A judge’s Nov. 22 ruling on much-anticipated federal overtime rule changes has forced some difficult decisions for employers, many of whom had already announced or even implemented salary changes based on the upcoming changes.
And it’s not clear what’s going to happen next. The final outcome of the pending lawsuit and exempt salaries in the U.S. could depend on a number of factors, including the court’s final ruling in the pending lawsuit, a potential DOL appeal, and the stance that President-elect Donald Trump’s administration will take on wage and hour issues.
A number of states sued to try to stop the new exempt salaries from going into effect on Dec. 1. The United States District Court for the Eastern District of Texas on Nov. 22 granted a preliminary injunction stopping the U.S. Department of Labor from implementing the new overtime regulations set to begin Dec. 1.
The existing salary threshold of $23,660 for most exempt employees would have been raised to $47,476 if the new rule had taken effect. Employers had the option of raising salaries to meet the new exempt threshold or reclassifying exempt employees to nonexempt and paying overtime.
What does the court ruling mean?
The court has issued a nationwide preliminary injunction which is intended simply to preserve the status quo until the court can resolve the issues raised in the lawsuit. The court concluded that it would do more harm to let the new regulation go into effect while the lawsuit is being resolved than it would to just put the lawsuit on hold for now until the court sorts through all the issues. Although it is not always true, sometimes the issuance of a preliminary injunction like this one can mean the court sees legal problems in the regulations. However, it is important to remember that the merits of the lawsuit and whether or not the new regulation will stand will not be resolved until later.
What should employers do if they have already made changes?
Employers in Idaho are under no legal obligation to unwind changes they have already implemented. However, if an employer is in a position to reverse changes that had been scheduled to take effect Dec. 1, it can legally do so. Any actions should be communicated to employees. For example, companies were able to send a statement that due to the recent court order, changes will not take effect as scheduled and the company will re-evaluate the changes as further legal developments occur. Note that employers cannot recoup wages already paid at higher rates.
Employers who have already implemented the changes have additional considerations. These employers must weigh the pros and cons of unwinding changes, looking at impacts to employee morale, profit margins, maintaining a competitive edge, as well as budgetary issues, costs, and benefits associated with reversing any changes.
What should employers do if they have not yet implemented changes?
If an Idaho employer has not made any changes and was preparing to do so only to comply with the new regulations, it may consider holding off for the time being. Again, these employers should still communicate with employees. For example, an employer might tell its employees that it believes the employees were properly classified as exempt and due to the recent court order, no changes will occur at this time.
Some employers may still choose to implement scheduled changes, especially if the company is taking the opportunity to address misclassification issues, is moving up a merit increase, or simply wishes to avoid uncertainty with its employees and not rock the boat with already communicated changes.
The injunction isn’t final, and it isn’t clear when the district court will make a final determination or what will happen if the DOL appeals the ruling. Many expect the appeals court will reverse the injunction. In addition, the current leadership of the DOL has indicated it will continue to fight the lawsuit. However, the DOL’s overtime rule was not popular with many Republicans in Congress and there is some indication that the new Congress may attempt to revoke or amend the new regulations.
It is also possible that when President-elect Trump takes office in January 2017, he will instruct his newly appointed team at the DOL to stop fighting the lawsuit, which could leave the new regulations effectively enjoined on a permanent basis. We are in a holding pattern and simply have to wait and see (1) what the court rules on the ultimate question of the case and (2) how the Trump administration plays into this issue.
If Trump’s appointed DOL secretary (1) receives a directive to not fight the lawsuit, and (2) the court ultimately rules in favor of the 21 states, on any of the issues, then the current status of the FLSA (including its salary thresholds) remains as it is.
Maria O. Hart is as associate attorney at Parsons Behle & Latimer in Boise and is a member of the firm’s Employment and Commercial Litigation practice groups. She can be reached at firstname.lastname@example.org or (208) 562-4900.