Federal Court Grants Injunction for DOL Overtime Rule, Suspends Compliance DeadlineImage Banner

Federal Court Grants Injunction for DOL Overtime Rule, Suspends Compliance Deadline

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Federal Court Grants Injunction for DOL Overtime Rule, Suspends Compliance Deadline

Wednesday, November 23, 2016

On November 22, a federal district court judge issued a preliminary injunction (order attached below) in the case of State of Nevada v. United States Department of Labor (E.D. Tex., No. 4:16-CV-00731). As we reported on in September, two separate cases were brought, one by 21 states, and another by business organizations, challenging the rule. (See WICs article, "States, Chambers of Commerce Challenge DOL Overtime Rule, September 26, 2016.) The injunction applies nationwide, meaning that, for now, the rule's compliance date of December 1, 2016 is no longer in effect. This applies to private litigation as well as to DOL and state enforcement. The injunction permits additional time for the court to consider arguments and issue a final ruling. If the court rules against the DOL, it is highly likely the DOL will appeal, prolonging the legal process and opening the door for the rule to come back into play. While the December 1 deadline for compliance is currently suspended, there are additional factors to take into consideration when determining whether to change existing plans for compliance. We encourage providers to consult with an attorney familiar with state and federal wage and hour laws.

Procedurally, the injunction stemmed from a filing made by plaintiffs in the case. (Note that while two separate cases had originally been filed, the court consolidated them into a single case. In the injunction order, the judge addressed arguments set forth by State plaintiffs.) The judge had to determine whether the party requesting the injunction could demonstrate a "substantial likelihood of success on the merits" of the case. To do so, the judge walked through the arguments set forth in the complaint. One argument made is that the Fair Labor Standards Act (FLSA) does not apply to states. This point was been decided by the Supreme Court in 1985. The States argued that Supreme Court case should be overruled. The judge in this case noted that the court was bound to follow Supreme Court precedent, and so could not rule that the FLSA does not apply to states. The judge did, however, note that subsequent cases have limited the power of Congress to enact legislation that affects state and local governments, implying that should this case come before the Supreme Court on appeal, it could overturn the precedent and rule in favor of the State plaintiffs.

The judge then went through what is known as a Chevron analysis, which courts apply to determine whether an agency has the authority to promulgate a regulation. The analysis has two steps: 1) whether Congress has spoken directly to the question at issue, and 2) if Congress has not spoken directly to it, whether the regulation represents a "permissible construction" of the statute. The judge agreed with the State plaintiffs' argument that the plain language of "executive, administrative and professional" employees is clear on its face, and that Congress was clear that the overtime exemption should be based on duties rather than salary level. The judge determined that the final rule does not carry out Congress' intent in this regard, and so does not meet step one of the Chevron analysis. Because it failed to meet step one, the judge did not conduct the second step.

The other major component of the complaint challenging the rule deals with the automatic update mechanism, which would change the threshold every three years. Because the judge determined the rule itself is not lawful, it also concluded that the DOL did not have authority to implement the automatic updating mechanism.

Finally, to support the injunction, the judge had to determine whether the anticipated injury from the rule's implementation was "imminent and not speculative". Here again, the judge sided with the plaintiffs. The judge cited estimated costs as well as the detrimental effect on government services that benefit the public as justification for the injunctive relief granted.

The judge's determinations regarding the arguments set forth are not the final disposition of the case. The court said, "A preliminary injunction preserves the status quo while the Court determines the Department's authority to make the Final Rule as well as the Final Rule's validity." The injunction gives the court additional time to hear the case on the merits and issue a ruling. Once that ruling is handed down, it is highly likely to be appealed. The legal process is set to be a lengthy one, and it is likely that the new administration and Congress will be in place before the litigation process concludes. ANCOR is actively monitoring legislative and administrative actions that could significantly change the final rule and impact this litigation. We will continue to keep our members informed of developments.