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Apparent End-of-the-Road for Obama Administration’s Overtime Pay Rule

By:  R. Eddie Wayland, TCA Legal Counsel

On August 31, 2017, a United States District Judge for the Eastern District of Texas invalidated the Department of Labor’s (DOL) recent changes to the federal overtime rule, finding the DOL’s broad expansion to the rule went beyond Congress’s original intent. The Court held that by focusing primarily on the salary paid to the employee and not the specific duties assigned, the DOL’s new rule effectively eliminated the duties test used to determine whether an employee was exempt from overtime.

Following the district court’s decision in this case, the DOL filed an unopposed motion to withdraw its appeal of the November 2016 order that preliminarily enjoined the Final Rule across the nation. The Fifth Circuit Court of Appeals granted the motion and dismissed the appeal on September 6.

Background

In 2014, President Obama issued a memorandum directing the Secretary of Labor at the time, Thomas E. Perez, to update the “existing overtime regulations for executive, administrative, and professional employees.” As a result, the DOL drafted a proposed rulemaking revision, received close to 300,000 comments from businesses and state governments on the proposed changes, and subsequently published the updated “Final Rule” in May 2016.

The Final Rule modified a Fair Labor Standards Act exemption to minimum wage and overtime requirements for certain employees. Specifically, any employer whose employees worked in a “bona fide” executive, administrative, or professional capacity was exempt from paying that employee overtime. The Fair Labor Standards Act delegated to the Secretary of Labor the power to establish the qualifications necessary for an employee to be considered working in a bona fide executive, administrative, or professional capacity. At the Secretary of Labor’s request, the DOL issues regulations interpreting this exemption.

Under the 2016 Final Rule, the minimum salary requirement was raised from $455 per week to $913 per week. According to the DOL, this figure represented the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage region of the country, the South. The Final Rule also automatically required the minimum salary requirement be updated every three years starting in 2020.

Litigation

Shortly after the creation of the Final Rule, two separate lawsuits were brought in the U.S. District Court for the Eastern District of Texas in an attempt to prevent the modification from going into effect on December 1, 2016. Twenty-one separate states (the “state plaintiffs”) filed suit against the DOL, the Wage and Hour Division of the DOL, and their agents. Similarly, fifty-six Texas and national business groups (“the business plaintiffs”) also brought suit against these entities.

On October 12, 2016, the state plaintiffs filed a motion with the Court seeking emergency injunctive relief. This motion was granted on November 22, 2016 and the Final Rule was temporarily halted from going into effect. On October 14, 2016, the business plaintiffs filed a motion seeking to have the Final Rule fully invalidated and stricken down by the District Court. The state plaintiffs and business plaintiffs’ suits were subsequently consolidated and the state plaintiffs joined the business plaintiffs’ motion for summary judgment.

The District Court’s Ruling

In their motion, the business plaintiffs claimed the changes required by the Final Rule exceeded the DOL’s authority under the Fair Labor Standard Act. The business plaintiffs argued the new heightened minimum salary threshold effectively eliminated any other test to determine whether an employee performed job duties in an executive, administrative, or professional capacity.

Pursuant to standards set forth by the United States Supreme Court, a two-step analysis is performed in reviewing agency decisions. First, the Court must determine whether Congress has directly addressed the question at issue. If Congress has specifically addressed the issue, the analysis ends. However, if Congress has not directly addressed the precise issue, the Court must determine whether the agency’s interpretation of the rule is reasonable.

The question at issue in this suit was how to define whether an employee was employed in a “bona fide executive, administrative, or professional capacity.” The Court noted this phrase was not defined by the rule. When phrases are not clearly defined, the Court must attempt to examine the “plain meaning” of the terms at the time the rule was created. Here, the Court found the plain meaning of executive, administrative and professional capacity related to a person’s “performance, conduct, or function” or more generally to the person’s responsibilities or duties as an employee.

After determining the intent of the rule, the Court then addressed whether the DOL’s actions fulfilled this intent. In reviewing the changes enacted by the Final Rule, the District Court determined the DOL failed to meet this standard. By setting such a high salary threshold to qualify for the overtime exemption the DOL had effectively eliminated the “duties” test and categorically excluded many employees who actually worked in an executive, administrative, or professional capacity. Therefore, the Court found the Final Rule ignored Congress’s intent when creating the overtime exception. As such, the Court concluded that the DOL’s Final Rule was invalid.

Takeaway

Prior to the district court’s decision here, President Trump’s Administration already expressed its intent to rewrite the Obama Administration’s expansion to this federal overtime rule. In line with this announcement the DOL, now led by Labor Secretary Alexander Acosta, recently restarted the public question process which is a prerequisite to overturning and replacing the overtime rule at issue. Although it seems certain the new administration will not raise the minimum salary level for exempt employees anywhere near the $913 per week threshold currently at issue, it is possible there will be some upward increase in the near future to account for inflation and similar market issues.

R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.

September 19, 2017

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