Ding, Dong! The New Overtime Rules Are Dead— Maybe?

So, it looks like the joke’s on me. After all I did just say in last week’s post (click here if you missed it) that even with Trump taking office you still need to pay attention to the new overtime rules. So naturally, yesterday a federal judge, from the Eastern District of Texas, in Nevada v US Department of Labor issued a preliminary nationwide injunction temporarily stopping the new overtime rules from going into effect. Wait. What? Can a judge from Texas do that? What happened and how did it happen? That’s what we’re going to find out, after the jump…

(image from glv.com)

Before we dive into the case, you may be asking why, we didn’t talk about it previously. Well, frankly, it seemed like a long shot to me, (and to at least a few of my colleagues) and I didn’t want to get anyone’s hopes up. So, note to self: long shots should not be completely discounted. That said, if I had it to do again now, I might have mentioned the case, but I doubt I would have done more than that. OK, whatever. Let’s focus on what people really want to know: What in the blankety-blank just happened???

OK, so here, in a nutshell is what went down: 21 states and several business advocacy groups filed 2 lawsuits in the United States District Court in the Eastern District of Texas, seeking to enjoin the Department of Labor from enforcing the new overtime rules that were set to go into effect on December 1. (Click here for my previous post on that subject.) The plaintiffs’ argument was essentially that a) the new rules violated that 10th Amendment (reserving certain powers to the States), because they would “coerce the states to adopt wage policy choices that adversely affect the States’ priorities, budgets and services”(the judge rejected this argument); and  b) Congress never intended for there to be a salary threshold to determine overtime exemptions, nor did it intend for there to be automatic increases in that salary threshold every three years. The judge partially agreed with the plaintiffs here. Remember, the new rules were put in place by the Department of Labor, at President Obama’s behest, not Congress. Congress has the power to make laws, government agencies do not — at least not in theory. So, implicit in this argument is the assertion that the DOL effectively made new law, and exceeded its authority.

Now let’s look at the ruling. The judge said that a plain reading of the Executive, Administrative and Professional exemptions showed clearly that Congress defined these exemptions with regard to duties, which does not include a minimum salary level. The DOL took the position that exemption also includes a status component, which in turn implies a minimum salary. The judge was not buying that argument, however. The court, relying on the DOL’s statement in its final rules that white-collar employees earning less than $913 a week will not qualify for the exemption, reasoned that the DOL exceeded its authority and ignored Congress’ intent in that the “by raising the minimum salary level such that it supplants the duties test”.

So, is Judge Amos L Mazzant III saying that only the duties test applies and that therefore no minimum salary is needed? No. The judge acknowledged FLSA itself still explicitly requires that employees be paid on a salary basis, and that such employees’ pay meet a m minimum salary level.  Citing a report containing recommendations as to proposed revisions to the regulations (from 1949) Judge Mazzant said “the salary level was purposely set low to screen out the obviously nonexempt employees, making an analysis of duties in such cases unnecessary”. In other words, yes, there is still a minimum salary requirement, and yes, the minimum salary requirement can be raised to take inflation into account, but no, it cannot be raised so high as to vitiate the duties test completely. Assuming therefore, that a Republican-controlled Congress would choose to re-visit this issue, it could still raise that minimum salary threshold, but, we can assume that the increase would be considerably less.

Before we get to the “now what” part of this post, let’s ask and answer another question: How does a U.S. District Court (i.e. a federal trial court) get to issue an injunction that applies nationwide? Wouldn’t this court only have jurisdiction over the Eastern District of Texas?  Here is what the judge said:

It is established that “the scope of injunctive relief is dictated by the extent of the violation established, not by the geographical extent of the plaintiff class.” A nationwide injunction is proper in this case. The Final Rule is applicable to all states. Consequently, the scope of the alleged irreparable injury extends nationwide. A nationwide injunction protects both employees and employers from being subject to different EAP exemptions based on location.

OK, so now what? Well, for now, those of you who would have been impacted by the new rules have something for which you can truly be thankful when you sit down to eat your turkey tomorrow. Why for now? You can assume that the DOL will appeal this ruling. The Circuit Court of Appeals may reverse Judge Mazzant, both as to the substance of the ruling, and his application of the injunction nationwide. There is also a strong possibility that this case will go all the way up to the US Supreme Court. Whether either court will agree with Judge Mazzant is an unknown, though I am sure many will speculate. Then, of course there is a possibility of Congress, at some time amending this part of the FLSA. Will a Republican-controlled Congress do so? Well, stranger things have happened…

Oh, one more point. Even without the new salary threshold, this ruling makes it clear that the duties tests are still fully in effect, confirming what I said last week: Even if you adhere to minimum salary requirements, you are not out of the woods if the employee’s primary job functions do not meet the criteria of the claimed exemption.

On that note, Happy Thanksgiving! We certainly have something to chew on until next week. See you then.

Disclaimer: Contents of this post are for educational/informational purposes only, are not legal advice, and do not create an attorney-client relationship. Consult with competent employment counsel in the state(s) in which you employ people with your specific questions.

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