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November 23, 2016 | Legal Advisory

On November 22, the United States District Court for the Eastern District of Texas issued a preliminary injunction that blocks the implementation of the United States Department of Labor’s Final Rule that redefined the wage test for overtime exemptions under the Fair Labor Standards Act. The Final Rule was to be effective on December 1, and would have required employers to pay overtime to all so-called “white collar” executive, administrative, and professional workers earning less than $913 per week ($47,476 annually).

Background

In May 2016, the United States Department of Labor issued a Final Rule that increased substantially the minimum amount employers are required to pay employees who otherwise qualify for exempt status as an executive, administrative or professional employee. The new Rule required employers to pay exempt workers at least $913 per week ($47,476 per year), a substantial increase from the current requirement of $455 per week ($23,600 per year). The Rule also provided for automatic increases of the salary level every three years, and increased the annual salary level for a special class of Highly Compensated Employees from $100,000 to $134,000.

The Nationwide Injunction

Shortly after the Final Rule was issued, 22 states and 55 business associations filed lawsuits against the Department of Labor and its Wage and Hour Division. The court consolidated the lawsuits brought by the states and business associations, and on November 22, Judge Amos L. Mazzant III, a federal judge in the United States District Court for the Eastern District of Texas, issued a preliminary injunction that prohibits the federal government from implementing and enforcing the new Rule. The court’s order applies nationwide. In issuing the injunction, the court concluded that the states’ and business associations’ challenge to the Final Rule has a substantial likelihood of success on the merits and the states and business associations would be irreparably harmed if the Rule was implemented.

What Is the Impact on Employers?

The nationwide injunction has created a great deal of uncertainty. The injunction is preliminary and not permanent at this point, and an appellate court might overturn the ruling. However, President-Elect Trump criticized the Rule during his campaign for President and expressed support for a carve-out for small business, and it is thus possible that the Trump administration would not pursue an appeal.

For now, employers may forgo implementing those changes that would have been required by the Rule on December 1. Employers who have already made changes to implement the new Rule, or who already have communicated upcoming changes to their employees, should consult labor and employment counsel and carefully consider the best approach to these issues.

This advisory was prepared by Liam O’Connell, chair of the Labor, Employment and Benefits practice group at Nutter McClennen & Fish LLP. For more information, please contact Liam or your Nutter attorney at 617.439.2000.

This advisory is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.