Injunction of Final Overtime Rule

On November 22, 2016, Judge Amos L. Mazzant of the United States District Court for the Eastern District of Texas granted the Motion for Preliminary Injunction filed by 22 states and issued a nationwide injunction against the United States Department of Labor blocking the Department’s Final Overtime Rule, which was set to take effect December 1, 2016.  The Final Overtime Rule was announced on May 18, 2016 and would have had the effect of increasing the Fair Labor Standards Act “salary test” for certain salaried employees from $455 per week to $913 per week. Essentially, the Final Rule would have mandated employers to pay overtime to salaried employees who earned below $913 per week.  Previously, the Fair Labor Standards Act had exempted employers from paying both minimum wage and overtime payments to any employee employed in a bona fide executive, administrative, or professional capacity. The Department of Labor’s initial regulations defined executive, administrative, and professional employees based on the duties they performed in 1938.  In 2004, the test for exemption was amended to require an employee to meet three criteria to qualify for the aforementioned exemption: 1.) The employee must be paid on a salary basis; 2.) The employee must be paid a minimum salary level (the aforementioned $455 per week); and 3.) The employee must perform executive, administrative, or professional duties.

Essentially, the District Court held that the plain language of the Fair Labor Standards Act requires that the exemption apply to employees performing actual executive, administrative, and professional duties. The court further held that the application of the exemption depended upon an employee’s duties as opposed to their actual salary.  The court concluded that there was no congressional intent for the salary requirement to supplant the duties test and that the Department of Labor exceeded its authority in so mandating. Accordingly, the District Court entered a nationwide injunction enjoining the Department of Labor from enforcing the Final Rule.

Although Pennsylvania was not a party to this lawsuit, it appears that the Department of Labor is, at this time, conceding that the nationwide injunction issued by the Texas District Court truly prevents enforcement of the Final Overtime Rule throughout the country. Businesses that have already implemented changes in anticipation of the December 1, 2016 effective date of the Final Overtime Rule should weigh the decline in morale of angry employees against the economic costs of overtime payments in determining whether or not to rescind overtime pay. Businesses which have not implemented any changes should adopt a wait-and-see approach and await further clarification from an appellate court on the issue.