Court Strikes Down Obama Administration Overtime Rule

September 1, 2017

On Aug. 31, 2017, a federal court in Texas struck down the Obama-era Department of Labor rule that would have significantly expanded overtime eligibility by more than doubling the salary threshold under the Fair Labor Standards Act’s (FLSA’s) “white collar exemptions” — that is, the executive, administrative and professional exemptions.

Originally scheduled to go into effect Dec. 1, 2016, the final rule significantly expanded overtime eligibility by raising the salary threshold (also known as the salary level) necessary for employees to qualify as “exempt” from overtime pay, as previously reported in May, June and November 2016 McGuireWoods legal alerts.

The final rule more than doubled the salary threshold, from $455 to $913 per week (and from $23,660 to $47,476 per year), and increased the salary threshold for “highly compensated” employees, from $100,000 to $134,004 per year. Also, under the final rule, the salary threshold was scheduled to automatically update every three years based on certain economic “indexing” benchmarks, with the first update to occur Jan. 1, 2020.

Dozens of states and private business groups challenged and sought to block the overtime rule in lawsuits filed and consolidated in the U.S. District Court for the Eastern District of Texas. In November 2016, the court temporarily enjoined nationwide enforcement of the overtime regulations.  Then, on Aug. 31, 2017, the court went a step further and entered summary judgment on behalf of the Plano, Texas, Chamber of Commerce and more than 55 Texas and national business groups, declaring the overtime regulations invalid.

The court’s analysis focused on Congress’ intent in creating the white-collar exemptions and the extent of the Department of Labor’s authority to define and implement those exemptions. The court concluded that “Congress unambiguously intended the exemption to apply to employees who perform ‘bona fide executive, administrative, or professional capacity’ duties,” which suggests that “the exemption should apply to those employees who, in good faith, perform actual executive, administrative, or professional capacity duties.” Congressional intent is clear, and the Department of Labor “does not have the authority to use a salary-level test that will effectively eliminate the duties test” that Congress prescribed. “Nor does the Department have the authority to categorically exclude those who perform [exempt] duties based on salary level alone.” But, the court held that this is precisely what the new overtime rule does and, therefore, the rule “does not give effect to Congress’ unambiguous intent.”

The court noted that the more-than doubling of the required salary threshold “would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.” The overtime rule “makes overtime status depend predominantly on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.” According to the court: “This is not what Congress intended.” The rule, therefore, “is invalid.”

President Trump’s secretary of labor, Alexander Acosta, has said that his predecessor in the Obama administration went too far in expanding the rule and exceeded its authority under the FLSA. So, while the Acosta-led Department of Labor is unlikely to appeal this adverse decision, a review of the salary threshold for the white collar exemptions may not be stalled completely. Note the following, for example:

  • In the appeal of the temporary injunction entered in November 2016, the Trump administration defended the Department of Labor’s power to include a salary test in its overtime regulations, but indicated that it did not agree with the Obama thresholds.
  • In July 2017, the department opened a 60-day period for soliciting public comments regarding several issues related to the white collar exemptions, including whether the current $23,660 threshold should be updated; whether the salary thresholds should depend on the employer’s size, region of the country, and industry; and whether the overtime rule has an adverse impact on small business.
  • Further, one option the Trump administration is considering is eliminating the salary threshold altogether and focusing instead on the job duties.

While it is unclear at this point whether DOL will continue the Obama-era effort to increase the salary levels, and whether even the existing salary requirements are still valid, this ruling certainly continues to delay any implementation of the overtime rule. Thus, as with many legislative and other issues currently pending with the Trump administration, employers should savor this victory for now and stay tuned for further developments.

For further information or questions about the impact of the ruling, please contact the authors, your McGuireWoods contact, or a member of the firm’s labor and employment group.