Many employers have been wrestling with plans to comply with new U.S. Department of Labor (DOL) overtime rules since last May. That’s when the rules were finalized, with a December 1 compliance deadline. Those new rules included raising the minimum salary overtime exemption to $913 per week from $455. A little more than a week before the December deadline, a federal judge in Texas issued an injunction, at least temporarily blocking mandatory implementation of the changes.
In its decision, the court stated it believes the DOL exceeded its authority in promulgating the rule. The DOL’s initial response was to state that it “strongly disagrees” with the ruling, and is “currently considering all of our legal options.” A couple of short-term legal scenarios remain possible: The U.S. District Court for the Eastern District of Texas, which issued the ruling, could drop its temporary injunction. Alternatively, the ruling could be kicked up to the local U.S. Court of Appeals, which could overrule or uphold the injunction. But the chances of the appeals court rendering a decision quickly are slim.
Is this final?
The short answer is No. This is a “preliminary” injunction, which simply keeps the current overtime rule in place for now while they review the objections to the revision. In the longer term, the outlook could be an uphill climb.
Initial analysis of the district court’s decision by Judge Amos L. Mazzant suggests that holes could be poked into the logic that led to his conclusion. At issue is the fact that the National Labor Relations Act, which laid the groundwork for overtime pay, failed to address the need to periodically adjust the salary threshold. However, a provision for adjusting the threshold was incorporated into regulations way back in 1940.
Although judges typically do not grant an injunction unless they see the likelihood of success as well as the need for a revision.
In any case, a revised regulation will have a tough and possibly long road ahead.
Hang Tight
The benefits of a wait-and-see approach are that there’s no disruption to the status quo. However, that approach may also bring risks, including having to scramble to make adjustments if the regulations ultimately are upheld. Some employers may have been waiting for the December deadline to re-classify their employees from exempt to non-exempt and being prepared will save time down the road when we see how this ends up.
“Many employers have already made changes in order to meet the new salary threshold and will likely keep those changes in place”, said Rachel Comella, Senior HR Consultant with Certipay. Rolling back these adjustments would be difficult and could have drastically negative effects on morale.
Employers faced with this dilemma will need to weigh their appetite for regulatory risk, the level of financial pain that compliance with the overtime regulations would inflict, and the employee relations considerations.
Some employers have already made their implementation strategy clear to employees. For employers that have announced plans to reclassify some employees from exempt to nonexempt, options include:
Move forward with their conversion to hourly status to avoid possible future disruption if the regulations are upheld, or freeze the plan to switch them to hourly status and wait for the final ruling.
In either case, your employees can handle the truth. Be transparent as they are probably following the story on their own.
Considerations
If salaried employees had been promised raises to bring them up to the minimum salary threshold, dropping plans for those raises could create problems, such as damaged employee morale.
A compromise approach with respect to planned salary increases could be to phase in the increases instead of raising them immediately to the regulations’ threshold level.
If employees have already been moved to hourly wage status to comply with the regulations, before switching them back to salaried status, take a fresh look at the “job duties” test for exempt status. This test has always been in place and was not affected by the federal court’s temporary injunction. Businesses could find themselves in trouble regardless of the outcome of this legal battle if salaried employees have been misclassified for reasons other than failing to meet the minimum wage threshold.
How the issue will ultimately shake out is uncertain. But observers in Washington, D.C., point out that although many members of Congress opposed the regulations as written, they agreed in principle that some increase in the overtime salary threshold was in order. That is, they didn’t reject the DOL’s legal authority to adjust the threshold, as it has done multiple times since the early days of the underlying statute.
Whatever actions, or non-actions employers take with regard to the rule, it’s essential to communicate as clearly as possible with employees about the issue. One basic message that would be reasonable would be for employers to explain that they are waiting for more clarity on the legal front before making any big decisions and you will keep them up to date on any developments.
