BREAKING NEWS: Federal Court Halts Implementation of DOL’s White Collar Exemption Regulations

This has been a season of both political and judicial surprises. Late yesterday, Judge Amos Mazzant, III of the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the U.S. Department of Labor's (“DOL”) implementation of the final Fair Labor Standards Act (“FLSA”) white collar exemption rules, which were scheduled to take effect December 1, 2016. We previously reported on the possibility of such a ruling here.

In State of Nevada v. U.S. Department of Labor, No. 4:16-cv-731, the plaintiffs, a group of 21 states joined by multiple trade associations and business groups including the U.S. Chamber of Commerce, argued that the DOL had exceeded its statutory authority under the FLSA when it announced that effective December 1, the minimum salary threshold necessary to qualify for one of the FLSA’s white collar exemptions (executive, administrative, and professional exemptions) would more than double to $913 per week and automatically reset every three years to account for wage inflation. In granting the plaintiffs' motion for preliminary injunction, Judge Mazzant ruled that it appeared likely the plaintiffs would prevail in showing that the DOL had exceeded its authority as to both the establishment of a new minimum salary threshold and the automatic three-year adjustment to that threshold.

The effect of the injunction is a somewhat indefinite postponement of the implementation of the DOL rule. Judges are instructed to grant preliminary injunctions only when the party requesting one is likely to succeed on the merits of their underlying claims in a lawsuit and there is a substantial risk of harm without such an injunction. After this preliminary injunction, the litigation will continue and, ultimately, the court must determine whether to enter a permanent injunction. This leaves the fate of the DOL regulation uncertain, but this preliminary injunction suggests the likelihood of a future permanent injunction.

Still, another consequence of the injunction is that the court is unlikely to reach a final, permanent decision until sometime after President-elect Trump takes office in January. This may leave the ultimate fate of the DOL rule in his hands, where it could be withdrawn, delayed, or modified through administrative action. Trump largely has been silent on the proposed rule, other than comments made mid-campaign suggesting he would prefer to delay the enforcement of the rule to allow small businesses time to adjust. The court’s injunction may give Trump the ability to do just that or make even more substantial changes.

The bottom line for employers is that as of Judge Mazzant’s injunction order yesterday, employers nationwide have no obligation to comply with the DOL rule until further notice.

While employers who delayed taking action on the rule pending the results of the injunction hearing will rejoice, those employers who already announced their compliance plans to affected employees may find themselves in a difficult position. Employers certainly have the legal right to reverse course and announce to employees that they will discontinue prior plans to comply with a regulation that has been preliminarily invalidated on a nationwide basis by a federal court. If employers take this approach, they should balance this strategy with their overall communications culture and the potential effect on workforce morale. It may be that the most prudent approach is to kick the can down the road and announce an indefinite delay in any previously announced changes pending a more formal and permanent ruling or guidance from the courts or the DOL. We certainly expect further developments on this subject soon, and Maynard Cooper will continue to monitor the situation closely.

In the meantime, if you have questions about your FLSA compliance strategy, please contact your Maynard Cooper employment attorney.