On August 31, 2017, U.S. District Judge Amos Mazzant in Plano, Texas abrogated the United States Department of Labor (“DOL”) changes to the Fair Labor Standards Act (“FLSA”) regulations with respect to overtime pay (the “Overtime Rule”). The Overtime Rule would have raised the salary threshold for overtime eligibility to almost double the current threshold. While not absolute, this ruling provides employers a stronger inclination that the Overtime Rule will not survive, alleviating employers from the financial and administrative burden the new regulations would have caused.
Background
The Overtime Rule was finalized in 2016, during the last year of the Obama administration. The Overtime Rule increased the salary threshold for the FLSA’s white collar exemptions from $23,660 to $47,476 annually. The salary threshold for the “highly compensated employee” exemption also increased, from $100,000 to approximately $134,000. The DOL’s reasoning for these increases was that the salary thresholds were out of date, having been set years ago without ever being adjusted for inflation. Employers argued that the Overtime Rule set the salary thresholds too high, which would hurt businesses by significantly increasing both employers’ wage obligations and the administrative and financial burden of tracking overtime for a larger number of employees.
The Overtime Rule was set to take effect on December 1, 2016. However, in November 2016, Judge Mazzant granted a preliminary injunction postponing its effective date. Since then, there has been litigation regarding the validity of the Overtime Rule. Finally, on August 31, 2017, Judge Mazzant granted plaintiffs’ motion for summary judgment, filed collectively by various states, holding the Overtime Rule as invalid.
Court’s Reasoning
In order to qualify as exempt under the FLSA, an employee must satisfy three separate requirements: (1) the salary basis test, (2) the salary threshold test, and (3) the duties test. Judge Mazzant found that the Overtime Rule would increase the salary thresholds so significantly that they would function as a bright-line test for the overtime exemptions, effectively eliminating the need to analyze an employee’s job duties. Judge Mazzant held that the congressional intent is unambiguous and that employees who perform “bona fide executive, administrative, or professional capacity” duties are exempt from overtime pay under the FLSA. Because the Overtime Rule would exclude so many employees who perform exempt duties, Judge Mazzant found that the Overtime Rule was not a reasonable interpretation of the FLSA.
Next Steps
The DOL has the option of appealing Judge Mazzant’s decision to the U.S. Court of Appeals for the 5th Circuit. In the alternative, the DOL could propose a new set of regulations with a revised salary threshold. Only time will tell if the DOL pursues either of these options, especially under the new administration.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Accessing this blog and reading its content does not create an attorney-client relationship with the author or with Miles & Stockbridge. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
[View source.]
