Last week, the U.S. Department of Labor’s pending Fair Labor Standards Act (FLSA) regulation raising the minimum salary levels for “exempt” white collar employees was blocked by a federal district court judge in the Eastern District of Texas. Judge Amos L. Mazzant, III issued a nationwide preliminary injunction prohibiting the enforcement of the regulation. Currently, exempt employees must be paid a salary of at least $455 per week. The new minimum, which was set to take effect on December 1, 2016, increases the minimum salary to $921 per week or $47,892 a year. The new regulation would also increase the salary threshold for “highly compensated employees” from $100,000 per year to $134,004 per year.

Additionally, the new regulation set an automatic increase to the minimum salary every three years, with the first automatic increase to occur on January 1, 2020. The State of Nevada, and 20 other states, including Texas, with the support of over 50 business organizations, sought an emergency injunction, arguing that the DOL had overstepped its Congressional authority in establishing the new salary requirement. The federal district court agreed.

So what does this mean for employers?

For now, the DOL cannot enforce this rule, and employers are left with a dilemma: either 1) comply with the new regulation, even though it is temporarily stayed, but run the risk of incurring unnecessary payroll costs if the new regulation is ultimately withdrawn or overturned entirely, or 2) continue to operate under the existing exemption requirements, but run the risk that the injunction might be overturned.

Ultimately, the incoming Trump administration may have the last word, by either deciding not to oppose the injunction or withdrawing the new rule altogether. However, the president-elect has yet to offer public comment on this matter. 

Post-Injunction Scenarios

The DOL has until January 23, 2017, to appeal the preliminary injunction. While the outgoing administration can be expected to pursue an appeal, the Trump administration may well reverse course nonetheless and abandon it. If an appeal is pursued, the U.S. Court of Appeals for the Fifth Circuit will review the district court’s order under a deferential abuse of discretion standard.

Over the past five years, the Fifth Circuit has had few occasions to review a federal agency’s rulemaking authority, but it has upheld the validity of the agencies’ rules in most of those instances. In November 2015, however, the Fifth Circuit upheld a nationwide preliminary injunction enjoining the U.S. Department of Homeland Security from enforcing a directive, finding that the DHS likely failed to follow its statutory rulemaking requirements and exceeded its authority. Furthermore, even if the Fifth Circuit upholds the nationwide preliminary injunction or if the DOL does not appeal the ruling, this is only a temporary decision, and the district court could still ultimately find that the new salary rule is valid and enforceable.

On the legislative front, Republicans in Congress have proposed legislation seeking to overturn or delay the new rule. In March 2016, Republicans introduced the Protecting Workplace Advancement and Opportunity Act in both the House and the Senate. This legislation seeks to nullify the new rule regarding the salary threshold; however, it is still pending. Additionally, in September 2016, the House passed legislation that would delay the new rule by six months to June 1, 2017. This legislation has yet to be voted on by the Senate. These legislative efforts appear much more likely to succeed with a Republican administration and Republican majorities in the House and Senate. If any legislative action occurs, it will be well after the now-enjoined December 1, 2016 effective date.

Recommendation to Employers

Employers should stay tuned for further developments and should consult with their employment counsel to determine the best course of action for their particular business needs in the wake of this development. Our position is that employers would be wise to continue to take a wait-and-see approach before making operational changes that may be difficult to undo in the event that the new salary requirement rule fails to come to fruition.

© 2016 Perkins Coie LLP