Whither the Overtime Expansion Rule?

Last spring, the U.S. Department of Labor (DOL) announced the details of a final rule under the Fair Labor Standards Act (FLSA) establishing new salary thresholds for millions of traditionally exempt white-collar employees. Many lower- and even mid-level managers and professional and administrative staff, who worked for years at annual salaries sometimes just above the threshold of $23,660, were not eligible for time and a half when they worked overtime. The DOL rule, which was scheduled to take effect on December 1, 2016, would have increased the minimum salary that an exempt worker could earn to avoid overtime to $47,476. That would have represented a dramatic increase in the number of American workers eligible for overtime (more than four million, the DOL told us).

Not long after the final rule was adopted, 21 state attorneys general and the U.S. Chamber of Commerce challenged the rule. Many lawyers did not expect the litigation to stop the rule, even temporarily.

The Preliminary Injunction and Presidential Election

The fall was full of surprises, however. Of course, it saw the election of a president few expected on November 8, 2016, and both houses of Congress were left in Republican hands. In addition, on November 22, 2016, a federal district judge in Texas issued a nationwide preliminary injunction preventing the DOL from implementing and enforcing the new overtime rule.

Interestingly, the judge, Amos L. Mazzant III, was appointed by President Obama, whose administration advanced the rule as a major benefit to working people. Judge Mazzant's ruling, although not a final decision, reflected his belief that the legal challenge to the rule was likely to succeed on the merits in the end. This is because, the judge wrote, the DOL lacked congressional authority to effectively supplant a salary requirement with the executive, administrative, and professional duties that make an employee exempt from overtime requirements.

The Injunction for Many Employers Was Too Late, But the Legal Battle Continues

For many employers, this ruling was too late because they had already announced or implemented decisions changing certain of their salaried employees to hourly status and increasing the salaries for other employees. Because of the timing of the court's ruling, many employers felt they were stuck with pay raises and a group of employees who were suddenly eligible for overtime. But not all employers had acted yet, and some who did reversed course or announced a waiting period.

The DOL took a prompt appeal of the court's ruling. The U.S. Court of Appeals for the Fifth Circuit agreed to place its decision process on a fast track. Argument on that appeal is scheduled for February 2017. Experts expect a ruling late in the winter or early spring.

What Will Happen to the Overtime Rule?

The ultimate fate of the overtime expansion rule is uncertain at the moment, but it faces a somewhat uphill battle. Politics in this era are perhaps even less predictable than the courts. But even if a ruling from the Fifth Circuit (likely during the late winter) puts the overtime expansion back in place, the Trump administration may nix it or scale it back.

Thomas E. Perez, the DOL secretary who championed the rule for President Obama, will soon be out of a job. In his place, President-elect Trump has announced the nomination of Andy Puzder, the CEO of CKE Restaurants, a group that includes the Carl's Jr. and Hardee's fast food chains.

Mr. Puzder has not spoken to what course he may take on the DOL rule if it survives the court challenge. He wrote in a guest post for Forbes, before adoption of the final rule, that the rule would represent "another barrier to the middle class rather than a springboard." That suggests the rule is in political trouble, although it may be politically dangerous to take away a new right to overtime that some employees had been at least tentatively granted by the Obama administration.

What to Do?

Employers should not expect to know immediately what will happen, so what should they do now? Those who have already announced or implemented changes based on the DOL's final rule may, depending on the circumstances, now alter their plans if they have not done so already. There is some risk that, if the rule ultimately survives the courts and the political process, the DOL will seek back pay dating back to December 1, 2016, for those who were entitled to overtime. Although that could be expensive, the risk seems slim from both a political and legal perspective.

Employers who have made no changes to their employees' pay or exempt status are free for the moment to ignore the final rule. Either way, if the U.S. Court of Appeals court reverses the preliminary injunction, employers will need to determine at that time how such a decision may impact their payroll and employee status. Employers should keep watch for the appellate court's ruling in the litigation and any congressional action.

This article is educational in nature and is not intended as legal advice. Always consult your legal counsel with specific legal matters. If you have any questions or would like additional information about this topic, please contact Jonathon Rabin at (248) 457-7835 or jrabin@hallrender.com.

Jonathon Rabin is an employment and litigation attorney at Hall, Render, Killian, Heath Lyman in Troy, Michigan. Please visit the Hall Render blog for more information on topics related to health care law.