Grateful employers nationwide may want to take a moment to salute the state of Texas. A federal judge there put the brakes on new regulations that would have more than doubled the salary threshold for Administrative, Executive, and Professional exemptions from the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).

After the regulations were issued in May 2016, two lawsuits were filed challenging their validity: Nevada v. U.S. Department of Labor, filed by a group of 21 states, and Chamber of Commerce of Plano v. Perez, filed by the U.S. Chamber of Commerce, local chambers, and several other business groups. Both cases were pending in federal court in Sherman, Texas.

The “state plaintiffs” filed a motion for the court to preliminarily prevent the regulations from taking effect. The “business plaintiffs” filed an emergency motion for summary judgment.

A little bad news, a lot of good news

The state plaintiffs argued that the Tenth Amendment to the U.S. Constitution did not give the U.S. Department of Labor (DOL) the authority to impose these regulations on states. Judge Amos Mazzant disagreed and found that the DOL did have the authority.

However, Judge Mazzant did find that the plaintiffs were likely to succeed in their argument that under 29 U.S.C. Section 213(a)(1) the DOL lacked authority to use a salary threshold to determine whether an employee qualified for the so-called “EAP” exemptions. Rather, the DOL had authority only to adjust the “duties” components of the exemptions as they might evolve over time.

The regulations made no changes to the existing duties tests, but only raised the salary and compensation thresholds. The DOL said that, with limited exceptions, an employee would not qualify for exemption if he or she was not paid the new minimum salary, regardless of job duties. According to Judge Mazzant, this creates “essentially a de facto salary-only test,” which conflicts with Congressional intent: “If Congress intended the salary requirement to supplant the duties test, then Congress, and not the [DOL], should make that change,” he said, adding that the regulations were “contrary to the statutory text [of the FLSA] and Congress’s intent.”

The plaintiffs had also challenged the automatic indexing of the thresholds, which would have begun on Jan. 1, 2020. Because he found that the entire Final Rule was unlawful, Judge Mazzant found that the indexing was unlawful, as well.

The judge also found that the plaintiffs had shown they would suffer irreparable harm if the regulations were allowed to go into effect on schedule, noting that compliance would cost the states millions of dollars, which might require state agencies to reduce services in order to comply.

Looking down the road

Because this is a preliminary injunction, Judge Mazzant will have to make a final determination in the future, and it is possible that the final outcome could be different. But even if it isn’t, the DOL can be expected to appeal to the U.S. Court of Appeals for the Fifth Circuit, which may or may not agree with Judge Mazzant.

With President-Elect Donald Trump taking office on Jan. 20, presumably with a DOL whose new senior leadership will have a different perspective on this issue than the Obama Administration, it’s possible that the Trump Administration will abide by Judge Mazzant’s decision and let the matter drop, or use the delay to open a new rulemaking proceeding to further revise the regulations.

It’s also possible that the delay will allow a new Congress to pass legislation that will effectively override the regulations.

Given all this, the big question most employers will have is whether to put on hold their plans to make changes to comply with the new regulations that were anticipated to go into effect on Dec. 1. If Judge Mazzant later changes his preliminary ruling, or if the Fifth Circuit reverses his ruling, either situation could result in the potential for exposure to back wage and liquidated damage claims in individual or collective action lawsuits brought by private parties.

However, the risks would appear to be fairly minimal if the Trump DOL or Congress takes action before the regulations could become effective due to subsequent court rulings.

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