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Federal Court Issues Nationwide Order Blocking New Overtime Rule

Employers received something to be thankful for late yesterday afternoon, when a federal judge in Texas issued a nationwide preliminary injunction against the Obama Administration’s overtime rules that were scheduled to take effect on December 1. With the Trump Administration set to take office on January 20, 2017, there is a significant chance the new rules will never take effect.

A brief FLSA refresher: employers are ordinarily required to pay employees who work more than 40 hours in a week an overtime premium of one and one-half times the employee’s typical hourly rate.  29 U.S.C. § 207(a)(1).  Employees who are “employed in a[n] executive, administrative, or professional capacity” (EAP) are exempt, however, from this overtime requirement.  29 U.S.C. § 213(a)(1).

The United States Department of Labor (DOL) is responsible for determining who qualifies for the EAP exemption.  Beginning in 1949, the DOL defined the scope of the EAP exemption in part by setting a threshold “salary level” where qualifying employees need not be paid overtime.  The current salary level has stood at $455 per week — equivalent to $23,660 per year — since 2004.  (Employees must also be paid on a salary basis, rather than an hourly basis, and must perform EAP duties, to qualify for the exemption.)

Following notice-and-comment rulemaking, the DOL announced a Final Rule in May that would have more than doubled the “salary level” threshold, to $913 per week ($47,476 per year), beginning on December 1, 2016.  Twenty-one states, led by Nevada, and a number of business groups objected to the substantial costs this Rule was going to impose (estimated to be $295 million annually, nationwide) and argued that the DOL exceeded the scope of Congress’s delegating authority.

Judge Amos L. Mazzant III, an appointee of former Republican Governor Rick Perry who was elevated to the federal bench by President Obama, agreed with the objectors’ arguments.  Finding that the scope of the EAP exemption was to be determined by the “plain meaning” of the terms “executive, administrative, and professional” at or near the time the FLSA was enacted in 1938, Judge Mazzant concluded that “Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary.”  By raising the salary level so dramatically, the court went on, the DOL had transformed the statute, an action that only Congress could take.  Therefore, in order to avoid the irreparable harm that the states would face if the overtime changes took effect, the court granted a preliminary injunction.  It is expected that there will be further court action on the issue, although the timing of such action is not clear at this point.

Bottom line: The overtime changes are not becoming law, unless and until the courts say otherwise.  If you have not yet taken action is to implement salary and classification changes, you might want to put them on hold.

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