// November 23, 2016
A federal court judge in Texas overturned a new overtime rule set to go into effect Dec. 1. The rule, which was set by the Department of Labor, was declared illegal. U.S. District Judge Amos Mazzant in Sherman issued an injunction to block implementation nationwide. Mazzant is an Obama appointee.
According to the ruling, the Department of Labor cannot establish overtime rules based solely on payscales. That position was backed by 21 states, a coalition of business groups and the U.S. Chamber of Commerce in the case Nevada v. U.S. Department of Labor, U.S. District Court for the Eastern District of Texas, No. 16-cv-731.
The DOL doubled the salary threshold for paying overtime to salaried employees with the new rule last May. The DOL’s rule stated that an employee who makes $47,476 annually must be paid overtime. The ceiling is currently set at $23,660. Additionally, the new rule proposed automatic annual increases to this threshold. It would have been the first significant change in 40 years.
Called white-collar exemptions, overtime rules affect only those employees classified as bona fide executive, administrative, professional or outside sales employees along with some computer employees.
According to estimates, more than 5 million employees would have been eligible for overtime pay — a change that would have had a significant impact on an employer’s bottom line. Because of the potential to significantly raise the costs of a company’s labor and wages, most small businesses are opposed to the proposed rules.
Those opposed argued that most businesses would not be able to afford the increases. They also argue it will harm the very people it sought to protect because employers would be compelled to reduce work hours or limit salaried positions.
Proponents of the change argue that the law is needed to protect workers and bring salary thresholds up to current economic realities.
Employers could have avoided increase overtime pay in two ways: Pay salaried employees more or change the status of salaried employees earning less than that into hourly, on-the-clock employees. Either way, it would have meant changes in employment practices and increased expenses.
Mazzano ruled that the Fair Labor Standards Act does not allow the DOL to decide which workers are eligible for overtime based solely on salary levels.
The labor department can appeal the ruling and is currently considering its options, a spokesperson said. If the injunction stands, the next step will be a full court trial to weigh the merits of the lawsuit.