The DOL’s Overtime Rule is Dead. . . Long Live the DOL’s Overtime Rule!

Frederick G. Sandstrom

On August 31, 2017, a federal judge in the Eastern District of Texas struck down the U.S. Department of Labor’s (“DOL”) final rule that would have transformed millions of white collar jobs into non-exempt positions under the Fair Labor Standards Act (“FLSA”). The rule, issued by the DOL in response to President Obama’s mandate to the Secretary of Labor to “modernize and streamline” the existing overtime regulations, was originally scheduled to go into effect on December 1, 2016, and would have increased the minimum salary requirement for the FLSA’s white collar exemptions from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). Conservative estimates were that application of the rule would have made 4.2 million employees eligible for overtime pay that previously were deemed exempt. The same federal judge had previously enjoined the rule in late November of last year, shortly before it was to go into effect.

Granting summary judgment based on a motion by a coalition of business organizations that had challenged the rule, Judge Amos L. Mazzant III (himself an Obama appointee) held that the proposed increase in the minimum salary requirement was arbitrary and capricious and therefore that the DOL was not entitled to the deference normally given to a federal agency when it interprets a statute it is responsible for administering. Judge Mazzant explained that the FLSA unambiguously directs the DOL to “exempt from overtime pay employees who perform bona fide executive, administrative, or professional capacity duties” and that “[b]ecause the Final Rule would exclude so many employees who perform exempt duties, the [DOL] fails to carry out Congress’s unambiguous intent.” By establishing such a high salary threshold, the DOL would have automatically made millions of exempt white collar workers eligible for overtime pay even though nothing had changed about their job duties—essentially, “creat[ing] a Final Rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.” Judge Mazzant also held that the automatic updating mechanism of the final rule, which would have adjusted the minimum salary level every three years, was unlawful.

Shortly after Judge Mazzant issued his summary judgment decision, the DOL voluntarily withdrew its appeal of the injunction that had been entered barring implementation of the final rule. Although the grant of summary judgment may not fully end the case—it is subject to appeal, and the AFL-CIO, which attempted to intervene in the litigation but was denied by Judge Mazzant, could seek to prolong the adventure via its own appeal—it is unlikely that the final rule will ever again see the light of day.

So the story ends . . . or does it? The summary judgment decision means that we are unlikely to see any change in the minimum salary requirement in the near future, but the DOL has already signaled that it is considering a revised proposal that would be more likely to pass muster under the tests for agency deference. In July of this year, the DOL published in the Federal Register a detailed request for information seeking public comment on the FLSA’s white collar exemptions, including the minimum salary requirement. In earlier briefing to the U.S. Court of Appeals for the Fifth Circuit on the injunction appeal, the DOL also defended its authority to set and adjust the minimum salary requirement (even though it stopped short of defending the $913 per week threshold in the proposed rule). These actions indicate that some new action by the DOL is likely, even under the more business-friendly Trump administration.

What would a new proposal look like, and would it pass judicial scrutiny? It’s far too early to answer those questions, but it is reasonable to conclude that any new rule would not include a drastic increase in the minimum salary requirement. Based on statements made by Secretary of Labor Alexander Acosta, we expect the minimum salary requirement to be in the range of $33,000 per year. Such a reasonable upward adjustment, to account for inflation and general wage increases, would be less likely to raise the ire of the business community. A proposal that avoids that hurdle would have a far better chance of making it to the finish line.

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