DOL Overtime Rule Struck Down

By Fiona W. Ong - Shawe & Rosenthal LLP

August 31, 2017

A Texas federal court has struck down the Obama-era Department of Labor (DOL) revised overtime exemption rule, which sought to more than double the salary level required for overtime-exempt workers.

The Current Test for Overtime-Exempt Status: In order to be exempt from overtime, a white-collar employee must meet three tests: (1) the salary basis test – the employee must be paid on a salary basis, not subject to reductions for fluctuations in quantity or quality of work; (2) the salary level test – the employee’s salary must currently be at least $455 per week (equaling $23,660 per year); and (3) a duties test – the employee must perform certain duties specific to the executive, administrative or professional exemption in question. There is also a highly-compensated employee exemption under which an employee must currently make at least $100,000 per year and perform at least one exempt duty.

What the Revised Rule Would Have Changed: The DOL’s revised rule would have doubled the salary requirement for white collar (executive, administrative and professional) employees from $23,660 per year ($455 per week) to $47,476 per year ($913 per week). The required minimum salary for the highly compensated employees’ exemption would also have been raised from $100,000 to $134,004. These salary levels would have been subject to automatic adjustments every three years. The new rule did not change the duties test for any of the exemptions.

Challenge to the Revised Rule: The new rule was challenged by 21 states and multiple business groups, arguing that such change was unlawful. On November 22, 2016 – just over a week before the rule was scheduled to take effect on December 1, 2016 – the Texas federal court issued a preliminary injunction that placed the rule on hold. The Obama administration appealed the order to the U.S. Court of Appeals for the 5th Circuit, but under the Trump administration, the DOL indicated to the 5th Circuit that, although it believed it had the authority to increase the salary level, it had decided not to pursue a $913 weekly salary level for the exemption. Instead, the Trump DOL issued a Request for Information (RFI) in an effort to determine the appropriate salary level by soliciting input from the public, as we discussed in our July 27, 2017 E-lert, Overtime Rule Revisited by Trump DOL.

In the meantime, the plaintiffs in the Texas lawsuit filed a motion for summary judgment, meaning that they asked the court to decide in their favor based on the undisputed facts and the applicable law.The court granted their motion today, August 31, 2017.

The Court’s Ruling that the Revised Rule Was Unlawful:  The court found that Congress had clearly intended to define the executive, administrative and professional exemption by their duties. The court found that the DOL had previously incorporated and utilized a permissible minimum salary level to identify categories of employees intended to fall within the exemption. The new salary levels, however, would admittedly exclude previously exempt employees regardless of the duties performed. This, the court stated, was not what Congress intended. Nor was it reasonable.

What this means: Employers may continue to apply the current tests for exempt status, while awaiting the DOL’s next steps. DOL Secretary Acosta has stated that he believes that the DOL has the authority to increase the salary level, although he disagreed with the amount of the Obama DOL’s proposed increase. The language of the court’s order would seem to support the DOL’s position that it can implement some increase, but not one of the magnitude previously proposed. We would expect the Trump DOL to propose a more modest increase. We also note that the DOL’s recent RFI sought input as to whether the duties tests should be revised, and thus would not be surprised to see some modification of those tests in future proposed regulations from the DOL.