The Department of Labor’s new overtime rules for exempt employees will not go into effect on December 1 as planned, following a ruling Tuesday, November 22, by a federal judge in Texas.
The overtime pay mandate faces challenges from Congress and the incoming administration as well. Should these rules disappear, however, we may see others replace them in the not-too-distant future.
Uncertainty abounds on the future of overtime rules for exempt employees. For human resources professionals and company leaders wondering where things stand, here’s an overview of the situation.
Federal Court Suspends New Rules
Twenty-one states’ attorney generals’ offices and the U.S. Chamber of Commerce have sued to block the new Department of Labor (DOL) rule changes.
According to the Dallas Business Journal, the plaintiffs argued before U.S. District Judge Amos Mazzant in Sherman, Texas, on November 16 in favor of a preliminary injunction against the new overtime rules.
Mazzant ruled Tuesday in favor of the plaintiffs, delaying implementation of the new rules for six months.
In his ruling, Mazzant wrote that the DOL lacks “the authority to utilize a salary-level test or an automatic updating mechanism” to determine overtime eligibility.
The Fair Labor Standards Act (FLSA) exempts salaried employees from overtime when they are “employed in a bona fide executive, administrative or professional capacity.” In other words, the FLSA uses a set of criteria to determine overtime eligibility, not just salary level.
Historically, the salary level has been low enough so that it hasn’t applied to most salaried employees. However, the jump from $23,660 to $47,476 was evidently too much for Judge Mazzant, who said, “this significant increase to the salary level creates essentially a de factor salary-only test” (Society for Human Resource Management).
Appealing the Injunction
The DOL remains adamant regarding the legality of the new limits. The department has disputed Mazzant’s determination and hinted at an appeal.
“We strongly disagree with the decision by the court, which has the effect of delaying a fair day’s pay for a long day’s work for millions of hardworking Americans,” the department said in a statement. “The department’s overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule. We are currently considering all of our legal options.”
Additionally, the DOL is disputing the scope of the injunction, which, according to Mazzant, applies to all states and not just the 21 states involved in the case.
House Passes Bill to Delay Implementation
Meanwhile, the U.S. House of Representatives passed a bill that would also delay implementation of the new rules by six months.
The fate of this bill is currently uncertain. The outgoing administration said it would veto the bill. However, the House might be able to nullify the overtime rule changes without passing the new bill.
The Congressional Review Act (CRA) of 1996 gives Congress the power to void recently enacted regulations without executive branch approval and without the threat of Senate filibuster.
New Administration Vows Rollbacks
Historically, few regulations have changed via the CRA. The relatively short 60-day time period usually passes during a single administration (administrations don’t typically reverse their own regulations). The legislative and executive branches are also often split between the parties.
However, neither of these will be the case when the incoming administration takes over. According to reports, the 60-session-day window for the new overtime rules, released in mid-May, could stretch as far back as late April. The executive and legislative branches will be under single-party control.
If federal courts, the incoming administration or Congress prevents the new regulations from taking effect, we may still see new rules regarding overtime pay for exempt employees.
Still, because undoing the regulation could have required a months- or years-long rule-making process similar to the one that produced it, the new overtime limit appeared likely to survive in some form. Some business lobbyists had anticipated a legislative compromise that phased in the new limit over a longer period of time and eliminated an automatic increase in the limit every three years.
Between a Rock and Hard Place
With the future of the new overtime rules uncertain, companies find themselves between a rock and hard place. The current set of changes, while delayed, may still go into effect at some point down the road.
So what should you do?
Here are some answers for you. If you have any questions beyond these, please don’t hesitate to contact our HR team.
Check back with us for updates on this developing story.