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Overtime rule delayed. So what’s next?

hrcon_cania I am officially out of the prognostication business as of Nov. 22, 2016. I will always remember where I was when I heard the news … just 10 days before the effective date, Judge Amos Mazzant III of the U.S. District Court for the Eastern District of Texas granted a preliminary injunction that blocked the Dec. 1 implementation of the revised Fair Labor Standards Act overtime rule nationwide.

For the second time in a month, and with mixed emotions, my wife heard me say, “I was wrong.” (Take a look at my Nov. 2, 2016 Daily Record article, “New York State Labor Department Gets In Rule-Making Act,” for an explanation of the first “I was wrong.”) On the one hand, excited for what she believes was an opportunity for personal growth – she feels it’s somehow cathartic to admit such things. On the other hand, incredulous that, with no definite end in sight, she will continue to endure conversations on what has become her least favorite topic. For my part, I find solace in the fact that that not a single employment attorney, compliance expert, or HR professional I’ve spoken to saw it coming.

What happened

In September two lawsuits were filed in the U.S. District Court for the Eastern District of Texas. The first complaint was filed by 21 states, and the second by more than 50 business groups, including the U.S. Chamber of Commerce, the National Federation of Independent Business, National Automobile Dealers Association, the National Association of Manufacturers, and the National Retail Federation. Both were seeking a preliminary injunction against the updated FLSA overtime rule — essentially blocking the new rule. Judge Mazzant consolidated the separate lawsuits into one case and held a hearing on Nov. 16, 2016.

With only a few days remaining before the Dec. 1 deadline, a preliminary injunction was granted that blocks the rule’s implementation. In his decision, Mazzant indicated the states were able to effectively show “irreparable harm” should the rule be allowed to go into effect, while the DOL was unable to show the same if the rule did not go into effect. Also, according to Mazzant, “A preliminary injunction preserves the status quo while the court determines the department’s authority to make the final rule as well as the final rule’s validity.”

The Department of Labor isn’t taking this lightly. On Thursday, Nov. 30 the DOL filed notice of its intention to appeal Mazzant’s ruling. While the documents filed don’t specifically state the basis for the appeal, the DOL has consistently argued that it was simply updating – not fundamentally changing – the existing FLSA overtime rules, which does not require congressional approval.

What’s next for employers

Employers should keep a few important points in mind. First, a preliminary injunction does not overturn or void the revised rule.  As stated above, a preliminary injunction keeps things as they are until the court has an opportunity to consider the merits of the case. However, it could be implemented at some time in the future.  With that said, the updated rule likely faces an uphill battle.

As one prong of a three-prong test for white-collar exemptions, the (minimum) salary level has historically been set low, to act as a floor to screen out employees who are obviously nonexempt. According to Mazzant, the DOL “has admitted that it cannot create an evaluation ‘based on salary alone.’” However, “this significant increase to the salary level creates essentially a de facto salary-only test,” he noted. “If Congress intended the salary requirement to supplant the duties test, then Congress — and not the department — should make that change.”

Secondly, although he has indicated that he does not fully support the updated FLSA overtime rule as written, President-elect Donald Trump has not provided any details on how he, or the leadership of the DOL under his administration, may address this regulatory issue.

Finally, regardless of the short-term effects of the court’s actions, employers in New York state will, from all indications, face increases in the minimum salary requirements for the executive and administrative exemptions on Dec. 31, 2016, as recently announced by the New York State DOL.

The following are a few questions and answers for employers to consider:

As an employer, was there anything I should have done by Dec. 1?

The short answer … No. The revised rule has been blocked, at least for now.

Does this ruling to block the revised rule from being implemented apply only to employers in the 21 states, or to all employers nationwide?

The ruling applies nationwide.  According to Mazzant, “A nationwide injunction protects both employees and employers from being subject to different [executive, administrative and professional] exemptions based on location.”

Does this decision permanently block the revised overtime rule from ever being implemented?

No. The judge’s ruling only grants a temporary injunction, or block. It is possible that this rule, or some revised version may be implemented in the future.

Based on the information provided about the revised overtime rule over the last several months, we’ve already reclassified several employees as nonexempt, and raised the salary of others. What should we do based on this ruling?

Most attorneys and compliance experts are recommending that employers consider leaving decisions in place if they have already made changes to employees’ classifications or provided salary increases to employees to maintain their exempt status. At this point it would be difficult to take those increases back.

Employers planning to reclassify specific employees to nonexempt based solely on the increased federal salary level, but have not do so yet, may consider postponing those changes for the time being. However, employers should still move forward with reclassifying those employees who will not meet the increased NYS salary level effective Dec. 31.

One thing is for sure, we have not heard the last of the revised overtime rule.

Frank A. Cania, M.S.Emp.L., SPHR, SHRM-SCP, is president of driven HR, a USA Payroll Company. Based in Pittsford, NY, driven HR provides human resource consulting services including HR audits, outsourced HR management, employee handbooks, and a variety of other services. Frank concentrates on  wage-and-hour, FMLA, ADA, Title VII and Form I-9 compliance, as well as workplace investigations. This article is brought to you by the Rochester affiliate of the National HR Association, a local professional HR organization focused on advancing the career development, planning, and leadership of HR professionals.