The Fair Labor Standards act requires that workers be paid an overtime premium (generally time-and-a-half) if they work over 40 hours in any given week. There is an exemption available for “any employee employed in a bona fide executive, administrative, or professional capacity.” To determine if the exemption fits an employee’s situation, three factors are reviewed:
- How the worker is paid (salary or hourly);
- How much the worker is paid (the salary threshold); and
- The duties the worker performs (the job duties test).
In 2016, the Obama Administration’s Department of Labor announced a rule that the minimum salary threshold, which had been $455 a week ($23,660 annually) would be increased to $913 a week ($47,476). Needless to say, this doubling of the salary basis meant that many workers who had been treated as exempt no longer qualified. The rule was set to take effect on December first, 2016.
The Challenge
Business groups, including the United States Chamber of Commerce, argued that doubling the threshold was unreasonable and illegal. So did Republican attorneys general and governors of 21 states. Essentially, the plaintiffs argued that the Obama rule overemphasized the salary portion of the three part test, and made salary a determining factor. This, they claimed, was over-reach by the executive branch, and was the equivalent of re-writing the law. Two lawsuits were filed, by business groups and by 21 states’ attorneys general. The suits were consolidated in a single case in a federal district court in Texas.
The Court’s Initial Ruling
In late November, the Texas court issued a nationwide preliminary injunction, determining that it was likely that the plaintiffs would succeed on their argument that Department of Labor had exceeded its authority by doubling the salary threshold. This ruling stopped the implementation of the new overtime rule, but only until the Court reached it for a final ruling. By this time, many employers had already modified their payment methods, or otherwise adjusted to the new rule.
The Obama Department of Labor appealed the preliminary injunction. That appeal was pending when the Trump administration took over, and Trump’s Department of Labor did not withdraw the appeal. Meanwhile, the plaintiffs had also filed a motion for summary judgment. This motion would end the case in their favor, if granted.
The Texas district court has now ruled on the plaintiffs’ motion for summary judgment, finding in favor of the businesses and states who challenged the new rule. The case is now over, The Obama overtime rule is voided, and will not go into effect (unless the Trump administration appeals, which is not expected).
Next Steps?
The Trump Administration’s plans for the overtime law are not known. The Secretary of Labor, Alexander Acosta has stated that the Department will make an effort to re-draft the regulation. He also indicated that he believes the current salary threshold is too low, and should be raised, although likely not doubled. While the Obama rule only addressed the minimum salary test for exemption, there are many who would like to see all three prongs addressed, arguing that there are uncertain, and therefore difficult to apply with certainty. On July 26, 2017, the DOL published what is called a “Request for Information”, asking stakeholders for their recommendations on what changes, if any, should be made. Based upon the content of the request, it appears that the agency is planning to start over on the revisions. So far, the Department has received over 120,000 responses to the RF, with a deadline for the responses is September 25, 2017.
It is unlikely that anything will happen quickly in this process, and businesses can expect time to respond when a final rule is promulgated. A good guess is an increase in the minimum salary, perhaps of approximately half of what the Obama Administration proposed, to somewhere in the mid-$30,000 annually.
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Article written by Peter Juran.
