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November 2016

Federal District Court Halts Overtime Rule Change

On November 22, 2016, the U.S. District Court for the Eastern District of Texas in Nevada et al. v. U.S. Department of Labor et al. issued a nationwide injunction that prevents the Department of Labor’s (“DOL”) new overtime rule (“Final Rule”) from going into effect on December 1, 2016.  Without this injunction, the Final Rule would have nearly doubled the salary requirement for an employee to qualify for the executive, administrative, or professional (EAP) exemption of the Fair Labor Standards Act (FLSA).  Under the EAP exemption, an employee is exempt from the FLSA’s overtime and minimum wage requirements if the employee performs certain primary job duties (the duties test), earns a minimum salary (the salary test), and is paid on a salary basis.    

Absent the injunction, the Final Rule would have increased the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $913 per week ($47,476 annually).  In other words, the Final Rule would require employers to pay overtime to employees who do not earn at least $47,476 annually.  The injunction also prevents the automatic updating mechanism in the Final Rule, which would increase the minimum salary threshold automatically every three years.  

Twenty one states and over fifty business organizations challenged the Final Rule and sought a preliminary injunction from its implementation.  In granting the injunction, the court held the plaintiffs had demonstrated a likelihood of success with their argument that the Final Rule was directly in conflict with Congress’ intent, and thus the DOL exceeded its delegated authority, by “raising the minimum salary level such that it supplants the duties test.”  The court reasoned that Congress intended the EAP exemption to depend on an employee’s job duties, not on her or his salary level, and the prior inclusion of the salary level was set deliberately low to merely screen out the “obviously nonexempt employees, making an analysis of duties in such cases unnecessary.”  Additionally, although the DOL is the agency charged with administering and interpreting the FLSA, the court held that the Final Rule does not deserve deference under Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc.,467 U.S.  837, 843 (1984),  because it is not “based on a permissible construction of the statute.”  The court relied on its determination that the Final Rule is likely unlawful in concluding the DOL also likely lacks the authority to implement the automatic updating mechanism. 

For now, the preliminary injunction stays the application of the Final Rule pending a further order of the court.  While this is a temporary win for employers frantically working to meet the December 1st deadline, this is not a final ruling on the merits of the Final Rule, and further developments and appeals are anticipated.  For more information about the background and impact of the Final Rule see our May 2016 publication on the subject.  Please feel free to reach out to us with any questions or concerns you may have. 

Employment Law

Debra Ellwood Meppen

Employment Law
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