Although new overtime regulations were set to kick in on December 1, a federal district court has moved to block the changes, at least temporarily. What does this mean for employers and what should they do now? Whether businesses should immediately drop plans to comply with the new rules, or move forward anyway, may not be a simple question for employers to answer.

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New Overtime
Rules Suspended
for Now

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Many employers have been wrestling with plans to comply with new U.S.
Department of Labor (DOL) overtime rules since last May. That's when the
rules were finalized, with a December 1 compliance deadline. Those new rules
included raising the minimum salary overtime exemption to $913 per week
from $455. A little more than a week before the deadline for the rules was to
take effect, a federal court has issued an injunction, at least temporarily
blocking implementation of the changes.
In its decision, the court stated it believes the DOL exceeded its authority in
promulgating the rule. In addition, the court said the DOL failed to follow
Congress's intent, which was to reexamine the duties test of the overtime
rules, and not to focus solely on the salary level, as the final rules do.

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The DOL's initial response was to state
that it "strongly disagrees" with the
ruling, and is "currently considering all
of our legal options." A couple of short-
term legal scenarios remain possible:
The U.S. District Court for the Eastern
District of Texas, which issued the ruling,
could drop its temporary injunction.
Alternatively, the ruling could be kicked
up to the local U.S. Court of Appeals,
which could overrule or uphold the
injunction. But the chances of the
appeals court rendering a decision on
the issue before December 1 are slim.

4. What Lies Ahead?
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In the longer term, the outlook is also unclear. It seems unlikely that the Labor
Department under the Trump Administration would fight the ruling, though
other parties might. Initial analysis of the district court's decision by Judge
Amos L. Mazzant suggests that holes could be poked into the logic that led to
his conclusion. At issue is the fact that the National Labor Relations Act, which
laid the groundwork for overtime pay, failed to address the need to
periodically adjust the salary threshold. However, a provision for adjusting the
threshold was incorporated into regulations way back in 1940.
Also, while Judge Mazzant took exception to the idea of periodic salary
threshold adjustments in the context of exempt status, he didn't declare that
it was invalid with regard to all DOL rules.
In any case, employers have several issues to deal with immediately. Those
issues vary according to what actions they've already taken. Employers that
were waiting until December 1 to roll out their plans are in a better position
simply to hold tight and act as if the regulations were never issued.

5. Disruption Issue
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The benefits of a wait-and-see approach are that there's no disruption to the
status quo and, in most cases, there will be no spike in payroll costs. However,
that approach may also bring risks, including having to scramble to make
adjustments if the regulations ultimately are upheld. That scrambling might
involve paying extra wages due to affected employees retroactive to
December 1.
Another hazard is that employees who have kept abreast of the issue
(independently of any statements made by their employers) who
were expecting raises or eligibility for overtime pay could be angered that this
benefit was snatched away from them.
Employers faced with this dilemma will need to weigh their appetite for
regulatory risk, the level of financial pain that compliance with the overtime
regulations would inflict, and the employee relations considerations.

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Some employers have already made their implementation strategy clear to
employees. For employers that have announced plans to reclassify some
employees from exempt to nonexempt, options include:
• Giving those employees the choice of whether to become hourly, or
remain in salaried status, while cautioning them that they might need to
be moved to hourly status in the future, depending on the outcome of the
legal battle,
• Move forward with their conversion to hourly status to avoid possible
future disruption if the regulations are upheld, or
• Drop the plan to switch them to hourly status.

7. Morale Considerations
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If salaried employees had been promised raises to bring them up to the
minimum salary threshold (in lieu of moving them to hourly status), dropping
plans for those raises could give rise to problems, such as damaged employee
morale. Legal issues could also arise, especially if the promised raises have
already been granted. For example, employers could run afoul of notice
requirements under state or local laws, and possibly violate common law
doctrines governing implied contracts.

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A compromise approach with respect to planned salary increases could be to
phase in the increases instead of raising them immediately to the regulations'
threshold level.
If employees have already been moved to hourly wage status to comply with
the regulations, before switching them back to salaried status, take a fresh
look at the "job duties" test for exempt status. This test has always been in
place and was not affected by the federal court's temporary injunction.
Businesses could find themselves in trouble regardless of the outcome of this
legal battle if salaried employees have been misclassified for reasons other
than failing to meet the minimum wage threshold.

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How the issue will ultimately shake out is uncertain, at best. But observers in
Washington, D.C., point out that although many members of Congress
opposed the regulations as written, they agreed in principle that some
increase in the overtime salary threshold was in order. That is, they didn't
reject the DOL's legal authority to adjust the threshold, as it has done multiple
times since the early days of the underlying statute.
Whatever actions, or non-actions employers take with regard to the rule, it's
essential to communicate as clearly as possible with employees about the
issue. One basic message that would be reasonable would be for employers to
explain that they are waiting for more clarity on the legal front before making
any big decisions.
Employment attorneys are monitoring the issue carefully, and are an essential
resource to take advantage of before taking any irreversible action.

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