Judge Strikes Down New DOL Rule on Overtime and White Collar Exemption

Remember last November when a federal judge put a temporary hold on significant changes to federal labor laws affecting millions of workers and their employers?  We wrote about it here.

Last week, the judge issued a final ruling that struck down the proposed changes, which would have required employers either to substantially increase the pay of millions of workers or pay them overtime.

Background

The Fair Labor Standards Act (FLSA) generally requires employers to pay employees at least minimum wage ($7.25/hour) and overtime pay for all hours worked above 40 in a week (time and a half). However, an exemption from both exists for employees performing bona fide executive, administrative and professional duties—the so-called “white collar” exemption. To qualify for the exemption, employees must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week, which comes out to $23,660 per year.

Back in May 2016, the Department of Labor (DOL) issued a new rule that, among other things, increased the minimum salary level for exempt employees to $913 per week ($47,476 annually). The rule also created an automatic updating mechanism that would adjust the minimum salary level every three years. The upshot of this rule was, as mentioned above, that employers faced a choice of either increasing salaries significantly or paying overtime for millions of workers.

Not too surprisingly, many business groups and 21 states opposed the new rule, arguing that it would sharply increase labor costs and hurt morale by demoting managers to hourly employees, along with being difficult to administer. Advocates for the rule argued that the rule provided long-deserved overtime for workers putting in long hours for no extra pay.

The Legal Challenge

Ultimately, the states and business groups filed separate lawsuits that were joined together before Judge Mazzant in the U.S. District Court for the Eastern District of Texas. The judge issued a preliminary injunction in November 2016 to stop the rule from going into effect until he could hear the full merits of the case and issue a final ruling.

The judge struck down the rule on August 31, 2017, reasoning that Congress intended the exemption to be based on both the duties being performed and the requisite salary. But under the DOL’s rule, the salary was raised so high that it would render the worker’s duties irrelevant. The DOL estimated that 4.2 million workers would become eligible for overtime even though they were performing exempt duties. The court concluded that the DOL exceeded its authority by essentially removing the duties requirement from the exemption.

We’ll have to see what happens next, but we might expect the DOL to take another shot at finding the salary “sweet spot” that could increase pay without eliminating the “duties” test. Until then, employers don’t need to change anything. Stay tuned!

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Post by Mark Brookstein

Focusing on commercial litigation and employment law, Mark Brookstein enjoys a broad and diverse practice. In addition to litigating contract, real estate, business torts, employment and other commercial matters, Mark regularly counsels businesses on matters ranging from risk management and best practices to regulatory compliance and internal investigations.

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