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Federal Court Postpones Effective Date of Overtime Rule

November 23, 2016

Updated, 12/12/16: On December 1, the Department of Justice, on behalf of the Department of Labor, filed a notice to appeal the preliminary injunction to the U.S. Circuit Court of Appeals for the Fifth Circuit. The Department has moved to expedite the appeal, citing that the final rule was "the result of a comprehensive, inclusive rulemaking process." 

A Texas federal judge issued a preliminary injunction postponing the December 1 effective date of the new overtime rule published earlier this year. The rule would have required overtime pay for most salaried employees making less than $47,476 per year. The injunction was in response to lawsuits against the U.S. Department of Labor (DOL) brought by a group of more than 50 business organizations and 21 state attorneys general.

Judge Amos Mazzant's opinion held that the states were likely to succeed on the merits of the case and ruled that "the Department exceed[ed] its delegated authority and ignore[d] Congress's intent" by requiring employers to pay overtime wages based on salary rather than an employee's duties.

The Labor Department can now appeal Judge Mazzant's opinion to the 5th U.S. Circuit Court of Appeals, a court that has blocked many of President Obama's executive actions. Even if the appeal is expedited, action prior to the December 1 effective date is unlikely and the appeal could be dropped by DOL after President-elect Donald Trump takes office in January.

Employers, including colleges and universities, have been taking steps toward compliance with the federal overtime rule. This week, NACUBO became aware of a variety of strategies being implemented or considered at colleges and universities:

  • Proceed with the new threshold. At some institutions, administrators have finalized decisions and already communicated changes to employees. These institutions are implementing the changes on or before December 1 and will move forward as if the injunction had not been issued.
  • Differential responses based on employee status. In this situation, some institutions that took steps to move employees from exempt to non-exempt status are continuing to execute that decision. However, these institutions are considering maintaining current salary levels for previously exempt employees who were scheduled for salary increases to meet the proposed new salary threshold.
  • No adjustments made. Some schools will not implement any changes until the final disposition of the regulations is clear.
  • Deliberations continue. At some colleges and universities, the institutional response is still being debated at the highest levels.

Even if the overtime rule survives the current legal challenges, it could still be overturned by Congress or withdrawn by the Trump administration.

One avenue that Congress could take to overturn the regulations comes via a little-known rule called the Congressional Review Act (CRA). The CRA enables fast-track action by Congress to overturn major regulations issued by federal agencies after May 30, 2016. According to DOL, the final overtime rule was issued and physically presented to members of Congress on May 23 this year, so it is unclear if CRA can be utilized to overturn the overtime rule as the May 30 cutoff date could be moved earlier or later depending on how long Congress remains in session this year.

Since the final rule was released, colleges and universities have taken the difficult steps to prepare for the December 1 overtime compliance deadline. While the court's ruling brings additional uncertainty to the future of these new requirements, it seems likely that institutions will stay the course with the changes they have made—in many cases months in advance of the December 1 deadline.

If the courts, Congress, or the next administration modifies or repeals these changes in the coming weeks, campus leaders may have an opportunity to review some of the more challenging aspects that accompanied compliance with the overtime rule and readdress certain approaches to overtime in ways that might be more practical administratively.

CUPA-HR has recommended guidance authored by Alex Passantino of Seyfarth Shaw LLP on how employers should proceed. The article, titled Texas Judge Preliminarily Enjoins New Overtime Exemption Rules Nationwide: What Steps Should Follow? offers additional information on the status of the rule and considerations for employers. Passantino also authored CUPA-HR's white papers on the overtime rule.

NACUBO will continue to keep its members apprised of developments that may impact the plans and strategies many have put into place after the rule was finalized.

Contact

Mary Bachinger
Director, Tax Policy
202.861.2581
E-mail

Liz Clark
Director, Federal Affairs
202.861.2553
E-mail