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January 04, 2017 Articles

Taking a Step Back: The Impact of the Sudden Halt on the New Overtime Rules

By Sarah Bradbury and Terah Moxley

Months of confusion—and planning—by employers came to a screeching halt on November 22, 2016, when Judge Amos Mazzant of the Eastern District of Texas issued a nationwide preliminary injunction prohibiting the United States Department of Labor (DOL) from implementing or enforcing new overtime regulations set to take effect just days later. Issued last May, these regulations would have ushered in substantial changes to the overtime rules of the Fair Labor Standards Act (FLSA). Under these new regulations, white collar workers who have historically been exempt from the federal overtime rules would need to be paid more—a lot more—to maintain that exemption. Through these new regulations, the DOL sought to more than double the minimum salary threshold required for the white collar exemptions from $23,600 to $47,476 annually. (Plus, the regulations provided that this minimum salary threshold would automatically increase every three years.) These new regulations were set to make waves particularly for restaurant and retail employers.

The DOL provided employers with more than six months to prepare for the December 1, 2016, implementation of the new FLSA regulations. Many employers immediately started analyzing and preparing for this December 1 deadline by auditing the status of their exempt employees and deciding whether to increase the salaries for certain employees or job classifications—like managers—or whether to convert these workers to nonexempt status, making them eligible for overtime. Employers also created and executed communication plans to advise affected employees of their raises or changes from exempt to nonexempt status. Employers rewrote bonus plans, created new policies and procedures, and trained employees who were now going to be punching a clock. Many employers put these changes into effect prior to the deadline, while others were poised to make changes effective on December 1. However, the preliminary injunction stopped the DOL in its tracks and calls into question whether these regulations will ever go into effect.

While the preliminary injunction stands, employers are left in a state of legal and employee-relations limbo as the current administration pursues an appeal of the preliminary injunction—a pursuit that will likely be halted by the incoming administration. Indeed, employers are now left with more questions than answers on what to do with their employees. Do they walk back or cancel the planned changes both as to pay and exemption status? Certainly, it is a financial win for employers; but, if they cancel the implementation of these changes, such as raises, what about employee morale? What about employers that implemented the changes necessary to comply with the new rules prior to their anticipated effective date? There are few answers to these questions as it remains unknown whether there is any life left in these regulations.

While the legal challenges to the rules remain pending—and as we march ever closer to the changing of the guard in Washington, D.C.—employers should evaluate the landscape on a case-by-case basis and assess the risks both legally and from an employee relations perspective. Unfortunately, there is no one-size-fits-all approach.

Employers must consider a few key issues to make the best determination for their business while the final status of these new regulations remains unknown. Was the employer prepared for the December 1 deadline, and had it fully communicated the planned changes to its employee population? If not, in this case, procrastination paid off and the employer can maintain the status quo with its employees completely in the dark as to what might have happened if the regulations had gone into effect. If, on the other hand, everything had been communicated to employees and employees were promised raises effective December 1 (or had already been given raises), the employer needs to assess the financial impact of maintaining the raises in an effort to keep employee morale high and attrition low. If the employer rescinds the pay raises, employee morale and productivity can decline rapidly and impact the business more than the financial headache of the raises. Further, in certain states a promise of a future raise at a time certain can be grounds for legal action based on a breach of contract.

Given the huge shift in the employment law arena that is likely to accompany the incoming administration, the likelihood of these regulations going into effect is slim. However, it is possible—though not likely—that the lame-duck Congress will strike a compromise on a revised version of the rules that phases in an increase to the minimum salary threshold for white collar workers over a period of time (instead of in one fell swoop), with potential exemptions for state employers and nonprofits. Further, based on Judge Mazzant’s written opinion that accompanied the issuance of the preliminary injunction, it is a safe bet that he will strike down the regulations altogether once he rules on the summary judgment motion that remains pending. In that opinion, Judge Mazzant declared that the DOL had exceeded its authority in making the applicability of the white collar exemptions hinge more on a certain salary level as opposed to the job duties of the worker in question. It is unclear at this time when Judge Mazzant will rule on the summary judgment motion.

Keywords: litigation, woman advocate, overtime, Department of Labor, FLSA, wage and hour litigation

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