Judge Puts New Overtime Ready Rule on Hold, Now What?

otr-blog-gere-2As the country was winding down to celebrate Thanksgiving, a federal court in Texas issued an order to suspend the implementation of new salary level for white collar exemption scheduled for December 1st. For months employers have been anticipating the December 1 date when the salary requirement would increase to $47,476 from $23,660. But on November 22, months of preparation came in question. As a result of the court decision, employers do not have to comply with the new FLSA salary threshold on December 1, 2016.  

Background to the federal stay of execution

Twenty-one states and several business groups filed a lawsuit asking a Federal Judge to delay the implementation of the new salary threshold. They claimed that the new overtime rule would irreparably harm them when it goes into effect. Most legal experts didn’t expect much from this legal action since the Federal Judge assigned to the case was appointed by President Obama.  But to the surprise of many, Texas U.S. District Judge Amos Mazzant sided with the 21 states and business groups.

The court ruled that the DOL exceeded its authority by raising the salary threshold level so high that it supplanted the “duties tests” for the FLSA white collar exemptions. It stated that the DOL created a salary-only test, and negated the role of the duties’ tests. The Court also found that the DOL did not have authority to create an automatic adjustment every 3 years to the salary threshold.

Reactions to the decision

The news was welcomed by small employers and nonprofit organizations who have struggled with the impacts of the rule, both on their budgets and workplace flexibility. However, it throws into confusion HR and payroll plans to implement the new rules. Clearly, this ruling is disappointing to an estimated 4.2 million workers who would have been eligible for overtime pay.

What now?

The injunction is preliminary. Legal experts are divided if it signals a permanent block of the DOL rule. At this time, employers should proceed with caution. There is no guarantee the new overtime rules are gone forever. You should continue planning for its eventual implementation.

Your organization may have already implemented changes in anticipation of the December 1st deadline. You have raised white-collar workers’ pay, changed exempt/nonexempt classifications, and rewrote job descriptions. Many of those changes will be difficult to undo. Smart employers are taking a wait-and-see approach. Reversing course too soon could badly damage employee morale.

If your organization has not reclassified employees, it might make sense to postpone any action and monitor the developments closely.

Even before the stay was issued by the federal judge, the implementation of the overtime rule was expected to be modified by President-elect Trump. Mr. Trump has indicated support for a small business exemption from the rule.

What to tell employees

Communicating honestly and openly with employees is always the best approach while your organization decides what to do next.

Here’s a sample language you can use when communicating with employees:

“A federal court in Texas has issued an order that makes it uncertain how the FLSA’s overtime pay exemptions apply to employees who would be impacted by the new rules that were to go into effect on December 1. Because of the court’s order, those rules will not go into effect as expected.”

Depending on whether your organization decides to proceed with the previously laid out plans, you may use one of the other:

Option 1“However, our organization has decided to proceed with plans already in motion. The salary increases already awarded or planned to come into effect in December will proceed. The reclassification of some employees as non-exempt will remain.”

Note – Non-exempt is the default classification. Every employee can be classified as non-exempt and becomes eligible for overtime pay.

Option 2 –To ensure that we are in compliance with the laws that govern how employees are paid under the FLSA, we are revising our plans and will report back soon about how this will impact you. For now, no change in classification or pay will occur as a result of this new legal development.”

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