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On November 22, 2016, Judge Amos L. Mazzant, III, federal judge for the Eastern District of Texas, issued a preliminary injunction on a nationwide basis that prevented the Department of Labor’s (“DOL”) new overtime rule from taking effect on December 1, 2016. The overtime rule, which was slated to increase the salary level from $455 per week to $913 per week for all overtime exempt employees meeting the “white collar” exemptions (i.e., executive, administrative, and professional), had business owners and industry leaders in a state of uncertainty for months. Prior to the November ruling, proactive franchisee owners around the country were evaluating labor costs, communicating to managers that they would be switched from salary to hourly wages, and devising ways to track the time spent on email and phone correspondence after hours. With the temporary injunction now in place, business leaders may breathe a little easier, but may also be wondering what comes next.
The preliminary injunction essentially leaves the salary level rules as they were before the changes were proposed. This means that the salary level has not increased and employers do not have to raise salaries or convert their existing salary-exempt employees to non-exempt hourly staff. Although employers do not have to make any changes at this time, the injunction does not resolve the underlying lawsuits that were filed challenging the legality of the new overtime rule. On December 1st, the day the new rule was to go into effect, the Department of Justice (“DOJ”) on behalf of the DOL filed a notice to appeal the preliminary injunction to the U.S. Circuit Court of Appeals for the Fifth Circuit (the “Fifth Circuit”). The DOJ moved to expedite the appeal, which was approved by the Court. Given the transition to the new presidential administration, it seems unlikely that the Fifth Circuit will hear the appeal before the new administration takes office in January. Thus, significant legal rulings are still on the horizon.
Once the Fifth Circuit hears the appeal, it may agree with the DOL and overturn the injunction thereby allowing the new rule to become effective. Whether or not any such ruling will be applied retroactively back to the December 1st effective date remains to be seen, but it is a possibility employers should at least consider. Or, the Fifth Circuit may not be inclined to expand the scope of governmental reach and will issue a permanent injunction and deem the rule unlawful. If this occurs, the DOL will likely go back to the drawing board and alter the rule to include a salary level which will better complement the existing law and appease both employers and employees.
Franchisees should continue to remain proactive and informed about the injunction and the appeals process. It is unclear how the new presidential administration, and incoming Secretary of Labor, will address this matter; however, it is likely that the salary level will be increased to some extent in the near future. Owners should therefore continue to look at their existing management staff and ensure that managers are meeting the requirements of the law in order to remain classified as exempt (e.g., satisfying the applicable job duties test). Additionally, employers who have already converted their salaried employees to hourly, or were planning on doing so, should continue to track their employee’s hours and reinforce the habit of clocking in and out for all work-related functions, in the hopefully highly unlikely event back overtime needs to be paid.