Since December 2016, employers with salaried workers all over the country have been riding a regulatory seesaw.
That’s when a revised Obama administration Department of Labor regulation was supposed to take effect. The new rule raised the minimum salary required for an exemption from mandatory overtime from $23,660 annually to $47,476 per year for salaried workers.1 In anticipation of this new regulation, throughout 2016 many employers began the process of either raising salaries to exempt workers from the new regulation or changing salaried employees to hourly status.2
After a number of challenges were filed, and later consolidated, a Texas judge stayed the implementation of the new rule in November of 2016.3 On August 31, 2017, the judge released a final decision invalidating the Department of Labor regulation for exceeding its authority under the 1938 Fair Labor Standards Act (“FLSA”).4
The Fair Labor Standards Act requires that employees who work more than forty hours per week be given overtime pay. However, the Act provides an exemption from this requirement for “any employee employed in a bona fide executive, administrative, or professional capacity,” known as the (EAP) exemption.5 Congress delegated the power to determine the specific meaning of this exemption to the Department of Labor.6
In implementing the EAP exemption, the Department’s previous regulation used a three-part test for deciding when an employee was considered to be employed in an administrative or executive capacity to subject to the exemption:
First, the employee must be paid on a salary basis (the “salary-basis test”). Second, an employee must be paid at least the minimum salary level established by regulations (the “salary-level test”). The current minimum salary level is $455 per week ($23,660 annually). Third, an employee must perform executive, administrative, or professional capacity duties as established by regulations (the “duties test”).7
The Court found that a new $47,476 requirement would violate the plain meaning of the text because it would exclude many employees that are in fact working in bona fide executive, administrative or professional capacities pursuant to the “duties test.”8 “[T]he Department creates a Final Rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”9 The court reasoned that this differed from the low salary floor provided in the old test because earning below the minimal level of $23,660 is evidence that the worker was not actually employed in such an administrative or executive capacity.10
Given the outcome, the Trump Administration, which was already looking to revise the regulation, is unlikely to fight the ruling.11 Though, undoubtedly, there may eventually be some increase in this regulatory salary floor, it seems clear that employers can stop worrying about the need to reclassify salaried employees in the immediate future.
Carol Patton, The OT Rule: Now What?, Human Resource Executive, (Sept. 21, 2017), http://www.hreonline.com/HRE/view/story.jhtml?id=534363054. ↩
Nevada v. United States Dep’t of Labor, No. 4:16-CV-731, 2017 WL 3837230, at *9 (E.D. Tex. Aug. 31, 2017). ↩
Id. at 1 (citing 29 U.S.C. § 213). ↩
See id. at *8. ↩
Patton, supra note 1. ↩