Texas Judge Issues Nationwide Injunction Blocking Expansion of the FLSA

The Fair Labor Standards Act (FLSA) requires employees to be paid the federal minimum wage for all hours worked and overtime pay for all hours worked exceeding forty in a week. The FLSA also contains a number of exemptions to the overtime requirement. The most common exemption involves “any employee employed in a bona fide executive, administrative, or professional capacity.”[1]

Under the 2004 regulations to the FLSA (which are currently in effect), an employee must meet three criteria to qualify for this exemption. First, the employee must be paid on a salary basis (the “salary-basis test”). Second, the employee must be paid at least the minimum salary level established by the regulations (the “salary-level test”). Third, an employee must perform executive, administrative, or professional duties (the “duties test”).[2]

In 2014, President Obama directed the Secretary of Labor to update the overtime regulations to modernize and streamline the existing overtime regulations for executive, administrative, and professional employees because the 2004 regulations “have not kept up with our modern economy.”[3] As a result of this directive, The Department of Labor published the Final Rule on May 23, 2016. The Final Rule increases the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $921 per week ($47,892 annually).[4] The Final Rule was originally scheduled to go into effect on December 1, 2016.

However, prior to the implementation of the Final Rule, Nevada and twenty other states filed suit against the Department of Labor. The lawsuit contends the Obama Administration exceeded its statutory authority by raising the overtime salary limit in such a significant fashion. The Plano Chamber of Commerce and over fifty other business organizations also filed a lawsuit challenging the Final Rule.[5] The two cases were consolidated into State of Nevada, et al. v. United States Department of Labor, et al.[6] On October 12, 2016, Plaintiffs moved for an Emergency Preliminary Injunction.[7]

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted Plaintiffs’ Motion for Emergency Preliminary Injunction.[8] This injunction prevented the Final Rule from going into effect pending further order from the Court. This results in the 2004 regulations remaining as the effective standards governing the subject exemption.

What This Means for Employers?

For the time being, the implementation of the Final Rule is in stasis. To the extent that employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction allows employers to postpone these changes.

The situation is more complex for those employers who have already implemented changes in anticipation of the new rules or informed employees of anticipated changes. These employers should proceed with caution. Such employers are encouraged to seek legal guidance regarding whether any implemented salary increases can or should be reversed. In addition, if an employer plans to postpone these changes, legal guidance is encouraged regarding the best means to communicate to employees regarding the deferment of the previously announced changes. In addition to the legal considerations, employers must be mindful of potential morale issues that could accompany the postponement of previously announced changes.

Employers must also be aware the injunction may not be permanent. The Department of Labor has expressed its intention to appeal the injunction. If the injunction is appealed and the appeal is successful, the Final Rule will be implemented. However, in such an event, it is foreseeable that the Department of Labor would give employers a grace period to prepare for and implement the change. However, there is no guarantee as to how long any grace period would last.

Ultimately, employers must pay close attention to the status of the Final Rule to avoid potentially costly penalties for misclassification and unpaid overtime.

[1] 29 U.S.C. 213(a)(1).

[2] Klem v. County of Santa Clara, Calif. (9th Cir. 2000) 208 F3d 1085, 1090.

[3] Presidential Memorandum, Updating and Modernizing Overtime Regulations, 79 Fed. Reg. 18737 (Mar. 13, 2014).

[4] 81 FR 32391, 32391-32552

[5] Plano Chamber of Commerce et al. v. Perez et al. (E.D. Tex. Sept. 20, 2016) 4:16-CV-00732.

[6] State of Nevada, et at v. United States Department of Labor, et al (E.D. Tex. Nov. 22, 2016) 4:16-CV-00731

[7] Ibid. A preliminary injunction is a provisional remedy issued prior to the final disposition of litigation. Its function is to preserve the status quo and to prevent irreparable loss of rights prior to judgment. Sierra On-Line, Inc. v. Phoenix Software, Inc. (9th Cir. 1984) 739 F2d 1415, 1422.

[8] Ibid.