A federal district court has halted the rollout of a new U.S. Department of Labor rule on overtime pay, which was originally slated to take effect on December 1.

We’ve blogged previously about the new rule, which aims to do the following:

• Raise the salary threshold for determining if an employee is non-exempt (and entitled to overtime pay) from $23,660 to $47,476 annually; and
• Require automatic salary updates every three years.

Several states brought a lawsuit against the DOL, challenging the rule’s lawfulness and the agency’s authority to issue it. In addition, about 50 business groups also challenged the DOL in the same federal district court. The judge granted the states’ motion for a preliminary injunction, which enjoins the Department of Labor from implementing and enforcing the rule for the time being.

Looking ahead, the district court needs to evaluate the issues of authority and validity of the rule. It is possible the department will appeal the decision on the preliminary injunction to the U.S. Fifth Circuit Court of Appeals, as well.

Small business groups and other trade groups have applauded the decision, and argue that the rule as written could increase labor costs and force employers to demote managers to hourly employees, hurting morale. However, DOL officials and worker advocacy groups said the rule would help ensure managers and administrative employees are fairly paid for the extra hours they log and narrow a growing divide between wealthy and low- to middle income households.