On November 22, 2016, District Judge Amos Mazzant, III issued a temporary injunction blocking enforcement of the Department of Labor’s new overtime rules that were set to go into effect December 1, 2016. That rule proposed to double the salary threshold for administrative, executive, and professional exemptions to overtime pay from $455 per week ($23,660 annualized) to $913 per week ($47,476 annualized) effective December 1, 2016 and with raises every three years after that. Judge Mazzant’s ruling means that the prior salary threshold of $455 will, at least for now, remain in place.
This a groundbreaking decision with both short-term and long-term implications. Below, we briefly look at (1) the case’s history, (2) the ruling and its short-term implications, and (3) where we might be headed.
Case History
The Fair Labor Standards Act generally requires that employees be paid overtime unless they are considered “exempt.” One category of exemption is for executive, administrative, and professional employees. These are colloquially called the white-collar exemptions. For decades, the DOL’s tests for white-collar exemptions required an employee to perform certain duties and be paid a certain minimum salary. Since 2004, the salary threshold has been $455 per week (or $23,660 annualized).
In March 2014, President Obama issued a memorandum directing Secretary of Labor Thomas Perez to “modernize and streamline the existing overtime regulations for executive, administrative, and professional employees.” According to President Obama, “regulations regarding . . . overtime requirements . . . for executive, administrative, and professional employees . . . have not kept up with our modern economy.”
The result of this memorandum was what many businesses consider to be the most costly and complicated regulatory development of 2016. The DOL’s final rule proposed to double the salary threshold for white-collar exemptions from $455 per week ($23,660 annualized) to $913 per week ($47,476 annualized) effective December 1, 2016 and with raises every three years after that.
The rule has been vigorously opposed. In September 2016, Texas and Nevada led a group of 21 states in filing suit in the Eastern District of Texas to enjoin the overtime rule. (Nevada v. DOL, No. 4:16-cv-00731-ALM) That case was consolidated with another similar action filed by the Plano Chamber of Commerce, along with other businesses and business organizations.
The Injunction Ruling and Short-Term Implications
Judge Mazzant sided with the challengers. On November 22, 2016, he entered a preliminary injunction barring the overtime rule nationwide. Judge Mazzant ruled that the DOL had no authority to impose a salary threshold of $913 per week for the white-collar exemptions.
The most striking conclusion of the court’s opinion is that the Court held that the text of the FLSA shows no congressional intent that employers pay employees a minimum amount to qualify for white-collar exemptions. Instead, the Court reasoned that Congress placed the emphasis on an employee’s duties. In the court’s words: “The plain meanings of the terms in Section 213(a)(1), as well as Supreme Court precedent, affirms the Court’s conclusion that Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary.” By imposing weekly salary threshold of $913, the Court held that the DOL violated the legislative intent behind the FLSA’s administrative, executive, and professional exemptions. Judge Mazzant noted in a footnote that his ruling “is not making a general statement of the lawfulness of the salary-level test for the EAP exemption.” This leaves open the possibility that some lower minimal level might be consistent with Congress’s delegation of rulemaking authority to the DOL or that, at least, salary may be a factor in determining whether an employee is exempt.
Judge Mazzant’s ruling leads naturally to the question of what now? The DOL’s rule was set to go into effect only 8 days from now. Many companies have implemented compliance measures and may have already announced new raises to the workforce. Taking back raises or changing employees back to exempt presents many tricky issues from both a legal and employee-relations standpoint. Some employees resent being converted to hourly, while others believe strongly that they should be paid overtime. Adding to that uncertainty is the possibility of an appeal to the United States Court of Appeals for the Fifth Circuit or, after a final decision by Judge Mazzant, an appeal to the Fifth Circuit and the Supreme Court of the United States.
Given this state of flux, we recommend consulting with legal counsel about immediate next steps. In general, companies that have not already announced or implemented new measures in response to the DOL might consider a wait-and-see approach while planning for a variety of possible outcomes. Companies that have already announced or implemented new salary measures should give careful consideration before rescinding those measures. At a minimum, employers should consider tracking employee hours for those employees below the salary threshold but who are otherwise considered exempt.
