At least once a week we get a call from a client inquiring about the status of the new salary threshold overtime regulations. We have an update, and the news is good for employers!
By way of background, on May 23, 2016, the U.S. Department of Labor (DOL) announced its final rule (Rule) to increase the threshold salary requirements for exemptions from overtime entitlement under the Fair Labor Standards Act (FLSA). We previously discussed the DOL's Rule here. In short, the Rule more than doubled the salary threshold (from $455 per week to $913 per week) for professional, administrative and executive employees to qualify as exempt from the FLSA's overtime requirements, and it increased the salary requirement for exempt highly compensated individuals from $100,000 to $122,148, thereby entitling millions of additional employees to overtime pay under the FLSA at a significant cost to employers, particularly small businesses and not-for-profit organizations.
The Rule was enjoined on Nov. 22, 2016, just days before it was scheduled to go into effect on Dec. 1, 2016. Two groups of plaintiffs – one composed of 55+ businesses and the other composed of 21 states – challenged the Rule on various grounds, including that the drastic increase in salary requirements effectively overtook the rest of the statute and wrongly required the reclassification of certain employees who were performing bona fide executive, administrative and/or professional duties and thus were rightfully categorized as exempt from overtime. Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas granted the injunction.
Prior to the issuance of the preliminary injunction, the plaintiffs also filed an expedited motion for summary judgment to have the Rule deemed unlawful. And here is our first update – on Aug. 31, 2017, the district court granted the plaintiffs' motion for summary judgment, holding that the Rule was not "based on a permissible construction" of the FLSA because "[b]y raising the salary level in this manner, the Department effectively eliminates a consideration of whether an employee performs 'bona fide executive, administrative, or professional capacity' duties." State of Nevada et al. v. United States Department of Labor et al., E.D. Tex. Case No. 4:16-cv-00731, Dkt. No. 99, p. 16-17, Aug. 31, 2017. The district court left open, however, the issue of whether any increase of the current salary thresholds would be permissible, such as an increase that more closely tracked inflation rates or continued to encompass a fairly small subset of employees. Instead, the court limited its order to the facts of the case before it, wherein the increase more than doubled the salary threshold in a way that went beyond its original purpose to "screen out the obviously nonexempt employees." Id. at 15.
As employers may recall, the Texas AFL-CIO (Union) had filed a motion in December 2016 to intervene in the lawsuit. Second update – on Aug. 31, 2017, the court also denied the Union's motion to intervene, finding that the motion to intervene was not timely and the Union did not have a legally protectable interest in the matter, thereby ending the Union's ability to participate in the lawsuit.
As employers may also recall, the DOL had initially filed an interlocutory appeal of the preliminary injunction on the same day the injunction was issued, an appeal that was set for hearing on Oct. 3, 2017. And thus, our third and final update – in light of the court's Aug. 31 decision, the DOL has voluntarily withdrawn its pending appeal on the grounds that it is now moot. While interesting, the DOL's decision to withdraw its appeal is not necessarily surprising, given the switch in administration and its prior announcement that it was reconsidering the Rule and looking for alternatives. Importantly, such alternatives still may include increases of the current salary thresholds, albeit less drastic increases.
It appears that the DOL is currently considering all these issues, as in late July 2017 it posted a request for information and public comment regarding the current overtime exemptions. Although the current administration's timeline for addressing these issues remains unclear, with these three recent updates, employers can rest easy that the prior Rule will not go into effect. In other words, business as usual ... until further notice.
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