So the New DOL Rule was Blocked . . . What Next?

by Renee Mielnicki, Esquire

Hopefully, the shock of the Texas Court’s ruling on November 22nd that blocked the Department of Labor’s (DOL) new overtime rule from becoming effective December 1st has now worn off a bit. As a professional that regularly counsels employers on wage and hour law compliance, I have to say this. I have felt very sorry for employers in light of all that has transpired with the DOL’s overtime rule. We have spent months counseling and training employers on how to deal with the new overtime law before it was set to go into effect. Then, at the 11th hour, a Texas Judge swooped in and blocked the whole thing from happening. I realize it was a very pleasant surprise for employers, but at the same time, the resultant nagging question has become, “How do we deal with this now?” A lot of our clients already made changes or communicated changes were coming to employees before the law was blocked. There’s also a lot of uncertainty as to what to expect next since the Texas Court issued only a preliminary injunction (meaning nothing is final yet). Well hopefully today, I can answer some of those questions for many of you because I know these issues are perplexing and of foremost concern at the moment.

For any of you that have already made or communicated any changes in anticipation of the overtime rule becoming effective, here are a few suggestions.

1. If you already gave an employee a raise to the new threshold ($47,476 annually) to keep them exempt or reclassified them to non-exempt rather than providing a raise, you can reverse those decisions. But, keep a few things in mind. Taking away a raise can really affect employee morale, so weigh that carefully against the financial savings to the company. In addition, make sure you communicate in writing to your employee that you are taking away the raise, the reason for doing so and comply with any state law notice requirements. In addition, please know that you might not totally be off the hook anyway if you employ individuals in a state like California where state law says that white collar exempt employees have to be paid a certain minimum salary anyway to be exempt from overtime (in California, that amount is currently $41,600 annually and will increase January 1, 2017). Remember, the DOL’s rule is a federal one, and you must always comply with both state and federal law. If you want to undo a reclassification and reclassify an employee back to exempt, also communicate that change and the reason in writing. Lastly, keep in mind any unhappiness this reclassification may create if overtime was promised. However, if you reclassified anyone that was exempt and should have been non-exempt all along (meaning you had them improperly classified to begin with), don’t undo that action because you were probably violating overtime law to begin with.
2. If you didn’t implement any changes but communicated them to your employees, you can take the same steps I refer to in #1 taking into account the same considerations. In other words, you can tell the employees that the changes will not be happening.
3. If you made changes, you can keep them. Nothing says you have to undo what you just did. That decision is ultimately up to you.
4. A last point to consider. As I will explain below, there is a chance that the DOL’s overtime law may someday go into effect. If that ever happens, there is also a chance that the overtime law may be applied retroactively back to December 1st. Is that likely? I don’t know, but there’s a chance. If that happens, it could mean that any employee who did not meet the DOL’s new minimum salary test could be owed overtime retroactively back to December 1, 2016. Just something to consider.

So what might the final outcome of all of this be? Again, hard to say. In case you didn’t know the history of the DOL’s rule and the ultimate ironic outcome, let me tell you now. All of this started from an Executive Order from President Obama to the DOL to look into and update its overtime rule regarding exempt employees. As a result, the DOL promulgated the overtime rule we have all been stressing about for months. A bunch of parties then joined together in a federal Texas Court and filed an action to stop this rule from becoming effective (called an injunction action) asserting several legal challenges to the rule. The Texas Judge that blocked the rule was a democratic judge appointed by Obama. Interesting, and not an outcome that some might have predicted, but at least it gives hope that not all judges are politicians in robes, but rather able to make independent decisions outside of partisan lines.

In any event, here are some possibilities as far as the future of the DOL’s overtime rule:

1. The DOL can file an appeal. If they do, we will have to wait to see for some time what the higher courts will do with the case. Will they agree with the Texas Court? Will they agree with the DOL? Or, will they send it back down to the Texas Court for some reason? Hard to say.
2. The DOL might not appeal. In that case, it will be up to that Texas Judge to reverse his injunction (making the DOL rule become effective, which wouldn’t make much sense since he just blocked it) or he might issue a permanent injunction which will stop the rule from ever becoming effective.
3. The Lame Duck Congress tries to hurry up and pass a comprise bill and Obama would have to sign it. I have heard though that Congress issued a statement in support of the Court blocking the rule. Plus, there is not much time left for this to happen, so it looks like this outcome is not likely.
4. The new administration could pass a Congressional Review Act Resolution negating the need for any further action by the Courts. This is a law that allows Congress to review a regulation and declare it invalid. The President would then have to sign it. I can’t comment on whether this will happen or even if such will be necessary. That will depend on what happens in the Courts and the new administration’s reaction.
5. President Elect Trump could come into office and issue his own Executive Order if this hasn’t resolved before then. This type of action though also takes some time since revising the regulations again by law requires a review and comment period. In addition, Trump could direct the DOL to abandon any appeals in the Courts once he takes office. If a higher court hasn’t yet decided anything, the ultimate outcome will be up to the Texas Judge.

For now, here is my best advice. You first need to make a decision about how you will handle any changes that were made or communicated to your employees on the theory that the law was going to go into effect. Once you make that decision, continue to follow ECRM for updates on how all of this ultimately shakes out. If this rule ever does come into effect, we will be sure to let all of our faithful blog followers know ASAP and we will be here to help as usual on how to comply with the law.

If you have questions please email us at hrhelpline@eastcoastrm.com. We will be happy to help.

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