On August 31, 2017, a federal judge for the Eastern District of Texas struck down the highly controversial Obama-administration ruling that would have significantly expanded eligibility for overtime pay which originally was slated to take effect December 1, 2016. The overtime rule had already been put on hold when a nationwide temporary injunction was issued just days before the scheduled effective date. Had the rules gone into effect, the changes to the overtime rule would have more than doubled the salary level threshold used to determine eligibility for overtime pay under the Fair Labor Standards Act (FLSA). This would have meant an increase in the salary level threshold from $455 per week to $913 per week or from $23,660 to $47,476 annually.
The August 31 ruling holds that the U.S. Department of Labor (DOL) had exceeded its authority by implementing a salary-level test that effectively eliminated the duties test for determining which workers qualify for an exemption and that the updated salary test was inconsistent with congressional intent. Congress allowed the DOL to issue regulations that define and delimit the meaning of “any employee employed in a bona fide executive, administrative, or professional capacity,” under the FLSA. However, the ruling opines that by setting such a high salary level for the executive, administrative, and professional (EAP) exemptions the DOL had overstepped its bounds:
The Final Rule more than doubles the Department’s previous minimum salary level, increasing it from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). This 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. As a result, entire categories of previously exempt employees who perform “bona fide executive, administrative, or professional capacity” duties would now qualify for the EAP exemption based on salary alone. The text of the Final Rule confirms this: “White collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities.” Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 81 Fed. Reg. 32,391, 32,405 August 31, 2017) (italics added).
A lot of uncertainty surrounded the earlier preliminary injunction (issued in November 2016) because it could be read to restrict the DOL from including any minimum salary as one of the tests to determine whether an individual is exempt from overtime. However, the latest ruling clarified that it was not the court’s intent to discern whether the DOL could or could not include a salary test, asserting, “This opinion is not making any assessments regarding the general lawfulness of the salary-level test or the Department’s authority to implement such a test.”
What Does This Ruling Mean For Employers?
For the foreseeable future, the much higher minimum salary threshold that was to take effect on December 1, 2016is no longer required, and if a higher minimum salary is ever adopted it will not be retroactively imposed. However, while the Trump administration is not likely to increase the minimum salary requirement for overtime exemption to $47,476 per year, we should anticipate some increase in the near future; Secretary Acosta has signaled his belief that the minimum should be between $30,000 to $35,000. In fact, the DOL recently issued a Request For Information relating to overtime regulations, including several questions related to salary levels for overtime exemption. Comments in response to the RFI are due no later than September 25 of this year.
If you have questions or concerns about the Fair Labor Standards Act and payment of overtime, Faulkner Law Offices, PLLC would welcome the opportunity to assist.