to maintain their exemption from the Fair Labor Standards Act overtime rule.

The current minimum salary was $455 per week - $23,660 annually -  and some 132,000 salaried workers in New Jersey were either expecting an immediate increase in their salary or, at a minimum, getting ready to earn overtime pay when they worked over 40 hours per week.

But in a stunning decision, a federal district court in Texas issued a nationwide injunction blocking the new Department of Labor overtime rule that was scheduled to go into effect on December 1.

The injunction issued by the Texas court blocked the new rule from taking effect, declaring that "nothing in the [Fair Labor Standards Act] indicates that Congress intended the [DOL] to define ... a minimum salary level. ... Consequently, the Final Rule ... is unlawful." The DOL is now enjoined from "implementing and enforcing" the new rule.

Many employers have been working in anticipation of the new rule, either by increasing the salaries of exempt employees or by reclassifying as overtime-eligible those employees who earned less than the new proposed minimum, says Amy Vazquez, Director of Legal Content at the Employers Association of New Jersey.

The employers' association had been working for months to help its members prepare for the new rule.

Now Ms. Vazquez says she is discussing next steps with employers.

"What an employer does now involves consideration of both legal and employee relations issues" she says.

Some employers will simply stop preparations; others are contemplating retracting the changes if they had been already implemented and will deal with whatever employee relations fall out there might be.  

But for some employers, the focus on the new rule revealed underlying problems, as some exempt employees were not properly classified to begin with because their job duties did not really comply with an exempt classification.

In those cases, an employer should consider acting on the new rule regardless the injunction, if only to prevent misclassification risk, says Ms. Vazquez.

Many legal experts were taken by surprise by the sweep of the judge's ruling.

Another unknown what the in-coming Trump administration will do.  Absent an expedited appeal and decision, it is possible that once the new President is sworn in, the proceedings could be withdrawn and the injunction would become permanent.

Or, revised rule making could eventually produce a revised rule with lower thresholds, a carve-out for smaller businesses, and/or elimination of automatic future increases. That process could be long and drawn out. 

Another possible option would be a rule eliminating the salary requirement altogether, as the Texas federal judge has questioned the DOL's authority to establish a salary level in the first instance.

"States can set their own salary levels, as New York is now doing" says Ms. Vazquez.

But even state action on salaries could be subject to litigation as overreaching.

"We may be entering an era when the federal courts will not allow either the federal or state government to establish salaries. We haven't seen that in almost a hundred years but I wouldn't be surprised" she says.