Federal Overtime Law Blocked by Texas Court

            The Department of Labor’s Final Rule that would have extended overtime pay to 4.2 million American salaried workers earning below $47,476 annually has been placed on hold. Judge Amos Mazzant of the Eastern District of Texas granted a preliminary injunction delaying its implementation. State of Nevada, et al v. United States Department of Labor, et al, 4:16-cv-00731 (E.D. Tex 2016). Judge Mazzant found that the plaintiffs, 21 state attorney generals and various business coalitions, were likely to ultimately succeed in their case and that irreparable harm to Plaintiffs would result if the preliminary injunction was denied. The Final Rule was finalized by the Department of Labor in May of 2016 and was set to take effect December 1st. The court ruled on the preliminary injunction on November 22nd.

            The purpose of the Final Rule is to extend overtime pay to white collared salaried workers. The Fair Labor Standards Act created a “white collar” overtime exemption. To be exempt, the employee must (1) be paid on a salary basis, (2) at the minimum salary threshold established by the Act or greater, and (3) must perform executive, administrative, or professional duties. The salary threshold had been increased once since the exemption was enacted. In 2004 the threshold was increased to $23,660 per year. The Final Rule increases the threshold to $47,476 per year, making many more American workers eligible for overtime pay.

            Employers could comply with the Final Rule while continuing to pay employees on a salary basis in two ways. First, they could pay time-and-a-half for those workers that are overtime eligible. Second, they could increase salaries to above the salaried threshold amount. Employers were forced to spend time and resources deciding which option was best for their business.

            The preliminary injunction granted by the Texas federal district court is only temporary in nature and has already been appealed by the Department of Labor. However, in order to grant a preliminary injunction a court is required to find that the plaintiffs are likely to ultimately succeed on the merits. Judge Mazzant found that because the Department of Labor exceeded its authority in essentially getting rid of the duties test (provided in the third requirement above) and updating the salary threshold automatically every three years, the plaintiffs were in fact likely to succeed. Additionally, the court is required to determine whether irreparable harm will result to the plaintiffs if the preliminary injunction is denied. The plaintiffs submitted documentation stating that the costs of compliance for each state would be millions. The court found that irreparable harm would in fact result and granting the preliminary injunction “preserves the status quo.”

            Many businesses had already evaluated their options by the time Judge Mazzant granted the preliminary injunction. Not only did they spend time and resources making a decision but many had already communicated their choice with employees. The question now is, with the preliminary injunction in place and President-Elect Trump prepared to take office in January, what is the next step for American businesses? Many of whom have already decided to increase salaries above the Final Rule threshold. Will turning back harm employee morale? While Judge Mazzant’s block of the Final Rule may give businesses hope, it leaves them in limbo, eagerly awaiting a final resolution.

With the injunction currently in place, the old threshold of $23,660 per year remains in place nationwide. This could change depending on the outcome of the appeal, which the U.S Court of Appeals for the Fifth Circuit agreed to expedite. The briefing deadline is currently set for January 31, 2017. McCoy Law Firm will monitor the situation and update this evolving law.