News + Insights from the Legal Team at Zalkind Duncan & Bernstein

A Texas Court Blocked Overtime Pay for Massachusetts Workers – What Now?

In late November, a federal district court in Texas enjoined the Department of Labor from implementing and enforcing a new rule that would have made it more difficult for employers to claim that workers do not qualify for overtime pay.  But the Texas court may not have had the power to apply its order nationwide, and Massachusetts employees may still be able to collect overtime under the new rule.

Under the Federal Labor Standards Act, every employee must be paid a minimum hourly wage.  Employees are also entitled to overtime pay at one and a half times that rate for all hours worked above forty per week.  However, the statute exempts certain types of jobs from the requirement to pay overtime.  One of those exemptions is for any work done in a “bona fide executive, administrative, or professional capacity,” and is sometimes referred to as the “white collar exemption.” The statute grants the Department of Labor the authority to issue rules defining what exactly qualifies as a “white collar” job. Since 1940, the Department has defined the exemption, in part, by setting a minimum salary cap under which all workers must be paid overtime – in other words, anyone paid less than that set figure cannot qualify as an exempt “executive, administrative, or professional” employee.  In 2014, after extensive notice and comment from outside stakeholders, the Department of Labor raised the salary cap from $23,660 to $47,476.  The rule was set to go into effect on December 1, and experts estimated that more than 4 million additional workers would now qualify for overtime pay.

But a federal district court in the Eastern District of Texas ruled that the Department of Labor did not have the authority to do what it has done for over 65 years – provide guidance on the metes and bounds of exemptions to the Federal Labor Standards Act.  A group of states had sued the Department over the rule and sought a preliminary injunction on the rule’s implementation claiming that states’ budget might be exhausted if local government were forced to pay their workers more.  Rather than issue a narrow order to that effect, the Texas court issued a preliminary injunction prohibiting the Department of Labor from taking any steps to implement or enforce the new rule in any jurisdiction in the country.  The Department of Labor has filed a notice of appeal in the Fifth Circuit. The Department of Labor maintains that the federal trial court was wrong about the agency’s authority and that the court did not have the authority to issue such a broad injunction, though it is unclear whether the change in presidential administration cause the Department scale back its view of its own authority, as the president-elect indicates will be the case for other departments.  Meanwhile, Massachusetts employers and workers are stuck in limbo:  Many employers have plans in place to raise staff salaries to comply with the rule.  And it’s not clear whether a Texas court’s order can or should stall those plans.

There are strong arguments that the Texas’s court’s national order was far too broad and that it cannot prevent the federal government from implementing its program outside the Fifth Circuit.  Because an injunction empowers courts to prohibit people from doing what they would otherwise be free to do, it is considered an “extraordinary remedy,” and the Supreme Court has long held that such an exceptional order must be drawn as narrowly as possible.

Yet, this injunction reaches entities that are not parties to the case, for example, employers and employees in Massachusetts. Those parties have not had a chance to make their own arguments about the rule’s validity.  In addition, to justify an injunction that reaches Massachusetts, the Texas court would need some proof that the challenged rule would exact an onerous burden on employers here, but it had no such evidence before it.  Finally, the court’s order also creates a conflict with decades of case law in other Circuits upholding the Department of Labor’s power to define who qualifies as an exempt employee, and thus, violates the principle of “comity,” in other words, respect, for other Circuit’s precedents.

It is far from clear that a ruling from single Texas district court can lawfully bind the Department of Labor from enforcing its rule elsewhere, including here in Massachusetts, but it will be up to the Fifth Circuit to determine if that is the case.

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