Federal Court Blocks Overtime Rule

In a stunning turn of events, a federal court has granted a preliminary injunction against the Department of Labor (DOL’s) new overtime rule.

The rule, which would have increased the minimum salary for overtime exemption from $23,660 to $47,476, were scheduled to take effect on December 1. The preliminary injunction will delay them until a 21 state lawsuit against the DOL comes to a resolution. 

The news shocked legal observers and especially employers, many of whom had already made salary adjustments to compensate for the expected changes. 

21 State Lawsuit, Surprise Result

In September, the US Chamber of Commerce, joined by a group of business associations and 21 state governments, filed suit against the DOL over the controversial changes. The lawsuit posed the most credible challenge to the new rule's enactment. 

In the suit, the Chamber and 21 states took aim at the agency’s decision to raise the threshold for overtime exemption and argued that it represented an unconstitutional breach of federal authority. In the lawsuit, Texas, Nevada, and a host of other state governments alleged that the president could use the rule to shape state budgets, as it forces them to increase internal employee wages—stripping resources from other initiatives that the president may be ideologically opposed to.

"Without a limiting principle (and DOL has recognized none) the Federal Executive could deliberately exhaust State budgets simply through the enforcement of the overtime rule...by forcing many State and local governments to shift resources from other important priorities to increased payroll for certain employees, [the DOL] will effectively impose the Federal Executive’s policy wishes on State and local governments. The Constitution is designed to prohibit the Federal Executive’s ability to dragoon and, ultimately, reduce the States to mere vassals of federal prerogative.” 

The plaintiffs urged Judge Amos Mazzant to either address the lawsuit quickly or postpone the rule’s December effective date until a decision could be reached. Legal experts did not expect Mazzant, an Obama appointee, to opine against the rule. 

What Comes Next for Employers

The DOL’s new overtime rule will not take effect on December 1. While employers who opposed the change might be eager to celebrate, they should be mindful that the injunction is only preliminary and does not represent a final ruling against the changes. In the court opinion, Mazzant states:

“Due to the approaching effective date of the Final Rule, the Court’s ability to render a meaningful decision on the merits is in jeopardy. A preliminary injunction preserves the status quo while the Court determines the Department’s authority to make the Final Rule as well as the Final Rule’s validity.”

Even if the delay is only temporary, an extension of the case beyond Inauguration Day could serve as a death sentence for the rule: though president elect Trump has not voiced a position on the changes, he is expected to usher in a much more conservative DOL. The Namely team will continue to monitor the rule's fate as matters develop.