Obama's Overtime Rule Struck Down; Trump's Department of Labor Starts Over
Since the inauguration of President Donald Trump in January, employers have been anxiously awaiting action regarding a list of pro-employer campaign promises.
Near the top of that list has been action to block the Department of Labor's new overtime rule, the Final Rule, sharply limiting eligibility for overtime exemptions under the Fair Labor Standards Act (FLSA), and disqualifying millions of existing employees from overtime exemption.
That Final Rule was released on May 18, 2016, under the Obama administration and was set to become effective on Dec. 1, 2016 (read more about the Final Rule).
In short, the Final Rule doubled the minimum salary required to qualify for each of FLSA's white collar exemptions (executive, administrative and professional). It also established a mechanism for the automatic increase of such salary thresholds every three years.
After release of the Final Rule, groups 21 states and over 55 business groups each filed actions in federal district court in Texas seeking to enjoin the Final Rule. The cases were consolidated (State of Nevada, et al. v. United States Department of Labor, et al., No. 4:16-CV-00731).
On Nov. 22, 2016, just over a week prior to the Dec. 1, 2016, effective date, Judge Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide order temporarily enjoining enforcement of the Final Rule pending a final decision on the merits. Mazzant ruled that the DOL does not have the authority to make the statutory exemptions subject to minimum salary levels or create an automatic updating mechanism for such levels.
The Obama DOL initially defended the Final Rule and appealed the injunction to the Fifth Circuit Court of Appeals seeking to overturn the injunction. After the Trump inauguration, however, the DOL went silent regarding its position on the appeal.
On June 30, 2017, the DOL informed the Fifth Circuit it was dropping its defense of the salary levels established in the Final Rule, but requested that the Fifth Circuit approve the DOL's use of both a "salary" and "duties" test to demonstrate eligibility for the "white collar" overtime exemptions. The DOL also informed the Fifth Circuit that it will commence further rulemaking to determine the appropriate salary levels for such exemptions.
Interestingly, during the appeal of the injunction to the Fifth Circuit, the U.S. District Court in Texas was considering the plaintiffs' motion for summary judgment regarding the merits of the Final Rule. On Aug. 31, 2017, Mazzant granted summary judgment against the DOL and invalidated the Final Rule.
Mazzant held that the Final Rule was invalid because the increased salary level and its mechanism for automatic increases exceeded the DOL's statutory authority by negating or totally undermining the "duties" test. He emphasized that "because the Final Rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress' unambiguous intent." Notably and in contrast to the temporary injunction, Mazzant specifically refrained from making any determination on the DOL's authority to set a salary threshold as part of any test for the exemptions.
While both cases remain pending, the DOL's decision to abandon a defense of the Final Rule and restart the rulemaking process, makes it very unlikely that the Final Rule will survive. The Fifth Circuit could make things interesting, however, if it were to affirm the injunction and rule that the DOL may not use any salary component in its exemption test. Such a ruling would limit any test to an examination of duties and would effectively invalidate existing DOL regulations using a salary test.
In the meantime, the DOL has requested public comment regarding a new overtime rule. Employers had until Sept. 25, 2017, to provide comment to the DOL. While we expect a new overtime rule with modest increases to the existing salary threshold, employers will want to carefully monitor the status of this issue.