New York Employment Law Blog

Monday, November 28, 2016

Federal Judge Blocks Overtime Rule

What is the status of the Labor Department's overtime rule?

In May, we reported on the sweeping changes to the so-called white collar exemptions to the overtime rule under the Fair Labor Standards Act (FLSA) for executive, professional, administrative and highly compensated employees. Now, a federal judge has blocked the Obama Administration's attempt to extend overtime pay to an estimated 4 million salaried workers.

The rule, part of a comprehensive effort by the White House to boost wages, was contested by 21 states and a consortium of business groups including the U.S. Chamber of Commerce. In Nevada v. U.S. Department of Labor ( U.S. District Court for the Eastern District of Texas, No. 16-cv-731 ) a district court judge agreed that the rule is unlawful and granted a nationwide injunction.

The Labor Department rule was slated to take effect on December 1, and would have doubled the maximum salary a worker can earn, from $23,360 to  $47, 476 ($913 per week), and still be eligible for overtime. The rule was intended to expand access to the middle class by boosting the wages of employees previously classified as exempt.

In particular, the rule would have impacted the retail and restaurant sectors as well as small businesses, universities, government agencies and non-profit organizations. Employers in these sectors may have been forced to reclassify employees, reassign job duties or restructured their compensation cycles had the rule taken effect.

The overarching issue is whether or not the Labor Department has the authority to determine which workers are eligible under the FLSA. In granting the injunction, the judge wrote that the rule "creates essentially a de facto salary-only test."  This is key because the duties test under the existing regime was left intact. Employers have relied on this test to classify executive, administrative or professional employees as exempt.

For its part, the Labor Department believes the new rule is legal and an appeal to the 5th Circuit Court of Appeals is likely, the same court that blocked President Obama's executive actions on immigration. The question remains as to whether the appeal will be granted or the degree to which the incoming Trump Administration will rollback many of the executive and agency actions taken over the last eight years.

At this juncture, employers have a temporary reprieve regarding the classification and compensation of white collar employees. This matter is fluid, however, and one that is being closely watched by the law offices of Yale Pollack.

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