With the recent OT Injunction issued, employers are asking "now what?"

Theresa Zechmanemployment management and labor relations specialist, Stevens and Lee, offers further insight on the nationwide injunction issued on November 22, 2016 putting overtime pay regulation on hold.

Since the OT injunction was issued on November 22, 2016, employers have asked what now? The most common question employment lawyers have received centers around what to do if employees’ schedules, salaries or exemption status have already been changed or modified in anticipation of the Final Rule going into effect.  

The decision to rescind changes to schedules, salaries or exemption status lies with the employer.  In anticipation of the Final Rule, some employers had already made arrangements such as changing employees’ status from exempt to hourly and/or maintaining the exemption but increasing the salary to be compliant with the proposed new salary level.  The employer needs to make the decision as to whether it wants to return these employees to either salaried exempt or whether they want to rescind the salary increase.  

The decision to rescind the recent changes truly rests with the employer and is in the employer’s sole discretion.  Of course there may be headaches either way.  For example, if an employee was advised they were receiving a salary increase, any attempt to rescind that salary increase will most likely be met with decreased employee morale which is obvious.  No one wants to be told they are getting a raise only to be told a week or two later, the employer is rescinding it.  Any attempt to rescind previously announced raises, while permissible, will likely result in overall poor employee morale.  

If the employer has changed the employee’s exemption status to non-exempt, hourly and changed schedules accordingly, it is permissible for the employer to rescind and revert back to the prior status quo.  Again, this decision lies solely with the employer.  Some employees will welcome the rescission as they wanted to maintain their exempt, salaried status while some employees may have been anticipating increased income due to the possibility of overtime work.  Either way the employer can be in a Catch-22 when it comes to pleasing employees.  However, it is the employer’s decision to make.  Of course, the decision to either maintain the exemption or hourly status must be uniform, i.e., the employer cannot maintain one employee as hourly and another employee in the same job classification as salary exempt.  It is for the employer to determine whether to rescind the changes and revert to the original designation and schedules.  Switching the employee back will not cause legal headaches for the employer since there is no change in the law.  Of course, switching back may cause administrative headaches for payroll personnel who may have already switched the employees and will now have to switch employees back.  However, no legal headaches or impediments are present that would hinder or prevent the employer from rescinding the changes.  

If an employer has not implemented the changes, there is no need to do so at this point and it is more practical to continue to maintain the status quo.  The Court made its opinion regarding the Final Rule clear that it was the Court’s belief that the DOL had no authority to issue the Final Rule.  It is unlikely that the Court will have a change of heart given the strength of the injunction opinion.  Accordingly, there is simply no uncertainty at this point regarding the future of the Final Rule, it is dead with extraordinarily limited chance of ever being resuscitated.   

If employees ask about the injunction or whether any changes will be made, if none have been made thus far, it is reasonable at this point to maintain that until the Court rules otherwise, the Final Rule will not be implemented.  

Of course, the benefits of proceeding as though the final rule has gone into effect depend upon your audience.  Employees who received a salary increase see the benefit and rescinding the salary increase is a definite con to that specific employee even though it may be a financial benefit for the employer to rescind the increase.  The employer needs to determine its priority, whether it is maintaining employee morale or labor costs.  Most employers who have advised employees of the salary increase in anticipation of the Final Rule have made the decision to move forward with the salary increase.  However, employers who anticipated changing the exemption status from exempt to hourly are generally moving back to exempt status.  Again, this decision to do so rests in the sole discretion of the employer and at this point the Final Rule should not be a consideration in the decision to make any changes or adjustments concerning an employee’s exemption status and/or salary level.


Texas judge blocks rule and enters a nationwide injunction

Theresa Zechman,  employment management and labor relations specialist, Stevens and Lee, offers this analysis of yesterday’s nationwide injunction putting overtime pay regulation on hold.

U.S. District Judge Amos Mazzant sided with 21 states by deciding to issue a preliminary injunction that blocks the DOL's overtime expansion regulation from taking effect on Dec. 1. The Court held that the States demonstrated a likelihood of success in their challenge of the rule as well as irreparable harm if it went into effect, while the DOL failed to show it would be harmed if the rule were delayed.

The Court found that Congress intended the EAP (executive, administrative, professional) exemption to apply to employees doing actual executive, administrative, and professional duties without regard to a minimum salary level. As a result, the plain meanings of the terms used in Section 213(a)(1), as well as Supreme Court precedent, affirms the Court's conclusion that Congress intended the EAP exemption to depend on an employee's duties rather than an employee's salary.

Directly in conflict with Congress's intent, the Final Rule states that "[w]hite collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities."  With the Final Rule, the Court found that the DOL exceeded its delegated authority and ignored Congress's intent by raising the minimum salary level such that it supplants the duties test.   As a result, the Court stated that the Final Rule was unlawful. The Court noted that the DOL's role is to carry out Congress's intent.  If Congress intended the salary requirement to supplant the duties test, then Congress, and not the DOL, should make that change.

Specifically, the Final Rule did not comport with Congress's intent. To be exempt from overtime, the regulations require an employee to (1) have EAP duties; (2) be paid on a salary basis; and (3) meet a minimum salary level. The Final Rule raises the salary level from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) The salary level was purposefully set low to "screen out the obviously nonexempt employees, making an analysis of duties in such cases unnecessary." The DOL admitted that it could not create an evaluation based on salary alone."  But this significant increase to the salary level creates essentially a de facto salary-only test. The Court noted that for instance, the DOL estimated 4.2 million workers were currently ineligible for overtime, and who will fall below the minimum salary level, and will automatically become eligible under the Final Rule without a change to their duties. Congress did not intend salary to categorically exclude an employee with EAP duties from the exemption.  Therefore, the Final Rule should not be accorded Chevron deference because it is contrary to the statutory text and Congress's intent.

The Court also found that the DOL lacked the authority to implement the automatic updating mechanism. Additionally, the Court held that the States demonstrated that they would suffer irreparable harm if the preliminary injunction was not granted and issued a nationwide injunction.

A hearing on the summary judgment motion is currently scheduled for Monday, November 28, 2016. 

IRS Extends Due Date for Furnishing Form 1095-B/C

As applicable large employers and employers with self-funded health plans are working on their Affordable Care Act compliance preparations, the IRS announced an extension of a key ACA deadline.

Notice 2016-70 extends the due date for furnishing Form 1095-B and Form 1095-C from January 31, 2017 to March 2, 2017.  The Notice also extends transition relief from penalties if an employer makes a “good faith effort” to comply with reporting requirements.

More information can be accessed here.


Judge Consolidates Challenges to Overtime Rule

A federal judge in Texas has agreed to consolidate two lawsuits aimed at stopping the overtime rule from taking effect on Dec.1.  The suits aim to bar the Department of Labor's (DOL's) rule that will more than double the salary threshold for overtime exemption under the Fair Labor Standards Act.  The states' lawsuit is led by Nevada and Texas with a similar lawsuit filed by 21 states.

Read here for more information.

GP-SFSP October 20, 2016 Breakfast Meeting

Diane Campanile from Lyons Human Capital Management will be presenting at this event, please see below for details and registration.


Date:  October 20, 2016
Time:  7:45 am - Breakfast, 8:15 am - 9:15 am Educational Program
Topic:  HR Issues and Fair Labor Standards Act
Speaker:  Diane Campanile, SHRM-SCP, Lyons Companies
Location:  Mid-Atlantic Business Center, 550 E. Swedesford Rd., Wayne PA

Register here:  "FLSA"  10/20/2016 at Financial Pro Advisors