On November 22, 2016, a federal judge in Texas put a hold on the federal overtime rule changes issued by the US Department of Labor (US DOL) earlier this year. The rule changes were to be effective on December 1, 2016; however, that effective date is delayed pending a final ruling in the case.

In October, 21 states filed for emergency preliminary injunctive relief to stop the rule changes from happening, stating that the DOL had exceeded its authority by raising the salary threshold too high and setting triannual automatic updating to the rule (the states' case was consolidated by the court with that of several business groups).

In his ruling, Judge Amos Mazzant of the US District Court for the Eastern District of Texas agreed, stating:

"The State Plaintiffs have established a prima facie case that the Department's salary level under the Final Rule and the automatic updating mechanism are without statutory authority."

Judge Mazzant further explained that the Court has the authority to enjoin the final overtime rule on a nationwide basis. As a result, the DOL is enjoined from implementing and enforcing the final rule changes.

Nevada's Attorney General Adam Laxalt, who led the coalition of states fighting the rule stated:

"Businesses and state and local governments across the country can breathe a sigh of relief now that this rule has been halted. Today's preliminary injunction reinforces the importance of the rule of law and constitutional government."

It is unknown at this time whether the DOL will appeal the ruling.

History

As we previously reported, on May 18, 2016, the US Department of Labor issued the final revised rules governing the exemption from overtime pay that applies to qualified exempt employees. The new requirements were to take effect December 1, 2016, and were expected to have the result of extending overtime pay to 4.2 million employees currently exempt and boost wages by $12 billion over the next 10 years. (Email from President Obama, May 17, 2016.)

Under the final rule, the salary threshold for salaried-exempt employees would be $913 per week ($47,476 per year), double the current amount.

This salary test would be adjusted for inflation every three years, and is expected to rise to $981 per week ($51,000 per year) when it is first updated on January 1, 2020.

Ernst & Young LLP insights

It is important to note that the injunction does not halt the overtime rule changes indefinitely, only until a final decision is made on the case.

This leaves businesses in a quandary, having to decide whether to implement the changes now or wait for the final ruling.

Those businesses that have already implemented the changes to employees' salaries or job statuses are left to decide whether to reverse the changes or leave the changes they've made in place.

There is also the question of whether President-elect Trump and the 115th Congress will move quickly in the early months of 2017 to pass legislation to modify or remove the rule changes. On the campaign trail, Trump indicated he would reverse these new overtime rules.

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