On August 31, 2017, a federal district judge struck down Obama-era United States Department of Labor (“DOL”) revisions to rules interpreting the Fair Labor Standards Act (“FLSA”) overtime exemptions. The revisions, known as “the Final Rule,” would have affected executive, administrative, and professional overtime exemptions. The Final Rule was scheduled to take effect on December 1, 2016, before the same judge granted a nationwide preliminary injunction in November 2016.
The FLSA requires that employees who work more than forty hours per week receive overtime pay at one and one-half times the employees’ regular rates. There are a number of exemptions from the overtime rule—including section 213(a)(1) of the FLSA, which exempts employees employed in a “bona fide executive, administrative or professional capacity” from FLSA overtime requirements. This exemption is commonly referred to as the “EAP exemption.” Because the FLSA does not define “bona fide executive, administrative or professional capacity,” Congress delegated the authority to define these terms to the Secretary of Labor. The Secretary of Labor vested the DOL with the power to issue regulations that interpret the EAP exemption.
The DOL has issued several regulations interpreting the EAP exemption over the years. In 2014, President Obama directed the DOL to modernize and streamline the DOL’s regulations for the EAP exemption, which had not been revised since 2004. In response, the DOL published the Final Rule. Under the Final Rule, the minimum salary level for exempt employees increased from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The Final Rule also increased the total annual compensation requirement for highly compensated employees and established a mechanism to update these salary and compensation levels automatically every three years.
The State of Nevada and twenty other states filed suit against the DOL challenging the Final Rule. The Plano, Texas, Chamber of Commerce and more than fifty-five businesses groups filed a similar action, which was consolidated with the states’ action. After a preliminary injunction was granted, the plaintiffs moved for an expedited summary judgment.
The court granted the plaintiff’s summary judgment motion. The court found that the DOL exceeded its authority by attempting to increase the minimum annual salary threshold to qualify for the EAP exemption. The court reasoned that the DOL did not have the authority to impose a salary test that would essentially eliminate the duties test prescribed by the FLSA since Congress unambiguously intended for the EAP exemption to apply to employees who perform bona fide executive, administrative, or professional duties. By doubling the DOL’s previous minimum salary for the exemption, the Final Rule would make an employee’s actual responsibilities irrelevant if the employee’s salary fell below the new threshold.
The judge’s ruling ended nearly a year of speculation as to whether the Final Rule would be implemented. Now that the court has invalidated the Final Rule, employers no longer have to be concerned with compliance, barring an appeal to the Fifth Circuit. However, it is important to note that the ruling does not affect state or local overtime exemptions. Employers should be aware that their states may enforce different overtime exemptions than those imposed by the FLSA.
If you have questions concerning the FLSA, the attorneys at Joseph, Hollander & Craft LLC are happy to assist in any way we can.