Hunton Employment & Labor Perspectives

On November 22, a federal judge in the Eastern District of Texas preliminarily enjoined the Department of Labor’s final overtime rule, which would have expanded overtime eligibility to executive, administrative, and professional employees making less than  $47,476 per year, who were previously exempt from the Fair Labor Standards Act’s requirements under its white collar exemption.  The final rule was scheduled to go into effect on December 1, 2016.

In his opinion, Judge Mazzant (an Obama appointee) focused on the plain meaning of the terms “executive,” “administrative,” and “professional” and ruled that Congress intended the white collar exemptions “to depend on an employee’s duties rather than an employee’s salary.”  The Court rejected the DOL’s argument that the white collar exemptions carry a “status” component as well as a function component, finding that the DOL did not have the authority under the FLSA to elevate the importance of a minimum salary level over duties.   According to Judge Mazzant, “if Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change.”

The Court found that because the minimum salary requirement in the final rule was unlawful, the automatic updating mechanism of the rule was also unlawful. Under the automatic updating feature, the salary level would have been increased every three years automatically and without notice and comment rulemaking required by the Administrative Procedures Act and the FLSA.

Finally, and perhaps most importantly at this stage of the litigation, the Court found that a nationwide injunction was appropriate because the cost of complying with the overtime rule pending final resolution in the litigation would cause irreparable injury to the employer community.  While the DOL attempted to limit the scope of the injunction to the state entities that were seeking the preliminary injunction, the Court disagreed and instead ruled that the injunction should bar enforcement of the rule to both public and private employers.

The court’s preliminary injunction is just the first step in what could be a lengthy litigation process over the final rule.  The court will next take up the issue of whether a permanent injunction should be issued.  Though nothing is certain, the court’s preliminary injunction opinion sends very clear signals that that the plaintiffs will prevail and that a permanent injunction will issue.  This process, along with any ensuing appeals, will almost certainly be ongoing on January 20, 2017, when President-Elect Donald Trump takes office, which means that he and his newly-appointed Secretary of Labor may have the final say as to whether the DOL will continue to defend the final rule and/or whether the final rule will be withdrawn or revised.

For now, however, because the rule has been preliminarily enjoined, employers do not need to change their pay practices by December 1st.