Nationwide Injunction Issued to STOP implementation of New FSLA Overtime Rule Increasing Salary Basis for White Collar Exemptions

In a surprising victory for employer groups and 21 states in a lawsuit filed in the U.S. District Court in Eastern District of Texas, Judge Amos Mazzant issued a nationwide preliminary injunction that effectively stopped implementation of the Department of Labor’s new overtime rule, which more than doubles the required salary level to qualify for the Fair Labor Standards Act “white collar” exemptions, until the courts reach a final decision on their legality.  Memorandum Opinion and Order dated November 22, 2016, State of Nevada, et al v. United States Department of Labor, et al,  Civil Action No. 4:16-CV-00731.

overtime rule   In granting the preliminary injunction, the Court held that the new Rule, which if implemented on December 1st would increase the salary basis test to $913 per week for white collar workers- including the executive, administrative and professional, or “EAP” exemptions-impermissibly conflicted with the unambiguous language in the FLSA to include a “de facto salary-only test,” requirement, rather making the exemptions dependent on the duties of the employees.  The Court, in granting the injunction, held that the Rule essentially would have made approximately 4.2 million workers ineligible for overtime even though their duties qualify them for the exemption.  The Court also found that even if the statute was ambiguous, the Rule still would be invalid and not owed deference because it is not based on a permissible construction of the statute.  The salary level was originally set low to screen out the obviously nonexempt employees.  But by raising the salary level to $913 per week, the Rule improperly added a high salary basis that Congress did not intend for the EAP exemptions.

The Court issued the injunction, on a nationwide basis, preventing the Department of Labor from implementing the regulations.  The Court found a nationwide injunction covering all employers subject to the FLSA was appropriate, finding that other courts in Texas recently issued nationwide injunctions.  The Court further found that there was a likelihood of irreparable harm in absence of the preliminary injunction given the significant cost in complying with the rule and the balance of the hardships favored the State plaintiffs since the injunction delays the regulations implementation and “preserves the status quo” pending final consideration and determination as to the legality of the Rule.

The Department of Labor will likely appeal the ruling, and released a statement indicating its disagreement with the decision and noting that legal options are being considered.  It is unclear at this when or how an appeal would proceed.  But it is clear that until further proceedings result in a final determination and ruling, the new salary levels for the EAP exemptions will not take effect.  There are also thorny legal issues to iron out, for example, if an emergency appeal by the government results in reversal of the decision by the Fifth Circuit Court of Appeals.  For many employers, this ruling comes too late, as they have already implemented changes to comport with the new salary levels.  They may now want to reconsider those actions, which could involve difficult decisions in some cases.  But other employers may breathe easier with the welcome news that the new Rule is on hold.  It is also unclear how the Department of labor under a new Trump Administration may proceed with regard to the new Rule.  We will, of course, continue to closely monitor these developments and provide timely updates as warranted.

Meanwhile, if you have any questions, contact Matt Stokely at Pickrel, Schaeffer and Ebeling at 937-223-1130.

AUTHOR: Matt Stokely