Human Resources News & Insights

Stuck in OT rule limbo? 3 ways to reduce your legal vulnerability

The Department of Labor’s (DOL) controversial overtime rule is officially on hold. But other than that, not much else is certain with the rule — and that’s a problem for employers. 

Not knowing when, or even if, the rule will kick in is not only taxing on administrative processes/plans, it also exposes you to potential liability.

Unanswered questions

The injunction may seem like great news to some. But it raises a host of questions so HR pros hoping plot their next move.

To help, we’ve compiled a Q&A:

Question 1: Why was the overtime rule blocked?

The injunction ruling stems from a lawsuit that consolidated two separate lawsuits — one brought by nearly two dozen states and another by several business groups. In the lawsuit, the states and business groups claim the DOL overstepped its authority in setting the overtime exemption salary threshold so high.

Essentially, the judge said the DOL increased the overtime threshold by so much that it made the OT-exemption a one-factor test and basically eliminated the need for a duties test, an essential part of the exemption. The rule basically eliminated the duties test, and the judge said the DOL must also examine the duties of employees to determine who falls within the FLSA’s overtime exemption.

Question 2: What does the injunction mean?

It’s critical for employers to keep in mind that the judge’s injunction doesn’t kill the new overtime rule, it simply blocks the changes from taking effect until either the court hands down a ruling in the future, the DOL wins its appeal of the injunction or either party drops its case (there’s a distinct possibility the DOL could drop its case when Donald Trump takes office).

When a ruling will be issued in the lawsuit or the DOL’s appeal of the injunction has yet to be determined, but it’s unlikely a ruling will be handed down before Trump takes office.

Bottom line: For the time being, employers are free to operate as if the new OT rule doesn’t exist.

Question 3: What happens now?

There are a number of possibilities. If the judge does decide the DOL actually had the authority to raise the salary threshold as much as it’s trying to do, the rule changes could take effect rather quickly after the ruling. But this is unlikely given the judge’s reason for issuing the injunction in the first place.

Then there’s uncertainty of the Trump administration. If the case drags into the new administration (which seems probable at this point), a Trump-controlled DOL may not have any interest in dumping resources into defending FLSA changes made during the Obama administration, and the rule could simply die out.

Trump could also work with the DOL to issue a smaller increase to the salary threshold. Some groups in the lawsuit said they’d be OK with a smaller threshold increase.

Trump may have to act quickly, as the DOL’s motion for an expedited appeals process regarding the injunction was granted. That means an appeal could be handed down, which would implement the overtime rule, just a few weeks after Trump’s inauguration. So if Trump is going to act, he’ll have to do it quickly.

Next steps for employers

Question 4: What should our company do in the meantime?

Unfortunately, there’s no easy answer to this question. It all depends on your company’s situation.

Two straight-forward approaches employers could take include:

  • keeping the changes you made for a morale boost if employees welcomed the changes (e.g., they were getting overtime, etc.), or
  • returning the exempt status of workers you were going to reclassify if they felt demoted/demeaned by it.

Question 5: What liability is our company exposed to?

As we pointed out at the beginning of this article, there are some potential risks associated with this limbo period.

Here are three examples, as well as how to reduce your exposure:

  • The rule could be enforced retroactive to Dec. 1, 2016. This could happen if the injunction is overturned, and it would mean employers could be liable for any overtime worked by employees that would’ve been reclassified as non-exempt had the injunction never been issued in the first place. As a result, employers should seriously consider tracking the hours of any employees who may be reclassified if the DOL’s rule is put in place — just in case the data is needed later.
  • Inconsistent pay adjustments could be fertile ground for discrimination claims. Employers need to be careful about taking half measures when making adjustments to employees’ pay in the wake of the injunction. Any changes should be consistently applied across the entire workforce. Example: Say you’ve boosted some employees’ pay to push them over the $47,476 threshold. If you decide to roll back some of those increases (say the biggest ones) but not all of them, it could look like a discriminatory move — if those getting the raises tend to be the same age, race, gender, etc. In other words, beware of making changes for some but not all workers who stand to be affected by the rule.
  • State payroll notice requirements still apply. Several states require employers to provide workers with advance notice of changes in pay. Usually, these laws tend to require a one-pay-period heads up for changes — and typically for reductions in pay. Even if you sent those notices prior to payroll changes made in anticipation of the rule’s original December 1 implementation date, new notices must be issued if those changes will be rolled back.
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