Obama-Era Increase in Minimum Salary Level for Overtime Exemption Officially Invalidated
The same judge who preliminary enjoined the Obama-era Department of Labor (“DOL”) Final Rule raising the minimum salary level for overtime exemption two weeks before it was set to take effect on December 1, 2016, struck down the rule on August 31, 2017.FN 1 The rule would have raised the minimum salary for an individual to be exempt from overtime pay from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). Judge Amos L. Mazzant of the U. S. District Court of the Eastern District of Texas, who was nominated to the bench by former President Obama in 2014, granted summary judgment for the groups of plaintiffs that challenged the rule, consisting of the Plano Chamber of Commerce, more than 50 business groups from Texas and across the nation, and 21 other states.
FLSA Overtime Exemption
The Fair Labor Standards Act (FLSA) requires employers to pay employees at one and one-half times the employee’s regular rate for hours worked in excess of 40 per week. An exception to this requirement lies in 29 U.S.C. § 213(a)(1), which exempts from overtime pay “any employee employed in a bona fide executive, administrative, or professional capacity . . . .” The DOL issues regulations to interpret the exception, and regulations from 2004 require an employee to meet three criteria to be exempt from overtime. One criterion, and the one at the epicenter of this dispute, is that the employee must be paid a minimum salary of $455 per week, or $23,660 annually (the “salary-level test”). Another requirement is that the employee must perform executive, administrative, or professional capacity duties (the “duties test”).
The Court’s Rationale
In striking down the overtime rule, which would have more than doubled the minimum salary, Judge Mazzant held that the DOL “does not have the authority to use a salary-level test that will effectively eliminate the duties test as prescribed in Section 213(a)(1) . . . . Nor does the Department have the authority to categorically exclude those who perform bona fide executive, administrative, or professional capacity duties on salary level alone.” Judge Mazzant further noted the increase in the minimum salary level goes against Congress’ intentions, writing “[t]his significant increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level . . . . The Department has exceeded its authority and gone too far with the Final Rule.” In addition to invalidating the new minimum salary level, Judge Mazzant also found the portion of the rule that would automatically adjust the minimum salary level every three years to be unlawful. Judge Mazzant did not make a determination as to whether the DOL can lawfully set a salary-level test, but only held that the one it did set was inconsistent with Congress’s intent because it would “exclude so many employees who perform exempt duties.”
What is next?
Alex Acosta, the newly appointed Labor Secretary, has indicated that the DOL was not opposed to a more modest threshold increase somewhere between the former level and the one set by the Final Rule.FN 2 However, any such revision will have to take into consideration the judge’s conclusion that the statute does not authorize the DOL to dilute the importance of the duties tests. In July of 2017, the DOL issued a request for public feedback on revisions to the Final Rule. Thus, employers should expect an increase to the minimum salary threshold which will not eliminate the duties tests or be as substantial as the threshold set by the Obama Administration.
FN1: State of Nevada v. U.S. Dep’t of Labor, No. 4:16-CV-731, 2017 U.S. Dist. LEXIS 140522 (E.D. Tex. Aug. 31, 2017)