Federal Judge Blocks New Overtime Rule From Taking Effect

 Posted on November 28, 2016 in Wage Law

In last month’s post on this blog, we talked in detail about new guidelines from the Department of Labor that addressed overtime pay for millions of American workers. The new rules were slated to go into effect on December 1 of this year and were being touted by many as one of President Obama’s biggest accomplishments in his second term. While the intent of the updated guideline was to make more employees eligible to receive overtime pay, a Texas judge has issued an injunction to prevent the rules from going into effect without further scrutiny.

Exempt and Non-Exempt Workers

Under current labor guidelines, there are three factors that determine whether a worker may be listed as exempt from overtime laws, meaning that an employer does not have to pay that person time and a half for every hour over 40 per week. The worker must:

• Be paid on a salary basis;
• Be paid a minimum salary set by the Department of Labor—currently $455 per week or $23,660 per year; and
• Perform executive, administrative, or professional duties. Non-commission sales, customer service, and manufacturing, for example, are not exempt-type duties.

The new rule, however, primarily addressed only the minimum salary amount, looking to more than double the standard to $913 per week or $47,476 per year. In essence, the guideline gave employers a choice: either raise the salaries of exempt workers to meet the new minimum or reclassify exempt employees as non-exempt and be ready to pay them overtime if they work more than 40 hours per week. Of course, many exempt salary workers often log significantly more than 40 hours per week, so the change threatened to cost business millions of dollars in expanded payroll.

The Legal Challenge

A collection of business groups along with 21 states filed for the injunction in federal court, asking for a review of the entire situation. The plaintiffs’ case was based on several grounds, including the irreparable damage that could be done to businesses trying to become compliant with drastic change so quickly. The filing also contended the Department of Labor overstepped its authority by requiring such a major increase in the minimum salary for exempt employees.

Controversial Decision

Federal Judge Amos Mazzant III in the Eastern District of Texas issued an injunction last week agreeing with the plaintiffs. In his ruling, Judge Mazzant stated that by raising the minimum salary so drastically, the Department of Labor essentially made the test for an exempt worker one based on salary alone, all but ignoring the "duties test" that the law says must also apply. He also said if the salary minimum is the most important element, then Congress should make that decision, not the Department of Labor.

The Obama administration expressed disappointment in the ruling and is considering an appeal. [Update: As of December 1, the administration filed its notice of appeal regarding the injunction.] Even if the appeal overturns the injunction, President-elect Donald Trump has indicated that he would be inclined to rescind the measure.

Paying Your Employees Fairly

While many business owners had already begun preparing for the impact of the new rule, others were unsure of their ability to comply with guidelines and remain competitive. If you have questions about developing a pay structure that meets the needs of you, your business, and your employees, contact an experienced Schaumburg employment law attorney. Call 847-995-1205 for a consultation at The Miller Law Firm, P.C. today.

Sources:

http://www.reuters.com/article/us-usa-employment-overtime-idUSKBN13H2JY

http://www.nytimes.com/2016/11/22/business/obama-rule-to-expand-overtime-eligibility-is-suspended-by-judge.html

http://www.npr.org/sections/thetwo-way/2016/12/01/504012412/obama-administration-appeals-judges-ruling-to-block-overtime-pay-rule