Hearing Pending after Judge Blocks New Overtime Rules

January 20, 2017       Mark Hrywna      

A federal judge in Texas granted a preliminary injunction blocking implementation of the U.S. Department of Labor’s new overtime rules affecting exempt and non-exempt employees just a week before they were set to go into effect on Dec. 1.

Released by the U.S. Department of Labor this past May, the rules were set to double the salary threshold for workers receiving overtime pay from $23,660 to $47,476 and establish a mechanism to update salary levels every few years. An estimated 4.2 million workers were expected to be impacted by the rule change, though the number of nonprofit employees affected was never tabulated. The sector accounted for 11.4 million jobs in 2012, according to the National Bureau of Labor Statistics, a little more than 10 percent of the entire U.S. workforce.

A coalition of business groups, including the U.S. Chamber of Commerce, and 21 states battled against the rules in the United States District Court – Eastern District of Texas in Sherman, Texas. At the heart of Judge Amos Mazzant’s decision to grant an injunction was the finding that the Department of Labor (DOL) is not empowered to apply new salary levels.

“Congress gave the Department the authority to define what type of duties qualify — it did not give the Department the authority to supplant the duties test and establish a salary test that causes bonafide EAP’s [sic] to suddenly lose their exemption ‘irrespective of their job duties and responsibilities,’” the decision reads. “EAP’s” [sic] refers to those employed in an executive, administrative or professional capacity.

Sought for comment, a DOL spokesperson provided the following statement: “We strongly disagree with the decision by the court, which has the effect of delaying a fair day’s pay for a long day’s work for millions of hardworking Americans,” the statement reads. “The department’s overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule. We are currently considering all of our legal options.”

Several federal officials and offices, including Labor Secretary Thomas Perez, filed a notice of appeal to the United States Fifth Circuit Court of Appeals on Dec. 1. A Department of Justice spokesperson confirmed that the appeal will be going to the Fifth Circuit, but declined further comment on the pending litigation as a briefing schedule for the New Orleans-based court had not been set when this issue went to press.

The appealing parties, including Perez, followed their notice of appeal on Dec. 2 with a motion for expedited briefing and oral argument. The schedule, if honored by the court, would set the following schedule:

• Appellants’ opening brief and record excerpts, Dec. 16;

• Amicus brief in support of appellants, Dec. 23;

• Appellees’ brief and record excerpts, Jan. 17;

• Amicus brief in support of appellees, Jan. 24; and,

• Appellants’ reply brief, Feb. 7.

A precise schedule was not available at press time.

Randy Johnson, the U.S. Chamber of Commerce’s senior vice president of labor, immigration, and employee benefits, said shortly after the injunction that the chamber is very pleased with the decision. “If the overtime rule had taken effect, it would have resulted in significant new costs — more than $1 billion according to the Congressional Budget Office — and it would have caused many disruptions in how work gets done,” Johnson said in a statement. “Furthermore, the rule would have reduced workplace flexibility, remote electronic access to work, and opportunities for career advancement. This is a great result.”

The American Society for Association Executives (ASAE) also was involved in the court action. Via a statement, the organization reiterated that it isn’t against an increase to the salary threshold, but found that doubling the bar and instituting a one-size-fits-all rule was not workable for many employers. ASAE coordinated 1,700 emails that were sent from its members to Congress in a grassroots opposition to the rule. The association will continue to monitor the situation during the injunction period.

The National Association for the Self Employed (NASE) has also voiced support for the injunction. “The bottom line is that this rule is just burdensome and complicated for America’s small business community,” Katie Vlietstra, vice president of government relations and public affairs, said via a statement. “The basic fact is that if the DOL would have evaluated the impact on small businesses and the overall economy, they would have found that it would have impacted them both negatively. From costs to labor management, this rule is bad news for small businesses.”

Nonprofits across the country have scrambled in recent months in an effort to make the rule change feasible, at least in the short term, both operationally and financially. Organizations and state associations have told The NonProfit Times that adjusting employee salaries to avoid overtime compensation, shifting job duties, rescheduling the workweek, relying on more part-time workers, increasing efforts to track employees’ hours and diverting money from previously planned initiatives have all been considered to make the regulations work.

Organizations have been hesitant but willing to also look into reducing employee benefits. A reduction in programming has been a non-starter for many nonprofits.

Mazzant’s decision places those new policies and expectations in purgatory, according to David L. Thompson, vice president of public policy at the National Council of Nonprofits. “I expect that shock is shared by employers and employees alike,” he said. “I don’t know anybody that expected for this to happen.”

Thompson said that just because an injunction has been granted does not mean that the new rules are not still a possibility, though he noted that appeals would go through the conservative-leaning Fifth Circuit and the shorthanded Supreme Court of the United States. If the injunction is still in effect come Jan. 20, the rules could be dead, according to Thompson, though there will still be a filibuster in the Republican-controlled Congress.

If the rule does go into effect before Jan. 20, “I’d say we have high drama,” Thompson said. “Not taking away rights once granted is a powerful [deterrent].”

A silver lining in this process, according to Thompson, is that the DOL has estimated 8 million workers were misclassified as exempt or non-exempt – meaning that the exercise has been a positive in terms of compliance with existing regulations. State associations have hosted more than 150 education sessions on the rules and, anecdotally, many nonprofit leaders have been finding out for the first time that the sector is not exempt.

Whether or not the new rules move forward, Thompson cautions organizations to continue to analyze rules, particularly the duties’ test, and make sure they are compliant for, among other reasons, the sake of workplace appeal. “We don’t want nonprofits to be the employers of last resort,” Thompson said.

Nancy Hammer, senior government affairs policy counsel for the Society for Human Resource Management (SHRM), does not foresee much movement on the regulations anytime soon. Hammer noted the strong words in Mazzant’s opinion — that the new rules would be a statutory violation — as reason for believing change is not likely to come prior to Jan. 20.

President-Elect Donald Trump could instruct his administration not to pursue the matter further once he takes office, Hammer said, or a more modest increase in the threshold, for which SHRM has advocated — could be pursued. In the meantime, employers across sectors would be wise to hold onto the analyses they’ve developed over the past few months for future use should the topic be revisited at some point.

“While we don’t know what the ultimate outcome will be, allowing employers a little more time to think through how to go about this will be helpful, especially for nonprofits,” Hammer said.

Some organizations, such as the YMCA are doing just that, taking a cautious approach moving forward. “Until the legal questions are resolved, we will continue to advise YMCAs to prepare for eventual implementation of the new overtime regulations,” said Kevin Washington, president and CEO in a statement shortly after the decision. “We will monitor the situation closely and act accordingly once there is a final ruling.”