Texas Judge Blocks Obama Overtime Rule
We have some good news (at least for now) for employers. A federal judge in Texas has issued a nationwide preliminary injunction against the Obama administration’s “final overtime rule” (the “Rule”). This is the Rule that raises the salary test for Administrative, Executive, and Professional employees to qualify for exemption from overtime pay under federal law to $913.00 per week or $47,476.00 per year. As we have explained previously, in order to satisfy the Rule, employers would have to either raise its exempt employees’ salaries or convert them to hourly, non-exempt employees. The preliminary injunction means that the Rule that was set to go into effect on December 1, 2016 is temporarily stopped. As such, for now, employers do not need to make any changes to their exempt employees’ salaries to comply with federal law.
The lawsuit against the Rule is still ongoing. The preliminary injunction means that the Judge found the plaintiffs, a group of states and businesses that sued to stop the Rule, are likely to succeed in their lawsuit. It is not a final judgment invalidating the Rule, and we will continue to monitor the case for further developments. The Rule could eventually go into effect later if the Judge decides that it is valid. Even if a final judgment is subsequently entered allowing the Rule to stand, the states and businesses who brought this lawsuit could then appeal.
It is important to note that under the California salary test, the minimum salary for employees to be considered exempt from overtime requirements will be $43,680.00 per year as of January 1, 2017 (currently that rate is $41,600.00). That regulation is unchanged: California employers still must pay their exempt employees at least that amount. Therefore, the California law means that the injunction against the Rule probably does not impact a large number of employees in the state of California. Outside of California, the Rule’s reach is more extensive.
It is also important to note that the incoming Presidential Administration could itself work to overturn the Rule using multiple mechanisms. We will continue to monitor those developments.
Given all of the unknowns, it is difficult to tell whether or not the Rule will ever come into effect, and if it does, whether or not it would apply retroactively. As of right now, there is a small risk that the Rule will eventually be upheld in the future, and the injunction reversed. This would potentially expose employers who relied on the injunction, and decided not to comply with the Rule, to potential overtime claims from its employees. Our office will, of course, keep you apprised of these developments.