“Not So Fast” – Federal Judge Grants Injunction Against Overtime Regulation

Rule Expanding Overtime Halted by Federal Judge

On Tuesday, November 22, a Federal District Court Judge in Texas granted a nationwide preliminary injunction against an Obama administration regulation, which sought to expand the eligibility of millions of workers for overtime pay.

The regulation was ruled by Judge Mazzat to have likely exceeded the authority of the Obama administration because it nearly doubled the overtime salary threshold. The regulation would raise the minimum annual salary amount from $23,660 to $47,476. It would automatically qualify workers for overtime pay, so long as their annual salary was below the new $47,476 threshold.

Twenty-one states and over fifty business organizations have backed the request for an injunction to delay the regulation’s effective date of December 1, 2016, until the judge could make a final ruling based on the merits.

Small business owners and business organizations applauded the decision, arguing that the regulation would substantially burden business owners with increased labor costs. The Labor Department and worker advocacy groups argue that by blocking the regulation, workers who already put in 40 hours a week will continue to work longer hours for unfair pay.

Many employers have been making plans for the effective date of the new regulations, which is now just eight days away. Employers may have already notified employees about their new pay arrangements. Should employers reverse those salary decisions and postpone their implementation? There are many unknowns at play, not the least of which is that the Trump administration will take over responsibility for this litigation in January 2017. Might a Trump administration concede this case, and let an injunction remain in place?  That is a possibility. Might the new administration have the Department of Labor issue new regulations extending the date for implementation of the new salary/overtime rules? That’s also possible. One other possibility is an appeal and a higher court vacating the injunction. In that case, could the December 1, 2016 effective date be made enforceable retroactively?

Each employer must make a business decision about what is appropriate for their workforce, and determine how much risk (given the uncertainty) they are willing to accept. One important point for employers – adjustments to compensation terms can be made prospectively, but it is dangerous for an employer to retroactively modify an employee’s compensation, particularly if the modification is to reduce pay. An employer and employee have a contractual relationship, with many applicable state and federal regulations. Employers should be cautious about any course of action that could be seen as a breach of the employment contract, or a violation of state or federal laws.

For more information, read this article from Bloomberg.

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