Has the death knell officially been sounded on the Obama Administration’s Department of Labor overtime rules? That appears to be the case after a federal judge in Texas struck down the rules that would have increased the amount of U.S. workers eligible for overtime pay by more than four million. The same judge had already temporarily blocked the rule back in November. With last week’s ruling, Judge Amos Mazzant III has dropped the other foot.
How We Got Here
For those who have been living under a rock the last couple years, the following is a brief recap of the events leading up to last week’s ruling.
Under the Fair Labor Standards Act (“FLSA”), employers must pay 1.5 times their regular rate of pay for every hour worked in excess of forty hours per workweek. That law does not apply to all employees, however. Some employees are deemed exempt from the overtime requirements. The most common exempt classification are the “white collar” exemptions (executive, administrative, and professional). To be classified as exempt under one of these exemptions, employees must meet certain criteria relating to the nature of the work they perform (the “duties test”) and earn a minimum salary of at least $455 per week, which translates to $23,660 annually.
Back in 2015, under the Obama administration, the DOL proposed a new rule that would effectively double the minimum salary threshold. After public comments and a few tweaks, the DOL announced its intent to implement the rule effective December 1, 2016. Beginning then, employees would have to earn $913 per week, which translates to $47,476 annually, to be properly classified as exempt. To account for inflation and cost-of-living increases, the rule also established a mechanism for automatically updating the salary threshold every three years.
Just before the rule took effect, however, nearly half of the U.S. states and a number of business associations sued in federal court to block it. In a ruling that surprised the legal industry, Judge Mazzant issued a temporary injunction last November to preclude the rule from taking effect. In that ruling, Judge Mazzant held that the DOL overstepped its bounds with the new rule. According to the order, Congress had intended for overtime exemptions to be determined primarily by utilizing a test that focused on an employee’s primary job duties. But the new rule effectively wiped out that test and placed too heavy of an emphasis on employees’ salaries rather than their job duties.
The DOL had appealed that ruling to the Fifth Circuit. Despite an administration change following the election, the Trump DOL had signaled its intent to keep that appeal going. By granting summary judgment in favor of the states and business associations last week, however, Judge Mazzant rendered that appeal moot. Accordingly, the DOL withdrew its appeal on September 5.
Where Do Employers Go From Here
For now, depending on where they are located, employers may revert back to the federal overtime rules that were previously in effect—with a $455/week minimum salary threshold. Employers in states that have more generous overtime exemption laws, however, such as New York and California, will have to instead ensure they are continuing to comply with state law.
As for the future of the federal white collar exemptions, it remains to be seen. Even before last week’s ruling, the Trump DOL announced in July that it was opening a public comment period on potential new rules. While the Trump administration had signaled its view that the salary threshold proposed under the Obama DOL was too high, it had not abandoned the idea of a new salary test altogether. Instead, the Request for Information asked for comments as to, among other things, whether a salary test should remain part of the exemption analysis, and if so, whether different minimums should apply depending on the employer’s region, size, industry, and other factors. In light of Judge Mazzant’s ruling, however, the DOL will need to be mindful with any future changes to avoid placing too much emphasis on salary so as to swallow the “duties” test.