Last week, a federal judge declared unlawful the Obama-era Department of Labor rule that attempted to broadly redefine the class of workers eligible for overtime pay across the United States. The rule was controversial from its inception, but that controversy has, for now, come to a close.
The final rule itself, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees” was promulgated May 23, 2016, for the purpose of updating and specifying which U.S. workers would and would not be exempt from the federal overtime pay requirements established by the Fair Labor Standards Act of 1938 (“FLSA”).
In addition to establishing overtime pay requirements, the FLSA exempts employers from paying overtime to “any employee employed in a bona fide executive, administrative, or professional capacity.” Commonly referred to as the “EAP” exemption, this provision’s specifics were left by Congress to be defined and determined by the U.S. Department of Labor.
A 2004 regulation, promulgated by the Bush administration and still currently in effect, determines the class of exempt employees based on a three-part test. It classifies exempt employees as those (1) paid on a salary basis, (2) over a minimum salary level, (3) who perform executive, administrative, or professional capacity duties. The 2004 rule sets the minimum salary level at $23,660 annually, meaning employees earning over that amount who hold positions meeting the definitions for executive, administrative, or professional roles are exempt from the FLSA overtime provision.
While the 2004 rule was the first meaningful update to the overtime standards in decades, by the end of the Obama administration many argued that the minimum salary level had grown out of touch with the needs of American working families and that raising the minimum salary level would be beneficial for struggling workers—potentially raising the percentage of U.S. workers eligible for overtime from eight percent to about forty. The result of this sentiment was the Obama Department of Labor’s rule proposing to set the minimum salary level at $47,476 per year—more than doubling that of the 2004 rule.
Citing the drastically increased costs of so broadly expanding eligibility for overtime pay, coalitions of business interests and state governments rallied to oppose the rule. The rule was finalized on May 23, 2016, but just before it went into effect in December 2016, the rule’s business and state government opponents sued in the U.S. District Court for the Eastern District of Texas to have the rule’s enforcement enjoined. Judge Amos Mazzant granted that motion.
On August 31st, Judge Mazzant went further, invalidating the rule on a motion for expedited summary judgment. Judge Mazzant held, among other things, that raising the minimum salary level so high would “effectively eliminate a consideration of whether an employee performs ‘bona fide executive administrative, or professional duties.’” Because any employee falling under the minimum salary level would automatically qualify for overtime pay regardless of the character of their duties, Judge Mazzant found the rule inconsistent with the will of Congress as expressed in the text of the FLSA. With the rule invalidated, the 2004 rule remains in effect.
On Wednesday September 6th, the U.S. Court of Appeals for the Fifth Circuit agreed to dismiss a pending appeal of an earlier ruling in the case. The dismissal was requested by the Trump administration Department of Justice and signals an end to the legal battle over the overtime rule, for now. Many speculate that this development signals an intention by the Trump administration Department of Labor to update the overtime standards with a more moderately increased minimum salary level. Experts are estimating that this new level will likely fall in the low- to mid-$30,000’s per year salary range.