Last Thursday, the U.S. Department of Labor (DOL) filed a notice of appeal—the first step in the appeals process—challenging the decision to temporarily block the new overtime regulations. As we reported a couple weeks ago, the overtime rules were enjoined nationwide by a Texas federal Court, meaning they did not go into effect on December 1, 2016, as previously expected. DOL also filed a motion seeking to expedite the appeals process. Appeals like this can take several months to pan out, or even years. DOL is looking for resolution much sooner, perhaps as early as March or April 2017.
Many employers are wondering what to do about yet-to-be-made planned compensation changes. Others are wondering whether already-implemented changes should be scaled back or completely reversed. Unfortunately, there is no easy answer. Before getting into compensation changes, it’s important to understand how the rule might play out during the appeal process. The appeal will be heard by the Fifth Circuit Court of Appeals, which sits in a conservative/pro-business jurisdiction. Even if the Court of Appeals agrees to an expedited schedule, the Court will not reach a decision before President-elect Trump takes office. Earlier this year, Mr. Trump reportedly said that he would attempt to delay or exempt small businesses from the overtime regulation, but he did not say whether his administration would try to repeal the entire regulation. After Inauguration Day, Mr. Trump could direct DOL to forego the appeal process and instead focus on crafting more employer-friendly regulations. He could also work with Congress to enact legislation that would define exempt criteria by statute, rather than by regulation, effectively eliminating DOL’s ability to modify exempt classifications via the rulemaking process.
Assuming the appeal proceeds unhindered by the Trump Administration, reversal by the Court of Appeals could have significant ramifications for employers who have not made planned compensation changes. If the Court of Appeals rules the lower court got it wrong, it or other courts could decide that the effective date of the rule is still December 1, 2016, meaning employers would be liable for unpaid overtime liability for employees not making $913/week as of December 1 rather than the date of the appeal court’s decision. This issue is somewhat unresolved in the federal courts, but there is clear precedent for applying the law retroactively in this scenario.
Back in January 2015, a federal court vacated wage and hour regulations implemented by DOL involving exemptions for home care workers—similar to what the Texas federal Court did with the overtime rule. However, the Court of Appeals in that case reversed the lower court’s decisions, triggering several lawsuits attacking employer compensation practices during the months that the decision was on appeal. Some of the courts ruled there was no wage and hour liability while the rule was “in limbo,” while other courts, including a federal court in Connecticut, ruled that overtime compensation was due to these previously exempt workers retroactive to the original implementation date of the rule. The Connecticut decision has been appealed to the Second Circuit Court of Appeals—we will keep you apprised of any updates in that case.
That leaves employers in a precarious position. For businesses that have already made changes in response to the overtime rules, it likely makes sense to stay the course until the overtime rule gets completely sorted out. Employers who have not made any changes are in a more challenging spot. To the extent possible, those employers should limit overtime opportunities for employees making less than $913/week, as well as track their working time so that an accurate assessment of overtime exposure can be made if the Court of Appeals decides the rule is lawful.