Employers Question How To Pay Overtime Now That New Overtime Rules Delayed

By Joshua Herman

email: joshua.herman@mhtlaw.com

For now, implementation of new federal overtime regulations has been delayed. A federal court halted the December 1, 2016, implementation of the Department of Labor’s (“DOL’s”) new regulations doubling the minimum annual salary from $23,660 ($455 weekly) to $47,476 ($913 weekly) in order for an executive, administrative or professional employee to be exempt from overtime requirements. Following the court’s ruling in State of Nevada v. U.S. Dep’t of Labor, No. 16-00731 (E.D. Tex. Nov. 22, 2016), employees exempt from overtime requirements will continue – for now – to be those receiving $23,660 annually ($455 weekly).

How this change impacts Illinois employers is less than clear.

The underlying opinion (available at http://src.bna.com/kgs) is the product of a coalition of states and businesses seeking to overturn the new rule. The coalition argued the DOL overstepped its authority because the Fair Labor Standards Act (“FLSA”) enacted by Congress provides that “any employee employed in a bona fide executive, administrative, or professional capacity… as such terms are defined and delimited from time to time by regulations of the Secretary” shall be exempt from minimum wage and overtime requirements. 29 U.S.C. § 213(a)(1). The FLSA overtime exemptions do not refer to any salary requirement.  In analyzing Congress’ actual language, the court found that Congress intended to exempt employees based on their executive, administrative, or professional (“EAP”) duties, not their salaries.

The court’s preliminary injunction states the new regulations are unlawful because the DOL “exceeds its delegated authority and ignores Congress’ intent by raising the minimum salary level such that it supplants the duties test.” The court explains that “[i]f Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change.”

Despite the fact that the DOL has stated it cannot evaluate overtime exemption based on salary alone, the court found that the new rules would essentially create a de facto salary-only test. The court further held that the new regulations would cause irreparable damage due to the significant expense of compliance if they were allowed to go into effect.

The court held that public interest is best-served by an injunction, stating that:

If the Department lacks the authority to promulgate the Final Rule, then the Final Rule will be rendered invalid and the public will not be harmed by its enforcement. However, if the Final Rule is valid, then an injunction will only delay the regulation’s implementation. Due to the approaching effective date of the Final Rule, the Court’s ability to render a meaningful decision on the merits is in jeopardy. A preliminary injunction preserves the status quo while the Court determines the Department’s authority to make the Final Rule as well as the Final Rule’s validity.

Consequently, the court imposed a nationwide injunction because the DOL’s regulations are applicable to all states, extending the scope of alleged irreparable injury nationwide.

The injunction prevents the DOL from implementing and enforcing the new overtime regulations; however, the impact of this ruling on Illinois employers is less than clear. The injunction is only temporary, pending further action by that court. The court can lift the injunction at any time, or if the court makes it permanent, the injunction can be reversed upon appeal. If lifted or reversed, courts dispute whether the regulations would retroactively apply to employers who delayed implementation.

Should I implement overtime changes now that new overtime rules have been delayed?

Employers have significantly invested in preparing for the new regulations, but they are now faced with the crucial question: “Should I delay implementing changes to comply with the new regulations to avoid significant and possibly unnecessary costs, or should I proceed?” If the regulations eventually become effective, employers who violate them may be fined up to twice the unpaid overtime, civil penalties, and be responsible for employees’ attorneys’ fees.

Employers should consider the risks of further action and proceed on a case by case basis, seeking legal advice where necessary.

Generally, employers who have prepared no-cost solutions (such as limiting employees to 40 hours a week, or converting a salaried employee to hourly compensation at a rate that will not incur additional costs after considering overtime), should implement those solutions. Costly changes (such as raising an employee’s salary to the new threshold) can be delayed while the temporary injunction is in effect; however, employers should immediately begin to track impacted employee hours. If the injunction is lifted, or applied retroactively, these records should allow employers to adequately compensate employees in compliance with the new laws while minimizing potential risks associated with their delay.

Employers that have already implemented costly changes should exercise extreme caution before reverting to earlier practices. Not only will such actions have practical effects on current employee morale, they may also be prohibited based on collective bargaining requirements or other property rights employees may have in their new salaries.

It is uncertain whether the current exempt salary threshold will remain, increase as a compromise, or be completely eradicated. Further, it is unclear whether the incoming Trump administration will continue to push for these regulations, which were created at the Obama administration’s request. Only time will tell. Wise employers will pay close attention to developments on this matter.

For more information or to receive fact-specific advice, contact Joshua Herman and our Labor and Employment team.

Posted in Joshua Herman, Labor and Employment, Local Government and Public Finance, Overtime, Schools and Education