Judge Halts DOL Overtime Regulations – Now What?

murphyfletcher2By Murphy Fletcher

I imagine that, if you are reading this blog, you have heard the big news: after 5 p.m. on the Tuesday before Thanksgiving, a federal judge in Texas issued an order granting a nationwide preliminary injunction that will prevent the DOL overtime regulations from going into effect today, Dec. 1, as everyone had planned.

According to the court, the plaintiffs had demonstrated a “likelihood of success on the merits” due to the fact that the DOL, in enacting the new overtime rule, had exceeded its authority through its significant increase of the salary threshold.  The court took particular notice of the fact that an estimated 4.2 million workers currently ineligible for overtime would automatically become eligible, regardless of duties, due to the increased threshold.  This, in the eyes of the court, would create “essentially a de facto salary-only test.”  After analyzing the other requirements of a preliminary injunction, the court enjoined the DOL from “implementing and enforcing” the new overtime rule.

So what does this mean?  After all of the planning—including conducting time surveys, helping affected employees learn to keep their time, considering potential pay raises for employees below the new threshold—can employers simply disregard the new DOL overtime regulations entirely?  And what can employees expect in the future about their classification, their right to overtime pay, and the likelihood that the new regulations will ever be enforced?

First, we all know that a preliminary injunction is just that: preliminary.  We also know that, even with a preliminary injunction in place, the DOL could appeal the injunction or prevail, at a later date, on the merits of the case.  Commentators across the web have referred to Kinkead v. Humana, Inc., No. 3:15-cv-01637, 2016 U.S. Dist. LEXIS 93410 (D. Conn. Jul. 19, 2016) (“Kinkead I”) as evidence that, if the DOL did prevail on the merits of the case or on appeal, courts may retroactively apply the new DOL regulations back to 12/1/2016.

Kinkead I addressed the applicability of a DOL rule which was first vacated by a D.C. District Court but, on appeal, was found to be valid by the D.C. Circuit.  The Court in Kinkead I was unconvinced by the employer’s argument that the D.C. District Court’s vacating of the DOL rule prevented it from becoming liable under the rule until the D.C. Circuit reversed.  Instead, the Court retroactively applied the D.C. Circuit’s decision back to the 1/1/2015 effective date originally set by the DOL.

Does this mean that employers could potentially be on the hook, even with the preliminary injunction?  Not exactly.  First, Kinkead I’s procedural posture is different from the Texas judge’s ruling.  Here, we have a preliminary injunction specifically enjoining DOL “from implementing and enforcing” the new regulations, as opposed to a court decision vacating the rule entirely.

Secondly, the story in Kinkead I continues.  On Oct. 13, 2016, the same District Court judge certified the Kinkead I decision for immediate appeal and entered a stay pending the appeal.  Kinkead v. Humana, Inc., No. 3:15-cv-01637, 2016 U.S. Dist. LEXIS 143000 (D. Conn. Oct. 13, 2016) (“Kinkead II).  In Kinkead II, the Court notes that the issue addressed in Kinkead I is an issue of first impression in that circuit and, significantly, that district courts across the country have disagreed on how to handle it.  For example, an Iowa district court agreed with Kinkead I and retroactive application, while district courts in Maryland and Ohio disagreed.

What this demonstrates is that, as with most employment-related issues, not complying with the halted DOL regulations isn’t 100 percent risk-free.  But it is important to note a number of things would have to happen before an employer would potentially be liable. For example, the DOL would have to prevail on the merits or on appeal; an appellate court with jurisdiction would have to adopt retroactivity; and an employee, as opposed to the DOL (who is enjoined from enforcement) would have to sue.  And that is without even mentioning what the Trump administration might do!