Judge’s Surprise Injunction Stalls New Overtime Rules for Employers

Many employers and franchise owners weren’t looking forward to December 1st when new labor laws were set to take place that would dramatically increase the amount of employees eligible for overtime payment. However, in a surprise ruling, Judge Mazzant of the United States District Court for the Eastern District of Texas granted an injunction to block their implementation. Employers and franchise owners are heaving a big sigh of relief, but it is not clear whether these new rules are permanently benched or how the incoming administration will address the situation.

A Brief Background on the Rule Change

The current administration was unable to convince Congress to increase the minimum wage and so sought to improve worker pay through a different channel. The Department of Labor issued regulations that would change the Fair Labor Standards Act and double the minimum salary threshold that would allow white collar workers to receive overtime pay after 40 hours of work per week. Previously, only workers earning $455 or less per week ($23,660 per year) were required to receive overtime pay (1.5x their hourly wage). The new rules would have required workers making $913 or less per week ($47,476 per year) to receive overtime pay.

Such a change would dramatically increase the amount of workers who qualified for overtime pay, introducing a significant financial burden onto small business owners, especially franchise owners. Several states, along with the U.S. Chamber of Commerce filed an emergency motion requesting a preliminary injunction on the regulations. Most thought this was a Hail Mary request.

The Injunction Issued – What Does This Mean?

On November 22, 2016, just over a week before the new regulations were set to take effect, Judge Mazzant issued the injunction, finding that the Department of Labor exceeded its authority by classifying workers as “non-exempt” based on salary considerations alone without taking into account the other aspects of the Fair Labor Standards Act’s three-pronged test that normally govern whether or not a worker should be categorized as non-exempt.

Due to the injunction, the new regulations will not take effect on December 1st; however, it is important for business owners to recognize that the injunction merely presses the pause button on the implementation of the regulations. It does not overturn or eliminate them. The injunction will hold while the court determines whether the new regulations are, in fact valid. To add to the confusion, the court will not rule before the new administration takes over. As of now, it is unclear what the new administration’s stance will be on this matter.

What This Means for You

The most important thing for you as a small business owner to know is that you do not have to implement the Department of Labor’s overtime regulations. However, this may cause confusion and frustration among your workers, especially if they were expecting to see a higher paycheck each month. You will need to determine how to proceed based on what is best for your business, your employee morale, and your bottom line and then clearly communicate your decision to your workers.

The AAFD and several of our chapters are engaged in discussions with the Department of Labor concerning overtime rules, classification of exempt employees, and the subject of franchisors being deemed joint employers of franchisee employees.