Overtime Rule: What’s Next with Litigation and the New Administration?

On November 22, 2016, a federal judge granted a request to temporarily block the Department of Labor (DOL) from implementing and enforcing a rule that would have raised the minimum salary required to be classified as exempt from overtime under federal law. Here is an update on the status of the rule and what to expect this year.

FLSA Background:

Under the Fair Labor Standards Act (FLSA), non-exempt employees must be paid overtime whenever they work more than 40 hours in a workweek (some states require overtime in additional circumstances). There are exemptions from the federal overtime requirement for bona fide administrative, executive, and professional employees. To be classified as exempt from overtime, employees must meet certain salary and duties tests.

Proposed Rule:

On May 18, 2016, the DOL published a final rule that, among other things, would have raised the minimum salary for the administrative, professional, and executive exemptions from $455 per week to $913 per week. The minimum salary increase was scheduled to take effect December 1, 2016, and would have required automatic increases every three years.

Delay:

On November 22, 2016, a United States District Court Judge in Texas granted a request by 21 states and several business groups to temporarily block the rule from taking effect. The trial court’s preliminary ruling delays the effective date of the FLSA changes until the court makes a final decision in the case.

What’s Next?:

There are several possible outcomes depending on what happens in litigation, whether or not the Trump administration chooses to modify or repeal the rule, and whether legislation is proposed to modify the overtime exemptions.

Here are some of the possible scenarios:

Scenario #1: Appeal of Preliminary Injunction

The DOL filed an appeal of the November 22 preliminary injunction and requested a motion for an expedited schedule. Given the timeline set by the Court of Appeals, the appeal won’t be decided until after the Trump administration takes office on January 20, 2017. There is a chance that if the preliminary injunction were ultimately reversed, the overtime rules could be revived.

Scenario #2: Trial Court’s Final Decision

The states and business groups that oppose the rule are asking the trial court to permanently block the DOL from implementing and enforcing the rule. It is not certain when the trial court will issue a decision, or how any trial court action could be impacted by the Court of Appeals’ decision.

Scenario #3: Next Administration

Once in office, the Trump administration could decide to withdraw the appeal and/or abandon the DOL’s defense of the rule in court. However, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) has filed a motion to intervene in the case, concerned that the DOL under the Trump administration might not adequately defend the rule. The court hasn’t ruled on the AFL-CIO’s motion yet.

Separate and apart from any litigation, the Trump administration could propose changes to the overtime rule through the rulemaking process, which can take more than a year.

Scenario #4: Legislation

Congress has the ability to amend the FLSA through legislation. For example, some members of Congress have supported phasing in the increase in the minimum salary requirement over several years if the blocked rule is allowed to take effect. Some support increasing the minimum, but at a lower threshold.

Scenario #5: State Activity

Regardless of what occurs on the federal level, some states may step in to adopt or amend their minimum salary requirements for exemption from overtime. In addition, states that tie their minimum salary requirement for exemption to their minimum wage could see an increase to the minimum salary requirement. In 2017, for example:

  • California: Effective January 1, 2017, California requires employers with 26 or more employees to pay certain exempt workers at least $840 per week (two times the minimum wage), as a result of a new state minimum wage of $10.50 per hour for employers of this size.
  • New York: Effective December 31, 2016, the minimum salary requirements for the state’s executive and administrative exemptions increased. Like New York’s new minimum wage, the state’s minimum salary requirements differ based on where in the state the employee works.

Generally, when federal and state rules conflict, the law that is more generous to the employee applies.

Conclusion:

Employers that have employees classified as exempt from overtime should verify that the employees meet all applicable federal and state salary and duties tests for exemption. If not, they must be classified as non-exempt and paid overtime when applicable.

Although the federal rule that would have increased the minimum salary requirement didn’t go into effect on December 1, 2016 as expected, there is still a possibility it could become effective in the future and may even be applied retroactively. For this reason, while the case is still being litigated, consider tracking the hours of employees who stayed classified as exempt but who have a salary that falls below $913 per week (or limit their hours to 40 or fewer per week). We will continue to monitor the rule and provide updates as developments unfold here.

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Costa Kapothanasis

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