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Obama Administration’s Overtime Rule Killed by Texas Court

As Published in the Pennsylvania Insider Newsletter, September 2017

Published on: Wed 13th Sep, 2017 By: John P. McLaughlin

The Obama-era proposed overtime regulations that would have doubled the salary threshold under which employees would eligible for overtime compensation under the Fair Labor Standards Act (FLSA) have been struck down by the United States District Court for the Eastern District of Texas. The new regulations were estimated to make almost four million workers eligible for overtime compensation and higher wages.

Under the FLSA, employers are required to pay workers overtime at a rate of one and one-half times the worker’s regular rate of pay for all hours worked over 40 hours in a week. The law also empowers the U.S. Department of Labor (DOL) to adopt regulations to implement the law and to determine which workers should be exempt from overtime based on the FLSA’s “bona-fide executive, administrative, and professional positions” (the “White Collar Exemptions”). The DOL has done so by adopting regulations that define the duties and salary required in order to qualify for a White Collar Exemption. The DOL’s proposed new regulations did not change the duties required to qualify for any of the White Collar Exemptions. The DOL, however, did raise the salary that an individual had to be paid in order to qualify for an exemption, from $455 per week ($23,660 per year) to $913 per week ($47,476 per year).

The Texas court ruled that the proposed regulations were improper because the DOL exceeded its authority to issue regulations under the FLSA. While the court recognized that the DOL has broad authority to define the scope of the White Collar Exemptions, it noted that the DOL’s authority is not unlimited: it is confined to determining the employees who “perform exempt duties.” The court emphasized that the DOL does not have the authority “to use a salary-level test that will effectively eliminate the duties test required by the FLSA” and does not have the authority “to categorically exclude those who perform ‘bona fide executive, administrative or professional’…duties” based on a salary test alone.

The DOL’s regulations more than doubled the previous minimum salary threshold level. The Court reasoned that “this significant increase would essentially make an employee’s duties, functions or tasks irrelevant if the employee’s salary” fell below the proposed new salary threshold level and “entire categories of previously exempt employees who perform ‘bona fide executive, administrative, or professional capacity’ would now qualify for overtime based on salary alone.” For example, the DOL estimated that 4.2 million workers currently ineligible for overtime will fall below the new salary threshold and become eligible for overtime based on the new salary threshold alone. Such a result, the court concluded, was not the intent of Congress when it enacted the FLSA. As a result, the court concluded that the DOL “exceeded its authority and gone too far” with the regulations.

It is important to note that the Texas court did not rule that the DOL cannot have a salary level test. The court specifically noted that it was not doing so. The court merely found the new proposed salary test was too high. The decision paves the way for the DOL to now issue new regulations with a lower salary level test or to do nothing at all. In addition, the Texas court’s decision has no impact on those employee who have already received a salary increase in anticipation of the proposed new regulations being implemented.

On September 8, 2017, the DOL requested a federal appeals court to dismiss its appeal of the Texas court’s previous order blocking the implementation of the Obama era FLSA overtime regulations. That request most likely signals the official abandonment of the regulations. However, while the Texas court’s decision may have little practical impact on the implementation of the Obama era regulations that were the subject of the decision, it could impact the DOL’s evaluation of any new regulations that will further define or delimit the FLSA’s white collar exemptions. The DOL issued a request for public comment and information regarding potential changes to the salary and duties test for the white collar exemptions in July 2017. Public response to the DOL’s information request is due on September 25, 2017.