Management Alert - Seyfarth Shaw LLP

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Management Alert
Texas Judge Preliminarily Enjoins New Overtime
Exemption Rules Nationwide: What Steps Should
Follow?
By Seyfarth’s Wage & Hour Litigation Practice Group
Late Tuesday afternoon, Judge Amos Mazzant of the United States District Court for the Eastern District of Texas issued an
order enjoining the U.S. Department of Labor’s implementation and enforcement of the new overtime exemption rules that
were set to go into effect on December 1, 2016. The court granted a motion for preliminary injunction filed by the attorneys
general of 22 states, in which the states argued among other things that the new rules were unlawfully promulgated and
would be likely to cause irreparable harm to the states that requested the injunction. The court also considered amicus
arguments made by various chambers of commerce and trade associations, which filed a companion case asserting similar
and separate grounds for overturning the DOL’s new rules. Although the court’s order leaves some room for confusion on
this point, it appears to apply to all public and private sector employers nationwide.
Although an important and exciting step in the right direction, this is not the final word.
First, this is a temporary injunction. It contains strong suggestions of what the court might ultimately do with a final
determination regarding whether to invalidate the new rules. It explains various reasons why the rules are unlawful. But, at
this time, all of those reasons and the results they might ultimately justify are preliminary.
Second, unlike most pre-judgment orders, an order granting or denying a preliminary injunction is immediately appealable.
On appeal, the appellate court applies an abuse of discretion standard. Generally speaking, a court abuses its discretion by
(1) committing an error of law, such as applying an incorrect legal standard, (2) basing the preliminary injunction on a clearly
erroneous finding of fact, or (3) issuing an injunction that contains an error in form or substance. There are aspects of the
court’s order that the federal government might argue prove each of these points. But it is fair to say that the Fifth Circuit
Court of Appeals, which is the court that would hear the government’s appeal, rarely overturns orders granting preliminary
injunctions. Within the past several decades, it has done so very few times.
Third, if it does not win reversal of the district court’s order in this case, it is conceivable that the government would seek
review by the U.S. Supreme Court. Even if the Court of Appeals were to reverse, the States and Associations could petition
the Supreme Court for review. Given the current composition of the Court, a 4 - 4 decision would leave the Fifth Circuit’s
decision intact, leaving open the possibility that other Circuits, when confronted with the issue, could rule differently. That
would create a difficult dilemma for employers that operate in multiple states across the country.
Fourth, if the plaintiffs ultimately prevail in securing the court’s judgment that the DOL’s new rules are unlawful, the federal
government will have another opportunity to appeal. With the passage of time necessary for the parties to litigate their
respective positions through judgment and then to wind their way through the appellate process, it is hard to predict
whether an appeal would actually follow. The new administration, its new Secretary of Labor, and its new Solicitor of Labor
Seyfarth Shaw LLP Management Alert | November 22, 2016
©2016 Seyfarth Shaw LLP. All rights reserved. “Seyfarth Shaw” refers to Seyfarth Shaw LLP (an Illinois limited liability partnership). Prior results do
not guarantee a similar outcome.
would likely have much to consider by that point. And this sets aside for the moment the possibility that the congress will
successfully pass—and the new president will sign—a Congressional Review Act resolution, mooting the need for further
litigation at all.
To put it simply, the court’s ruling on Tuesday creates a significant amount of uncertainty that is going to last for a while
longer. And it begs the enormous question: What should businesses do in reaction to the court’s preliminary injunction?
Many businesses are very far along in their plans to comply with the new rules by December 1. Many have already begun
their communications with employees whose pay or classification would be impacted because of the new rules. Some have
already effected changes impacting those employees. Further, those businesses that had not taken steps to comply have
employees who have almost certainly heard about the rules and have assumed they would soon receive raises or become
overtime eligible.
In that light, the injunction—though heralded as a positive development for businesses—has the potential to create
significant risk and disruption. A careful hand is required. Obviously there is much to consider and much more to do. But
here is a deft starting point:
•
If changes are about to be made, consider whether they can be postponed while stakeholders decide what further
steps should be taken. The decision whether to postpone changes and what further steps to take must account for
any payroll, timekeeping, and human resources changes are in progress. Can those changes be stalled as well, without
unacceptable costs and other business disruptions?
•
If communications are set to be distributed to employees who would be impacted by the December 1 rule, postpone
them while stakeholders develop their next steps plan.
•
If changes have not been made but communications have been distributed or begun, consider whether a revised
communication plan can be executed while postponing the changes that have not yet been made. Any revised
communications plan should begin with the fundamental explanation that: A federal court in Texas has issued an order
that makes it uncertain how the FLSA’s overtime pay exemptions apply to employees who would be impacted by the
new rules that were to go into effect on December 1. Because of the court’s order, those rules will not go into effect as
expected. To ensure that it is able to follow the laws that govern how employees are paid under the FLSA, the company
has revised its plans and will be reporting back to you soon about how this will impact you.
•
If communications have been distributed and changes have been made, stop and consider carefully how to proceed.
Because this is an extremely positive result achieved by the plaintiffs in Texas, some business may be excited to quickly
undo the changes that they made. Caution and care are advisable. Employees who have been reclassified from
exempt to nonexempt status or who have received pay raises will have begun to acclimate to their new status and pay.
An abrupt change could cause them to seek assistance from a plaintiff’s lawyer, and could open a Pandora’s Box of
potential (hopefully unjustifiable) claims.
•
For businesses that have not done anything to prepare for the December 1 rule, keep your eyes and ears open for
further developments.
Of course, these are also not the final words on how businesses should adapt their actions to the turbulence that this
otherwise positive court ruling could cause. What is important is that business stakeholders consider carefully what their
next steps will be and to weigh carefully the costs and benefits of available options. A careful plan will help to avoid further
business disruptions, unhappy workforces, and plaintiffs’ lawyers.
If you would like further information, please contact your Seyfarth attorney, or anyone in Seyfarth’s Wage & Hour Litigation
Practice Group.
www.seyfarth.com
Attorney Advertising. This Management Alert is a periodical publication of Seyfarth Shaw LLP and should not be construed as legal advice or a legal opinion on any specific facts
or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal
questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the
purpose of avoiding tax penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)
Seyfarth Shaw LLP Management Alert | November 22, 2016
©2016 Seyfarth Shaw LLP. All rights reserved. “Seyfarth Shaw” refers to Seyfarth Shaw LLP (an Illinois limited liability partnership). Prior results do
not guarantee a similar outcome.

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