Federal Judge Issues Preliminary Injunction Blocking New Minimum Salary Thresholds for FLSA Overtime Exemptions

I recently wrote here that the election of Donald Trump would not affect the implementation on December 1 of new DOL regulations that doubled the minimum salary threshold for employees to be exempt from the FLSA. However, I also noted that a court could still block the regulations from taking effect. On November 22, United States District Judge Amos L. Mazzant in the Eastern District of Texas issued a nationwide preliminary injunction doing just that. As a result, employers need not comply with the DOL’s new regulations before December 1, 2016.

New Minimum Salary Threshold for Exemption

In response to a “Presidential Memorandum” from President Obama, the DOL published for comment on July 6, 2015 a proposed rule to update the FLSA’s “white collar” exemptions. The rule did not change the basic “duties test” for the exemptions, but it did more than double the “salary level test” to qualify for those exemptions. After the required comment period, the DOL issued a final rule on May 18, 2016 (“Final Rule”). It raised the minimum “salary level” for “white collar” exemptions from $23,660 annually ($455 per week) to $47,476 annually ($913 per week); raised the minimum salary for the “highly compensated employee” exemption from $100,000 to $134,004; and included an automatic increase to these thresholds every three years.

The DOL projected these changes would impact 4.2 million workers who would receive either a higher salary to remain exempt or be reclassified as nonexempt and receive overtime protections. The DOL’s “economic impact study” estimated the Final Rule would cost employers directly an average of $295 million per year to comply with the changes, and would result in an average annual increase in pay to employees of $1.2 billion, for a total projected increase in payroll costs for employers of $1.5 billion per year.

To avoid these costs, Congress needed to pass legislation effectively overruling the regulations or the DOL needed to revise its own regulations through another lengthy administrative process.  Both options appeared unlikely before December 1. Even the recent election of Donald Trump did not appear to provide any additional opportunities for reprieve before December 1.

Temporary Reprieve

However, multiple business groups and 21 states filed lawsuits in September seeking to block the DOL’s Final Rule in the courts. The lawsuits were consolidated into a federal district court in Sherman, Texas.  The states, led by Nevada, filed an emergency motion for a preliminary injunction to block the implementation of the Final Rule pending final resolution of the lawsuit. After a hearing on November 16, Judge Mazzant issued a nationwide preliminary injunction on November 22 barring the Final Rule from taking effect on December 1, 2016.

In granting the preliminary injunction, Judge Mazzant first found it likely the states would be successful at trial in proving the Final Rule was unlawful. He concluded from the plain text of the FLSA that Congress originally intended the “white collar” exemptions to be based only on job duties, not job salaries.  Since he found the Final Rule effectively supplanted the “duties test” with a “salary level test” for millions of workers, he concluded the Final Rule was unlawful.  The judge also found the Final Rule would cause irreparable harm by imposing significant costs to comply. Finally, he found the DOL failed to articulate any harm that would be suffered if an injunction temporarily delayed the Final Rule.

Since the preliminary injunction is subject to a trial on the merits, the judge could still later rule for the DOL, although this seems unlikely given his current ruling. In the meantime, Congress will have time to pass legislation to overrule the DOL’s Final Rule, and Trump may even have time to appoint new DOL leadership to abandon or change the Final Rule. More immediately, the DOL could appeal the preliminary injunction to the Fifth Circuit Court of Appeals in New Orleans and even to the United States Supreme Court.  At this time, the DOL is still considering its options.

Conclusion

Because of the federal court’s preliminary injunction, employers do not need to comply with the DOL’s Final Rule raising the minimum “salary level test” on December 1, 2016. However, since the injunction is only temporary, employers should continue to monitor the situation closely. Whatever happens, companies should expect the DOL to continue to enforce the existing “duties tests” strictly and lawyers to continue to file collective actions claiming exempt employees are really nonexempt.  To avoid damages, penalties and defense costs in the future, companies should review the applicable duties tests and reevaluate whether employees are properly classified as exempt or nonexempt under the FLSA.

Douglas Bracken is Board Certified in Labor & Employment Law by the Texas Board of Legal Specialization. He is a partner at Scheef & Stone, a full-service commercial law firm in Texas that represents businesses of all sizes throughout the United States and, through its Mackrell International network, around the world. Learn more about Doug here