Overtime Rule Overruled
A Texas judge's injunction effectively shuts down implementation and enforcement of President Obama's overtime rule until the government can win a countervailing order from an appeals court, which experts say is increasingly unlikely given the current political climate.
By Tom Starner
Employers can relax. The upcoming Dec. 1 overtime-rule deadline is moot.
The Department of Labor's controversial overtime rule had already been on President-elect Donald Trump and the Republican-tilted Congress's chopping block. But with the ruling by Judge Amos Mazzant, an Obama appointee to the Eastern District of Texas in Sherman, Texas, a temporary injunction is a clear signal that it's more than likely the judge eventually will come down on the side with 21 state attorneys general and a business group coalition, which in two separate lawsuits looked to block the rule.
"The state plaintiffs have shown a likelihood of success on the merits because the Final Rule exceeds the Department's authority," Mazzant wrote, with the rule's effective date looming (and employers having spent untold sums in preparation for the rule's implementation deadline).
Released in May, the new overtime rule boosted the salary threshold under which most workers receive overtime pay (for more than 40 hours in a week) from $23,660 to $47,476. The rule also adjusted the salary threshold for inflation incrementally in future years.
Mazzant wrote in his opinion that, in issuing the rule, the DOL "exceeds its delegated authority and ignores Congress's intent by raising the minimum salary threshold such that it supplants the duties test." With the DOL's duties test, an employee is exempt from overtime if they earn wages in excess of the salary threshold and has duties that are "administrative, executive or professional."
Mazzant said that "if Congress intended the salary requirement to supplant the duties test, then Congress and not the Department should make that change."
"The Department of Labor is enjoined from 'implementing and enforcing' the new rule," says New York-based Allan Bloom, co-head of the Wage and Hour Practice Group at Proskauer. "The judge noted that nothing in the FLSA indicates that Congress intended the U.S. Department of Labor to define the exemptions with respect to a minimum salary level -- only with respect to duties -- and that, consequently, the new rule is 'unlawful.' "
Mazzant's injunction effectively shuts down implementation and enforcement until the government can win a countervailing order from an appeals court (unlikely because Texas lies within in the conservative Fifth Circuit Court of Appeals).
"This is an extraordinary development and a major blow to the Obama administration's economic agenda," says Jesse Panuccio, a partner at Foley & Lardner in Miami. "As a practical matter, the nationwide injunction means that millions of American businesses can breathe a sigh of relief, as they will not have to make significant and costly adjustments to their payroll procedures."
In Panuccio's view, the injunction also means the economy may avoid the significant job loss that could be expected from implementation of this rule. And, he adds, assuming an appellate court does not take a contrary action beforehand, the ruling provides the incoming Trump administration and the incoming Congress time to consider repealing the rule before it goes into effect.
"From a legal perspective, the court's conclusion that the salary-basis test adopted by the Labor Department is not faithful to the Fair Labor Standards Act is a major development in labor law, and is another in a line of court rulings finding that the Obama administration has overstepped its authority," he says.
Opposing sides on the issue naturally checked in with statements on Mazzant's decision.
"The Labor Department's overtime changes are a reckless and aggressive overreach of executive power, and retailers are pleased with the judge's decision," NRF Senior Vice President for Government Relations David French said in a statement. "The rules are just plain bad public policy, and we are pleased that the judge is allowing time for the case to go forward before they can go into effect. We hope the judge ultimately finds in our favor, and in the meantime this timeout gives Congress a chance to take another look at the impact of these rules."
Randy Johnson, the U.S. Chamber of Commerce senior vice president of labor, immigration and employee benefits, said in a statement that his group is "very pleased that the court agreed with our arguments that the Obama administration's new overtime rule was unlawful and stopped the rule from taking effect on December 1."
Johnson said that if the overtime rule had taken effect, it would have resulted in significant new costs more than $1 billion according to the Congressional Budget Office and it would have caused many disruptions in how work gets done.
"Furthermore, the rule would have reduced workplace flexibility, remote electronic access to work, and opportunities for career advancement," he said. "This is a great result."
On the other side, Ross Eisenbrey, vice president at the Economic Policy Institute, which helped the Labor Department create the regulation, called the court's decision "an extreme and unsupportable decision and is a clear overreach by the Court." In a statement, Eisenbrey added that for 78 years, the Department of Labor has used salary as well as duties to determine overtime eligibility, and Congress has amended the FLSA many times and has never objected to the salary test.
"The law is clear on this," he said. "The District Court's ruling is wrong. It is also a disappointment to millions of workers who are forced to work long hours with no extra compensation, and is a blow to those Americans who care deeply about raising wages and lessening inequality."
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