Judge Halts Start Date for FLSA Overtime Changes

The long-awaited and much-debated changes to the Fair Labor Standards Act (FLSA) that were set to be implemented on December 1, 2016 have now been delayed indefinitely. 

In a surprising move, the United States District Court in Texas issued a preliminary injunction blocking the changes from taking effect nationwide.   

The changes to the FLSA were the result of a March 23, 2014 memorandum from President Obama directing the Secretary of Labor to modernize and streamline existing overtime regulations to keep up with the modern economy.  The result was a “Notice of Proposed Rulemaking” to revise 29 C.F.R. Part 541 relating to overtime qualifications and exemptions.   The final version of the rule (“Final Rule”) was published on May 23, 2016 and targeted changes to the “salary level test,” nearly doubling the earnings required to be considered an exempt employee under FLSA.  As a result, approximately 4.2 million employees who earn less than $913 per week were no longer going to be classified as exempt and would be entitled to additional pay for overtime hours worked.

While the U.S. House of Representatives attempted to delay implementation of the changes for six months, President Obama had promised to veto the bill.  Accordingly, employers were preparing for the overwhelming impact associated with the implementation of the Final Rule.

However, in the interim, a lawsuit was filed by various states against the U.S. Department of Labor challenging the Final Rule.  In conjunction with the lawsuit, the states filed a Motion for Preliminary Injunction, arguing that the proposed changes to FLSA violated the U.S. Constitution because the Department of Labor did not have authority to make the changes.

In an Opinion and Order signed on November 22, 2016, the U.S. District Court for the Eastern District of Texas held that there was a likelihood that the states would be successful on the merits of their Complaint, that an injunction against implementation of the Final Rule prevented substantial harm to the states and outweighed any harm to the Department of Labor, and that the public interest necessitated an injunction.  The court further determined that a nationwide injunction was proper, as the Final Rule was applicable to all states regardless of whether they were a party to the original suit.

This injunction represents significant relief to employers who were facing substantial payroll increases and potential penalties for non-compliance.  Although the anticipated changes were initiated and prompted by the current Obama administration, as a practical matter, the incoming administration of President-elect Trump means that there is a strong possibility that employers may never see the changes outlined in the Final Rule.