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Federal Court Judge Issues Order Blocking New Overtime Rules

A Texas federal court judge has issued an emergency order that stops the Department of Labor’s new overtime rules from taking effect nationwide on December 1, 2016.

The new overtime rules were set to increase the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $913 per week ($47,476 annually).  The rule also established an automatic updating mechanism that adjusts the minimum salary level every three years, with the first automatic increase beginning on January 1, 2020.

In a challenge to that rule, a coalition of private businesses and state governments filed suit in federal court seeking an emergency order that the regulations exceeded the Department of Labor’s authority to implement them.  The court agreed, ruling that Congress did not intend the Department of Labor to define and delimit a minimum salary level for exempt employees.  The ruling temporarily stops the regulations from taking effect as planned on December 1, 2016, pending a full hearing on the merits.  Although the ruling was issued as a temporary order, the wording indicates it is unlikely the court will reverse itself later. The decision will almost certainly be appealed, and it may very well reach the Supreme Court.

Although the ruling only affects the newest increases to the minimum salary level, the court’s ruling is remarkable insofar as it challenges the Department of Labor’s ability to set any minimum salary level for exempt employees.  Instead, the court indicated the proper focus should be entirely on the exempt employee’s job duties, not salary.  This sets the stage for future argument that even the DOL’s minimum $455 per week salary test is impermissible.

At least for the time being, employers do not need to comply with the new salary levels set by the Department of Labor ($913/week or $47,476 annually).  Employers should continue to apply the previous standard set by the Department of Labor’s 2004 regulations ($455/week or $23,660 annually).  The decision puts employers who have already rolled out new compensation packages in a difficult position.  Although such employers may not for now be legally required to pay higher salaries to meet the new rules, employers should consider whether unwinding a salary increase would negatively impact employee morale.  Employers should also consider that a future court order could mean employers will need to act quickly to comply with the law.

Karr Tuttle Campbell’s employment attorneys are monitoring the situation closely and are available to discuss how this ruling may impact your business.

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