Enforcement of New Overtime Regulations Suspended

Yesterday, the United States District Court for the Eastern District of Texas issued a ruling in State of Nevada, et al v. United States Department of Labor, et al, which has nationwide impact. In its ruling, the Court entered a nationwide injunction prohibiting the Department of Labor from implementing and enforcing new overtime regulations which were set to become effective on December 1, 2016.

In 1938, Congress enacted the Fair Labor Standards Act (the “FLSA”). Among other things, the FLSA requires that employers pay a minimum wage to employees, and entitles employees to overtime pay at the rate of 1.5 times the employee’s regular rate of pay for all hours worked above 40 in a week. The FLSA contained a number of exemptions to this overtime requirement, including a so-called “white collar” exemption for employees “employed in a bona fide executive, administrative or professional capacity.” Eventually, this “white collar exemption” was amended to require that in order to claim the exempt “white collar” status, an employee had to be paid on a salary basis.

In 2004, additional regulations were adopted to clarify these rules. The 2004 regulations require an employee to meet three criteria in order to qualify for the “white collar” exemption. Those criteria are:

  1. The employee must be paid on a salary basis.
  2. The employee must be paid at least the minimum salary level established by the regulations (the current threshold is $455.00 per week, which equates to $23,660.00 annually).
  3. The employee must perform executive, administrative or professional duties.

In 2014, President Obama directed the Secretary of Labor to attempt to modernize the overtime regulations for these “white collar” employees. As a result, on May 23, 2016, the Department of Labor issued a regulation (the “Final Rule”) which increased the minimum salary level for exempt employees from $455.00 per week ($23,660.00 annually) to $921.00 per week ($47,892.00 annually).

Twenty one states sued the Department of Labor in the United States District Court for the Eastern District of Texas, in part to challenge the validity of the Final Rule. A hearing was held on November 16, 2016 on a motion for a preliminary injunction filed by the plaintiffs in this case.  After considering the authority for a preliminary injunction, including whether the plaintiffs would likely be successful on the merits of the case, the Court held that the Department of Labor enacted the Final Rule without statutory authority. As a result, the Court issued a nationwide injunction enjoining the Department of Labor from implementing or enforcing the Final Rule.

This decision will likely be appealed to the United States Court of Appeals. In the meantime, however, employers can continue to treat employees who meet the prior “white collar” exemption as exempt from overtime requirements.

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