Nevada v. U.S. Department of Labor—Enforceability of New Overtime Regulations: Federal Judge Issues Last-Minute Preliminary Injunction Blocking U.S. Department of Labor’s New Overtime Regulations

Sullivan & Cromwell LLP - November 29, 2016

On November 22, in Nevada v. U.S. Department of Labor, the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction preventing the Department of Labor from enforcing its new overtime rules, which were scheduled to go into effect on December 1.  As noted in our prior Client Alert, the new regulations provide that employees earning less than $47,476 per year will not qualify for the white-collar exemption to the minimum-wage and overtime requirements of the Fair Labor Standards Act (“FLSA”), and therefore will be eligible for overtime, irrespective of their job duties.  The district court held that the Department likely exceeded its statutory authorization because Congress did not intend categorically to exclude employees with white-collar duties from the exemption based solely on their salary levels.  The court therefore enjoined the Department’s regulations nationwide, concluding that the costs of compliance with the regulations constituted irreparable harm.

This decision means that employers are not required to pay overtime in accordance with the new federal overtime rules by December 1, but the injunction is only temporary and it is uncertain how long it will remain in effect. The district court still must consider whether to issue a permanent injunction, the current Administration has stated that it strongly disagrees with the decision and is currently considering all of its legal options, and the incoming Administration must decide whether to continue with any appeal filed by the prior Administration.  If the preliminary injunction is subsequently lifted, employers could potentially face retroactive liability for failure to pay overtime in accordance with the new regulations.  Accordingly, employers must weigh the legal and business risks in not complying with the new Department of Labor overtime regulations and should remain ready to comply quickly with the new regulations to the extent the preliminary injunction is reversed.  To the extent that employers elect not to comply with the new overtime regulations at this time and have already announced or implemented pay changes, they should be mindful of applicable state and local requirements, including those such as in New York State, which independently of the federal government mandates minimum-salary levels as a condition to exemption from overtime for certain employees, and those relating to notices in changes to pay, which may prevent employers from immediately rolling back changes.