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UPDATE: Federal Judge Blocks New Overtime Law

November 29, 2016

Last week, a Texas federal judge halted the implementation of a federal overtime rule, which would have substantially increased the federal salary threshold for overtime pay exemptions. The Texas court granted a national injunction – which is a legal term basically meaning ‘maintaining the status quo’ –preventing the salary threshold increase for all U.S. employees, including California employees. The judge ruled that the current administration had exceeded its statutory authority by raising the overtime salary limit so significantly. The complete opinion and order can be found here: http://www.nytimes.com/interactive/2016/11/22/business/document-U-S-Judge-s-Ruling-in-the-Overtime-Case.html

Earlier this year, the U.S. Department of Labor issued its final rule and updated the Fair Labor Standards Act (FLSA) to require employers to pay employees at least $47,476 a year (originally $23,660) in order for employees to be exempt from overtime pay. The rule was set to go into place on December 1, 2016. With this date approaching, employers have had to decide whether to raise the salaries of employees to meet the exemption, reclassify employees as non-exempt workers and pay overtime, or limit the hours of non-exempt workers to avoid paying time-and-one-half for overtime. For a more thorough discussion of the FLSA final rule, please see our May 19, 2016 blog post.

While the injunction prevents the rule changes from becoming effective on December 1, 2016, the court will later determine whether or not the FLSA rule can be implemented at all. Moving forward, the final rule may face an uphill battle as the court found the 21 states challenging the final rule showed a “substantial likelihood of success on the merits.”

Although this is a victory for opponents of the rule, it raises difficult questions for employers who had planned to roll out changes in line with the final rule on December 1, 2016, or who had already done so. Employers that have already implemented changes in anticipation of the new rule taking effect need to consider the impact of reversing those actions from a human resources standpoint. For example, taking away promised salary increases will inevitably lead to dissatisfied employees. Employers need to weigh the costs of that unhappiness against the cost of the salary increases. Employers that have not implemented changes are better able to take a wait-and-see approach. The injunction could well be modified or even lifted. If that happens, there is no way to know how long employers will have to comply with any revised standards. In addition, employers still need to comply with California specific requirements for overtime exemptions.

If you have questions about whether your business is compliant with state and federal overtime requirements, or any other questions regarding your company’s labor standards, please contact us.

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This post is for informational purposes only, and merely recites the general rules of the road. Lots of legal rules have exceptions, however, and every case is unique.  Never rely solely on a blog post in evaluating your situation — always contact an attorney when your legal rights and obligations are on the line.

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