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What’s going on with the new overtime rule?

In 2016, the Obama administration issued a new overtime rule. The rule was set to take effect on December 1, 2016. But in November 2016, a Federal district judge enjoined the enforcement of the rule. In December, the U.S. Department of Labor (DOL) appealed the district judge’s injunction to the U.S. Fifth Circuit Court of Appeals.

Then President Trump was inaugurated, but his appointment of a new Labor Secretary was delayed.

So now that the U.S. Senate has approved Alex Acosta as the new Labor Secretary, what is the status of the new rule and this case? By the way, during his confirmation hearings, Secretary Acosta indicated that the Trump administration may not pursue this appeal.

While Acosta’s nomination was pending, the DOL asked the Fifth Circuit to extend the deadline for filing briefs in the case. On April 19, 2017, the Fifth Circuit delayed the deadline for the DOL to file its briefs until June 30, 2017. So here’s what Fifth Circuit’s order means: The Texas district court’s injunction is still in effect, and the new overtime rule has not taken effect.

Trump administration’s options

The Trump administration has several options for handling this situation.

  1. It can simply drop the appeal, a decision that “kills” the Obama administration’s new rule.
  2. It can drop the appeal and pursue a new rule.

What happens if a new rule is pursued?

If Trump administration takes this route, it will have to pursue an entirely new rule-making process that includes publishing a notice, reviewing comments, potentially publishing a revised rule and reviewing additional comments about the revised rule, and publishing a final rule. In other words, it will probably take a while for a new rule to be adopted.

But if the Trump administration does pursue a new rule, it may adopt a less dramatic increase of the “trigger point” for overtime. The rule currently provides that employees making less than $23,600 a year have to be paid overtime (so called time-and-a-half or 1.5 times their regular hourly rate for any hours over 40 worked during a week). If employees make more than $23,600 a year and meet certain other requirements, they are exempt employees and don’t get paid overtime, even if they work more than 40 hours a week. So the current trigger point is $23,600.

The Obama administration’s rule would have changed the trigger point to $47,476 a year. So the Trump administration may pursue a more moderate increase in the trigger point to, let’s say, $36,000 a year. Or it might also use the same trigger point as the Obama administration, but phase in the new trigger point over several years.

Reacting to the delay

Back in November 2016, in expectation of the new rule going into effect on December 1, 2016, some employers may have adjusted salary levels and reclassified employees from exempt to non-exempt or vice versa. As a practical matter, undoing these changes may be difficult, but can certainly be kept in mind when looking at future salary adjustments and staffing needs.

We have heard that some employers are reacting to this uncertainty by changing the classification of workers—from employees to independent contractors. This is a very dangerous reaction that we strongly caution against.

Bottom line

In short, we’re all going to have to adopt a wait-and-see attitude—at least until some time around June 30, if not even later.

See these previous posts about the new overtime rule:

See these previous posts about misclassification of workers as independent contractors:

Items on this web page are general in nature. They cannot—and should not—replace consultation with a competent legal professional. Nothing on this web page should be considered rendering legal advice.

© 2017

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Thursday, 21 September 2017

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