Department of Labor Refuses to Concede Overtime Battle

(December 2, 2016) We recently wrote about a Texas federal judge’s November 22, 2016 injunction preventing implementation of the Department of Labor’s new overtime rules that would have raised the minimum salary for overtime exempt employees from $23,660 annually to $47,476 annually. The ruling of the lower Court came just days before employers nationwide were required to follow the new overtime rules at the risk of being held liable for the payment of overtime to employees traditionally paid a salary but earning less than the new, much higher, floor. The ruling was based on the view of the Court that Congress did not specifically authorize a minimum salary rule as part of the test in determining who was eligible for overtime. At that time, we promised to keep you abreast of any new developments regarding that decision.

On December 1, 2016, the Department of Labor announced that it intends to appeal the November 22 ruling. The announcement of the appeal ends speculation that the Department of Labor would abandon pursuit of the new rules which have faced wide-spread opposition from business groups and at least 21 states that had joined in the litigation seeking to have the rules overturned before implementation.

The speculation regarding abandonment has been fueled by the belief that a Republican dominated Congress would use a “Resolution of Disapproval” under the Congressional Review Act to quash the rules even if upheld by the Court on appeal thus rendering further appeals a waste of time. Under the Congressional Review Act, the House and Senate may vote on a joint Resolution of Disapproval to stop, with the full force of law, a federal agency from implementing a rule. A Resolution of Disapproval needs only a simple majority to pass and cannot be filibustered or amended if acted upon within a 60-day window of congressional sessions after publication. The Resolution of Disapproval must also be signed by the President but Congress can overturn that veto with a two-thirds vote in both the Senate and the House. Since President Obama would be expected to veto any Resolution of Disapproval that would be passed before expiration of his presidency, and since there is an insufficient majority of opponents of the new rules to overcome any such veto, the Resolutions of Disapproval currently pending in Congress were not expected to block the rules.

However, the overtime regulations are also susceptible to being blocked as “Midnight Regulations” under the Act. This term applies to regulations published with less than 60 days of legislative sessions remaining in the pending session of Congress. So-called Midnight Regulations are subject to a reset provision whereby the regulation is considered to have been published on the 15^th day of the legislative session of the next sitting Congress, at which time the normal 60-day period to pass a Resolution of Disapproval starts again. Because Congress has not been in session for 60 days since publication and is not expected to meet the 60-day threshold by the end of this year, the reset button will be triggered and the new Congress will have the opportunity to act with President-Elect Donald Trump who has not signaled his intention yet on the overtime rules. Public opinion polls strongly favor implementation of the new salary floor so it is uncertain what impact that may have on the decision making process.

The fact that the Department of Labor is continuing to pursue the new regulations signals its strong desire for implementation of the rules despite the uncertainty of whether they will ultimately be blocked by Congress or the Courts. A press release from the Department issued in conjunction with its appeal notes that the Court order blocking the rules ignores the fact that the minimum salary level has been an integral part of the overtime rules since 1940 and has been increased seven times over the ensuing years. As stated in the press release: “The Department strongly disagrees with the decision by the court. The Department’s Overtime Final Rule is the result of a comprehensive, inclusive rule-making process, and we remain confident in the legality of all aspect of the rule.”

All of this leaves employers in limbo with respect to how to handle their salaried employees with some fearing that if the injunction is set aside by the Court or Congress does not intervene they will have retroactive liability to December 1^st when the new rules were to take effect. Based on precedent (namely, how the Department of Labor chose not to apply new rules applying minimum wage and overtime to home care workers last year) we do not believe that these new overtime regulations would be applied retroactively if upheld in this case. However, we cannot guarantee that the Department will follow its earlier actions, especially given the change from an Obama to a Trump administration.

Our best advice at this point is to maintain records of hours worked in the same fashion as before the new rules were announced. Whether you undo any changes you made in anticipation of the new rules taking effect and before their implementation was enjoined by the Court – for example changing employees back to salaried status if they had been changed to hourly in advance of the new rules or revoking raises to the new floor- is a far more difficult decision requiring the consideration of numerous factors including the morale of your work force and compliance with various state laws.

The Employment Law Group of Rhoades McKee will continue to closely monitor this overtime issue and stands ready to provide assistance to employers in determining how to best address the complications of the current limbo status of the new rules.