Back in November a federal judge put the Obama Administration’s overtime rules on hold. I previously posted about that here. But here is the quick recap: The DOL, at President Obama’s instruction, raised the minimum salary level for certain “white-collar” exemptions. Currently, the minimum salary level is $455 per week. The new rules were to raise the floor to $913, with automatic increases every three years. The US Chamber of Commerce and 23 states filed suit in federal court in Texas, arguing that the DOL lacked authority to raise the minimum salary,
and sought an injunction, pending final resolution of the matter. 10 days before the rules were to take effect, a federal judge in the US District Court in the District Texas issued a nationwide injunction, holding them in abeyance. The DOL appealed the judge’s ruling to the 5th Circuit Court of Appeals, but now the District Court judge granted summary judgment in favor of the US Chamber of Commerce and the various States, essentially turning the preliminary injunction into a final ruling. But it’s not over yet. What exactly happened, why and what does it really mean? Let’s have a look…
Let’s just do a quick review of minimum wage and overtime: The Fair Labor Standards Act requires that workers be paid a minimum wage of $7.25 an hour, plus time and a half for each hour worked in excess of 40 hours in each week (“overtime pay”). Generally speaking, certain job categories are exempt from overtime pay if the primary functions of that position meet certain criteria (this is known as the “duties test”) and the person performing is paid a salary of at least $455 a week.
On March 23, 2014, President Obama, in a memorandum, instructed the Department of Labor to re-visit the salary test for the “white-collar exemptions”taking into account inflation, among other factors. The white-collar exemptions include jobs that fall into the Executive, Professional, and Administrative categories. The minimum salary threshold was last revised in 2004, and President Obama felt it did not accurately reflect today’s realities. The new rules also raised the minimum salary for the Highly Compensated Executive. The Department of Labor promulgated proposed rules and then finalized those rules, which raised the minimum salary threshold, and built in some automatic increases. The rules were to take effect on December 1. Had that happened, many employees who would have previously fallen within one of the “white-collar” exemption categories would no longer have done so if they were earning less than the new salary minimum even if their functions still met the “duties test”.
The State of Nevada, and 20 other states, as well as the Plano Chamber of Commerce and over 50 other business organizations filed suit in federal court in the Eastern District of Texas, arguing among other points that since the FLSA doesn’t specifically say that the DOL can set salary levels, it lacks the authority to do so. According to these plaintiffs, only Congress has such authority. Judge Anthony Mazzant, a federal judge in the US District Court for the Eastern District of Texas, agreed that these plaintiffs could likely succeed on their claim and granted a preliminary injunction, temporarily suspending those rules, on November 22, 2016. The case is State of Nevada, et al, v. United States Department of Labor et al. You can read Judge Mazzant’s opinion here.
As you can probably guess, the plaintiffs appealed Judge Mazzant’s ruling to the 5th Circuit Court of Appeals. The government requested and got multiple extensions of time to file their briefs, due to the change in administration, and its desire to determine whether it wished to continue defending the new overtime rules.
Two occurrences of major relevance have transpired in the meantime:
- The DOL issued a Request for Information (RFI), basically seeking information related to the salary level and duties tests for the overtime exemptions. The RFI reflects what is widely believed to the Trump Administration’s intention to scale back the rules promulgated under President Obama. The Department of Labor, in the brief it recently submitted to the 5th Circuit Court of Appeals defended its authority to set minimum salary levels for overtime exemptions, but made it clear that it did not agree with the specific salary level set by the Obama Administration; and
- Judge Mazzant basically turned the temporary injunction into a permanent one. In legal-ese we say he granted summary judgment to the plaintiffs. Since the District Court proceedings were not stayed (i.e. “frozen”) pending the appeal before the 5th Circuit, he could issue this ruling even though the 5th Circuit did not rule on the District Court’s ruling granting the preliminary injunction. The ruling does say that the DOL can use a salary test but that overtime eligibility must be based on a combination of duties and salary. Both of his rulings have suggested that setting the minimum salary so high effectively nullified the duties test. This ruling could also be appealed to the 5th circuit by the plaintiffs. If the plaintiffs wish to push their argument that the DOL has no authority to set salary levels then it may appeal that part of the ruling that says it does have such authority. Since the government is not looking to move forward with the $913 a week salary levels, and since Judge Mazzant seemed to rule that it has the authority to set minimum salaries, it would seem that the government would not look to appeal this ruling.
OK, but what does this mean for employers? While the current DOL seems to agree that the salary threshold should be raised, it has also indicated that the threshold will be significantly lower than $913 a week. So, yes, in those respects, the Obama Administration overtime rules are “dead”. At the same time, however, we may in the near future, see an increase in the minimum salary threshold for those white-collar exemption categories.
One more note of caution, however: If you are in a state that already has imposed higher salary thresholds for these or other exemption categories than the FLSA then you must still comply with those.
On that note, enjoy the upcoming Labor Day weekend!
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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