New Overtime Rule comes to a screeching halt: Where to next?

On November 22, U.S. District Court Judge Amos Mazzant temporarily blocked the Department of Labor’s (DOL) new overtime rule, preventing it from taking effect on December 1, 2016. Finding that the plaintiffs would likely succeed on the merits of their claims and would be irreparably harmed if the rule became effective prior to a full hearing on the merits and any review by higher courts, the court decided to temporarily maintain the status quo.

As long as the injunction remains in place, employers will not need to comply with the overtime rules that had been scheduled to take effect on December 1. That said, while the preliminary injunction provides temporary relief for employers, it does not invalidate the rule. But for now, its implementation and enforcement are on hold.

“Trying to unwind plans that have already been implemented requires careful thought and deliberation.” Thomas V. Burke, Principal and Global Career Practice Leader

Some employers fully prepared for compliance with the new rule and have already implemented salary changes and reclassified employees in anticipation of the December 1 effective date. Other employers made compliance plans but held off on implementing them. Still others adopted a wait-and-see posture and opted to hold off on preparing for the changes.

By the time the court issues a final ruling and any appeals are decided, the new administration and Congress may already be in place. A new Secretary of Labor could suspend implementation of this overtime rule, or seek to revise it through further rulemaking. Congress could strike it entirely or legislate changes to delay or derail it.

In the meantime, employers who have already taken action are faced with a number of immediate questions about what to do next. There is no one-size-fits-all answer. But here are some general “traffic light” guidelines – move forward, proceed cautiously, or stop and think – employers will want to consider.

Green: Move forward

  • Discuss the particular facts and circumstances with your organization’s legal counsel and HR advisors to determine the best answer for your organization.
  • Follow up on any prior communication to your workforce by addressing the preliminary injunction ruling and your organization’s position so they know why things may change.
  • Take a deep breath, revisit your decisions, and consider the “what ifs” associated with rescinding measures you have implemented.
  • If it’s “too late”, move forward with changes that were announced or implemented before the preliminary injunction was issued. Remain flexible. You may still have the opportunity to reverse or undo some decisions later on.
  • Continue to comply with all existing rules.

Yellow: Proceed cautiously

  • Rethink reclassifications that were based solely on salary level. Consider returning positions that were reclassified as nonexempt on that basis back to exempt, but only if they clearly meet the FLSA duties test.
  • Factor in the ability of payroll and timekeeping systems to accommodate any contemplated changes.
  • Revamp your communication strategy as appropriate.
  • Closely monitor further developments and assume nothing.

Red: Stop and think

  • Don’t make any hasty decisions that could make a tough situation worse and create avoidable employee relations nightmares.
  • Carefully think through the implications of stopping or rescinding planned raises.
  • Don’t immediately claw back pay increases already given to exempt employees without conducting a thorough cost-benefit analysis. Considerations should include employee satisfaction and engagement, any potential impact on clients and customers, and compliance with applicable state and local laws, which are unaffected by the federal rule’s status.
  • Assess the potential risk of legal claims.
  • If possible, pause any plans that have not been implemented.

While the recent court ruling is generally considered favorable to employers, it also created some uncertainty in the short-term, particularly for employers who had already put a plan in motion to comply with the new overtime rule. Trying to unwind plans that have already been implemented requires careful thought and deliberation. Take the time you need to plan a new course of action.

This publication is for information only and does not constitute legal advice; consult with legal, tax and other advisors before applying this information to your specific situation. Each employer’s situation is unique and must be reviewed and evaluated accordingly.

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