Many Companies Will Move Forward With New OT Regs Despite Injunction

Lawyers say the uncertainty of Appeals Court, reluctance to revoke promised raises will cause OT policies to take effect

• November 30, 2016 4:59 am


Large companies may move forward with new compensation policies aligned with the Obama administration's overtime rules, despite a federal court's injunction against those regulations, according to labor attorneys.

Texas federal judge Amos L. Mazzant, an Obama appointee, granted a preliminary injunction against Department of Labor regulations on Nov. 22 that would have raised the threshold at which companies must start paying overtime to white collar workers. The rules would have forced companies to pay overtime to anyone earning less than $913 a week—about $47,000 a year—more than double the existing threshold of $455 a week. Judge Mazzant said that regulators departed from the language of the Fair Labor Standards Act.

"Congress intended the EAP [executive, administrative, or professional] exemption to depend on an employee’s duties rather than an employee’s salary," Mazzant said in the ruling. "Nothing in the EAP exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level."

Despite the ruling several management-side labor attorneys expect many employers to move forward as if the rules were in effect. Many have already promised raises to employees who are being paid around the $913 mark, in order to ensure compliance when the rule was set to take effect on Dec. 1.

Gerald Hathaway, an attorney with Drinker, Biddle, & Reath LLP, said that companies, especially larger corporations, prefer having a clear threshold with which to weigh their workforce. The injunction would not cause employers to revoke promised raises and reorganization for their workforces, he predicted.

"Most large employers have teed up to put the policy into place. The consequence being that many large employers are going to stick with what they were going to implement anyway," Hathaway said. "Small companies can hit the brakes and do so with comfort."

The department is now weighing whether to challenge Mazzant's ruling before the Fifth Circuit Court of Appeals. Hathaway does not expect the injunction to survive such an appeal given the department's longstanding use of wage threshold's to enforce overtime protocols—which he said gives companies an incentive to move forward with compliance.

"It goes against 65 years of the way we have done things," he said. "The judge stood a 65-year practice of applying a salary test on its head. That's just screaming for an appellate injunction."

David Phippen, an attorney with Constangy, Brooks, Smith, & Prophete LLP, said that the timing of the injunction has created "planning difficulty" among employers. Several clients have told him they plan to go forward with the wage rates, while others are "proceeding cautiously." He said Mazzant's ruling represented a more honest interpretation of the law as it was written in 1938. The Labor Department did not begin using the salary test until 1940.

"For years everybody accepted the salary status piece of the exemption test and this judge had the courage and the lawyers who argued the case had the courage to argue that it's contradictory to add this new element when the statute only says ‘duties,'" Phippen told the Washington Free Beacon. "It's going to take some legal gymnastics to prove him wrong."

Alexander Passantino, former acting administrator of the Labor Department’s Wage and Hour Division and a partner at Seyfarth Shaw, said that employer actions are largely based on how much preparation the business took after the rules were announced.

"An employer might proceed with its plans for any number of reasons—uncertainty on what will ultimately happen, desire not to ‘take back' raises already announced (or even implemented), technical systems issues that limit their ability to unring the bell," he said in an email.

Passantino said that Mazzant's opinion does not expressly dismantle the salary test as a whole, but critiques the department for overstepping the purpose of establishing a wage threshold. Passantino said the $913 rate "was so large that it ceased to function in its traditional gatekeeper role."

"The judge did not intend to take down the salary test as a whole—it specifically states that it is not ruling on the salary test generally and that the establishment of the salary test did not in itself supplant the duties test and/or Congressional intent," Passantino said in an email. "Rather than screen out the clearly non-exempt employees, the new level unquestionably—and the Department knows this full well—includes under the level employees who clearly meet the duties test.  This stands the traditional function of the salary level on its head."

The overtime rules not only doubled the pay level, but also put into place a pay-scale escalator that would have automatically raised the threshold every three years. It was one of the Obama administration’s most wide-reaching regulations and was expected to affect 4 million workers.

More than 20 states and numerous businesses and trade groups filed suit to block the rules.

President Obama called for new overtime regulations in a 2014 executive order—the same year he appointed Mazzant to the Eastern District of Texas court. The department announced its final rules in May. The department must file an emergency appeal before Thursday when the rule was originally set to take effect.

Published under: Department of Labor