As you may have heard a number of states sued to try to stop the new exempt salaries from going into effect on December 1st. The United States District Court for the Eastern District of Texas has granted a preliminary injunction stopping the U.S. Department of Labor ("DOL") from implementing new overtime regulations set to begin on December 1, 2016. The current salary threshold of $23,660 for most exempt employees would have been raised to $47,476 if the new rule had taken effect. Employers had the option of raising salaries to meet the new exempt threshold or reclassifying exempt employees to nonexempt and paying overtime.
This temporary ruling has forced a difficult decision on employers who may have already announced or even implemented salary changes based on the regulations. Moreover, the final outcome of the pending lawsuit and exempt salaries in the U.S. could depend on a number of factors, including the Court’s final ruling in the pending lawsuit, a potential DOL appeal, and the stance that President-elect Donald Trump's administration will take on wage and hour issues.
What does the court ruling mean?
The court has issued a preliminary injunction which applies nationwide and which is intended simply to preserve the status quo until the court can resolve the issues raised in the lawsuit. The court concluded that it would do more harm to let the new regulation go into effect while the lawsuit is being resolved than it would to just put the lawsuit on hold for now until the court sorts through all the issues. Although it is not always true, sometimes the issuance of a preliminary injunction like this one can mean the court sees legal problems in the regulations. However, it is important to remember that the merits of the lawsuit and whether or not the new regulation will stand will not be resolved until later.
What should employers do if they have already made changes?
Employers are under no legal obligation to unwind changes they have already implemented. Though, if an employer is in a position to reverse changes scheduled to take effect next week, it can legally do so. Any actions should be communicated to employees. For example, the company may send a statement that due to the recent court order, changes will not take effect as scheduled on December 1st and the company will re-evaluate the changes as further legal developments occur.
Those employers who have already implemented the changes have additional considerations. These employers must weigh the pros and cons of unwinding changes, looking at impacts to employee morale, profit margins, maintaining a competitive edge, as well as budgetary issues, costs, and benefits associated with reversing any changes.
Also, please note that employers cannot recoup wages they already paid at higher rates if they do decide to unwind changes already implemented.
What should employers do if they have not yet implemented changes?
If an employer has not made any changes and was preparing to do so only to comply with the new regulations, it may consider holding off for the time being. This is particularly true for employers in states (including Utah, Idaho, and Nevada) which are not impacted by state laws intended to increase the state salary exemptions threshold (e.g., New York and California). Those employers who choose to hold off on implementing changes should still communicate with their employees. For example, an employer might tell its employees that it believes the employees were properly classified as exempt and due to the recent court order, no changes will occur at this time.
Some employers may still choose to implement scheduled changes, especially if the company is taking the opportunity to address misclassification issues, is moving up a merit increase, or simply wishes to avoid uncertainty with its employees and not rock the boat with already communicated changes.
The injunction isn't final, and it isn't clear when the district court will make a final determination or what will happen if the DOL appeals the ruling. Many expect the appeals court will reverse the injunction. In addition, the current DOL has indicated it will continue to fight the lawsuit. However, the DOL’s overtime rule was not popular with many Republicans in Congress and there is some indication that the new Congress may attempt to revoke or amend the new regulations. It is also possible that when President-elect Trump takes office in January 2017, he will instruct his newly appointed team at the DOL to stop fighting the lawsuit, which could leave the new regulations effectively enjoined on a permanent basis.
Parsons Behle & Latimer will be following this issue closely and will provide updates on developments as they occur. If you have any questions about these issues please contact:
Chair of the Parsons Employment Practice Group
Head of the Parsons Employment Practice in Idaho