Employers, Give Thanks! Texas Court Blocks New Overtime Rule

By Jessica Schoendienst

Thanksgiving comes two days early for employers across the country who anticipated the new Department of Labor (“DOL”) overtime Final Rule creating significant pre-holiday expenses.  For those employers, who have been living in denial or under a rock for the last six months, the DOL Final Rule increased the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $921 per week ($47,892 annually).  Although California exempt employees expected a slightly smaller increase, given that California exempt employees’ minimum salary level is currently $800 per week ($41,600 annually), California and national employers alike viewed the DOL Final Rule as an attack on their businesses.

In late September, a lawsuit was filed in the Eastern District of Texas by the Nevada attorney general and joined by 20 other states, including Arizona, Texas, Georgia, Nevada, Utah, and others.  Shortly afterwards, over 50 business organizations also filed a lawsuit challenging the Final Rule.  Both lawsuits ask for preliminary and permanent injunctions preventing the Final Rule from taking effect.  The Court consolidated the actions and heard oral arguments on the preliminary injunction on November 16, 2016.

Today, the Court granted the Plaintiffs’ motion for a preliminary injunction.  The injunction applies nationwide and prevents the DOL from implementing the Final Rule pending further order of the Court.  The Court granted the preliminary injunction on the basis that (1) the Final Rule exceeded the DOL’s rule making authority; (2) the Plaintiffs will suffer irreparable harm, including increased costs and detrimental effect on government programs and services; (3) the DOL failed to articulate any harm in delaying the implementation of the Final Rule; and (4) the injunction serves the public interest because it will maintain the status quo for the Court to render a meaningful decision on the merits without forcing employers and states nationwide to incur the expense and burden of complying with a potentially invalid rule.

The Court supported its decision on the basis that the Final Rule created an improper salary-based test rather than focusing on the duties employees perform to determine exempt status.  The Court found that Congress unambiguously expressed its intent for employees doing “bona fide executive, administrative, and professional capacity” duties to be exempt from overtime, but that Congress did not intend the exemption to depend on the employees’ salary.  The court held that although the DOL has the authority to define the types of duties that may qualify an employee for the exemption, nothing indicates that the DOL had the authority to raise the minimum salary level such that it supersedes the duties test. In essence, the Court held that because the new rule increased the salary so significantly, it constituted a fundamental change to the statutes operations – effectively creating a de facto salary-only test.

What Employers Should Do

Employers across the country may be wondering “What should I do now”?  If you are an employer that planned to reclassify your employees based only on the salary increase, you can now postpone (and possibly cancel) that reclassification at least until the Court issues a permanent injunction or until the preliminary injunction is appealed (and overturned).  If you are an employer that used the impending salary increase to reevaluate your exempt employees’ job duties and reclassify those employees who were unlikely to be truly exempt, we encourage you to reconsider postponing or cancelling the reclassification and to consult with legal counsel to determine the best approach for your business.  Misclassifying employees can expose your business to significant risk of unpaid wage and penalty liability.  The time may still be right for you to reclassify those employees!  After all, it may be only a matter of time until the injunction is lifted and the Final Rule is enforceable against all employers.