Dec 20, 2016

The Department of Labor’s (DOL) new overtime rule didn’t take effect on December 1 as many thought it would. Instead, it was temporarily blocked by a federal judge and subsequently appealed by the DOL.

With the rule’s fate uncertain, employers find themselves asking, “Now what?” While some implemented salary changes and reclassified employees in anticipation of a December 1 deadline, others planned for compliance but held off on implementing changes. Still others adopted a wait-and-see approach and put off preparing for the changes altogether.

Before charting a path forward, employers will want to reflect on the following circumstances.

The injunction — While the preliminary injunction does not mean the rule is overturned, things appear to be headed in that direction. Although it’s hard to imagine that the judge will reverse his position, his initial ruling was somewhat unexpected, given he was appointed by President Obama.

The appeal — On December 1, 2016, the government filed a notice of appeal to the U.S. Court of Appeals for the 5th Circuit from the preliminary injunction order and sought an expedited ruling the following day. The 5th Circuit agreed to expedite the hearing and set January 31, 2017 as the deadline for the filing of legal briefs. Oral arguments will be heard after.

The consequences — The adage, “No good deed goes unpunished,” definitely applies to employers who were proactive and initiated changes prior to December 1. This group faces a number of difficult decisions, based on the actions they have taken so far. Among the toughest decisions is the question of what to do about employees who received pay increases in anticipation of observing the new overtime rule. Employers who delayed action were able to stay the course without having to face the same decisions and immediate consequences.

The future — President-elect Trump’s administration and the new Congress may already be in place before the lower court issues a final ruling, and certainly before any appeals are decided. A new Secretary of Labor could suspend implementation of the new rule or issue another rule. Congress could strike it entirely or take measures to postpone it indefinitely. With the shifting political winds in Washington, the future of the Obama administration’s overtime rule appears to be in jeopardy.

Next steps

With the new rule on hold, organizations may want to follow suit and put any changes on hold. Doing so may be easier said than done. A number of organizations that implemented changes prior to December 1 are leaving things “as is” until the courts resolve the matter. This includes leaving in place pay increases that were given to employees to satisfy the proposed salary level test of $913 weekly ($47,476 annually).

Other organizations are exploring whether, and how, they might unwind reclassifications of employees from exempt to nonexempt without creating new risks. In these cases, there also seems to be a reluctance to reduce pay increases that were given in anticipation of the now-blocked rule.

During this waiting period, organizations will want to consider:

  • Reviewing their particular facts and circumstances with their legal counsel and consultants to decide the best course of action.
  • Reassessing relative risks and potential liabilities.
  • Continuing to observe all current FLSA rules while closely following further developments and assuming nothing.
  • Providing updates to senior management and employees as events transpire.

It is important to remain vigilant and not be caught off guard when this issue is finally resolved.