In a decision issued on August 31, 2017, federal district Judge Amos Mazzant struck down as invalid the Department of Labor’s (DOL) new overtime exemption rule which planned to significantly increase the salary threshold under the Fair Labor Standards Act (FLSA). As explained further below, a welcome decision for employers is also leaving DOL’s path toward a new overtime threshold in question.
As most know, the FLSA requires that employers pay non-exempt employees overtime for any hours worked beyond 40 in a week. (Certain states impose their own overtime rules, but this is the federal rule). The FLSA requires that an employee satisfy three conditions in order to be considered exempt from overtime requirements:
the employee must be paid a fixed salary;
the salary must meet a minimum threshold; and
the position must meet certain duties requirements applicable to executive, administrative, or professional positions.
Under the Obama administration, the DOL more than doubled the minimum salary requirement, taking it from $455 per week to $915 per week. Additionally, the threshold would have been scheduled to increase again in the year 2020 under an automatic 3 year increase the rule sought to implement.
The DOL rule was challenged and preliminarily enjoined shortly before it was to take effect in 2016. DOL estimated 4.2 million employees stood to become eligible for overtime under the rule and in many cases employers made adjustments prior to the rule’s effective date. Although the Trump Administration and Labor Secretary Alex Acosta made it clear they opposed the Obama salary thresholds, the DOL chose to continue defending the rule in court. This is most likely because Mr. Acosta announced earlier this year that the DOL intends to propose a more conservative increase to the rule’s salary threshold and the DOL wanted to know how even a lower threshold might be challenged.
According to Judge Mazzant’s decision, the DOL exceeded its authority in promulgating the new rule by setting the salary threshold so high that it essentially eliminated the requirement that exempt employees must perform executive, administrative or professional duties. “Because the final rule would exclude so many employees who perform exempt duties, the [DOL] fails to carry out Congress’ unambiguous intent,” the decision read. The judge went on to clarify that the holding did not find that the DOL lacked the authority to issue a salary threshold test at all, just that as applied in this rule, the DOL had gone too far.
The opinion does not explain how high is too high a threshold. Should Mr. Acosta move ahead with his plans to propose a new salary threshold, this decision means that DOL will again be guessing as to whether the new proposed threshold will withstand a legal challenge. Even more disheartening is that the business community will also be left in limbo as it attempts to prepare for future changes to the standards applied to FLSA exemptions.
Until then, employers should keep in mind that the reason DOL is committed to changing the test is because of rampant misclassification violations. To avoid potential liability, employers should continue to evaluate all exempt salaried positions to ensure positions meet the relevant salary basis and duties tests.