CLIENT ALERT: Implementation of FLSA Overtime Rule on Hold

November 23, 2016
  |  
Firm News

A Texas court issued a nationwide injunction yesterday, prohibiting enforcement of the Department of Labor’s (DOL) new overtime rule redefining salaried, exempt employees.  The rule was set to go into effect on December 1.  The court’s ruling was made in a case filed by industry trade groups and more than 20 states. 

The District Court for the Eastern District of Texas ruled on multiple bases that the DOL’s new overtime regulation is invalid. The judge reasoned that the DOL rule exceeded the agency’s authority by raising the minimum salary level to an extent that it “supplants the duties test.”  In addition, the Court found that the DOL lacked the authority to require automatic updates to the salary threshold test, as the rule provided.

The overtime rule would have raised the salary threshold to qualify for exempt status under the “white collar” tests from $23,660 to $47,476 per year, and the “highly-compensated” exemption from $100,000 to $134,004 per year.

While an appeal of the ruling is expected, the ultimate outcome may not rest with the courts.  The rule was issued in a time frame that allows the next session of Congress, and the new President, to review and “disapprove” the rule.  Pursuant to the Congressional Review Act, if a major rule is submitted to Congress with fewer than 60 session days remaining on the legislative calendar – as was the case with the DOL rule – the next Congress has 60 days to consider the rule. If Congress disapproves the rule, it will be invalidated unless the President vetoes the disapproval.  In short, the fate of the final rule could be determined either by the courts or the new Congress and Trump administration. 

Several pieces of legislation already have been introduced by Republican members of Congress that either would invalidate the rule or change it in significant respects.  For example, the Protecting Workplace Advancement and Opportunity Act, introduced in the Senate in March 2016, would require the Secretary of Labor to nullify the proposal and conduct an economic analysis to determine its impact on certain employers before implementation. The Overtime Review and Reform Act, introduced in both houses in September 2016, would prohibit any increase in the overtime pay threshold in 2017, stretch out the DOL’s proposed increases over five years, and eliminate automatic increases. The measure also would require an “independent government watchdog” study of the overtime rule after its first year of implementation. If the revised overtime rule were to be found to “negatively impact American workers and our economy,” the proposed legislation would exempt multiple entities from further increases under the rule.  These include non-profits (including colleges and universities), state and local governments, and many Medicaid- and Medicare-eligible facilities, such as nursing homes and facilities serving individuals with disabilities.

All possibilities considered, it seems highly unlikely that the rule in its present form will stand, and it is all but guaranteed that any replacement will continue to be a subject of controversy. 

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Lauren Kornsey, Senior Manager, Marketing and Business Development

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Potter Anderson & Corroon LLP is one of the largest and most highly regarded Delaware law firms, providing legal services to regional, national, and international clients. With more than 90 attorneys, the firm’s practice is centered on corporate law, corporate litigation, intellectual property, commercial litigation, bankruptcy, labor and employment, and real estate.

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