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FLSA Overtime Rules Temporarily Blocked

FLSA Changes No Longer Effective December 1, 2016

On November 22 a federal judge issued a nationwide injunction blocking the U.S. Department of Labor (“DOL”) from implementing its new overtime rule scheduled to take effect December 1, 2016.  The court’s action stops the overtime rule changes from going into effect nationwide, while the court decides the case. The rule would have affected approximately 4 million executive, administrative and professional (“EAP”) employees, making them eligible for time-and-a-half pay for all hours worked in excess of 40 per week if their salary is below $913 per week ($47,476 per year).  The new threshold would have doubled the current threshold of $455 per week ($23,660 per year).

Challenge to FLSA Overtime Rules

Several business groups and twenty-one states filed lawsuits against the DOL in federal court (the United States District Court, Eastern District of Texas, Sherman Division) challenging the FLSA changes. On October 12, 2016, the twenty-one states asked the court for emergency preliminary injunctive relief and argued that the FLSA’s overtime changes violate the Constitution by regulating the states and coercing them to adopt wage policy choices that adversely affect the states’ priorities, budgets, and services. The court agreed with the states and granted an injunction delaying the overtime rule scheduled to go into effect on December 1. The delay is temporary while the case continues to be litigated and the court determines whether the DOL had the authority to make the FLSA changes and whether the FLSA changes are valid. The delay applies to employers nationwide. The new FLSA overtime changes will not take effect on December 1, 2016. The court’s preliminary injunction delays the effective date of the FLSA changes until the court makes a final decision.

What Should Employers Do Now?

Employers that have already made adjustments to comply with the new rule may find it difficult to reverse any changes. However, employers may decide to postpone any changes that have not yet been made. Many employers have spent months preparing for the FLSA changes, identifying workers affected by the final regulations, determining whether to increase their salaries to comply or reclassify them as nonexempt employees, and communicating those changes to their employees. Employers rapidly need to assess what actions to take.

For example, if an employer has already notified an employee of a salary increase effective December 1 or has already made the change, it may be too difficult to reverse that change or communicate that the change will not be made. Applicable state laws may require advance notice of any changes in pay and state laws may also govern the overtime exempt status of employees. Employers should consult their legal counsel to discuss options available before making and communicating decisions related to this latest development. While the rule is delayed, employers should continue to evaluate the FLSA status of their employees by reviewing job duties and descriptions and ensuring that they have employees classified properly. Whether the rule is upheld or not, all employers are subject to current FLSA requirements that dictate proper classification and payment methods.

The decision is a blow to the president’s overtime regulation, which was intended to boost workers’ paychecks in the face of stagnant wages.  Even if the Court ultimately restores the new overtime rule, it is likely to be revised by President-Elect Trump through additional rule making or legislation.

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