Texas Judge Strikes Down Doubling of Minimum Salary Level for Overtime ExemptionSeptember 1, 2017 – Legal Alerts
On August 31, 2017, Judge Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas struck down a Department of Labor rule that would have raised the minimum salary for an individual to be exempt from overtime pay from $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The final version of the overtime rule was announced last May and was set to take effect on Dec. 1, 2016, but Judge Mazzant, who was nominated to the bench by Barack Obama in 2014, preliminarily enjoined the rule less than two weeks prior to the effective date.
The grant of summary judgment marked a victory for the two large groups of plaintiffs that challenged the rule. The “Business Plaintiffs” included the Plano Chamber of Commerce and more than 50 business groups from Texas and across the nation, and the “State Plaintiffs” included Ohio, Kentucky, Michigan, and 18 other states. Each group initially filed their own complaints against the Department and the Wage and Hour Division, but the actions were later consolidated.
The Fair Labor Standards Act (FLSA) requires employers to pay employees at one and one-half times the employee’s regular rate for hours worked in excess of 40 per week. An exception to this requirement lies in 29 U.S.C. § 213(a)(1), which exempts from overtime pay “any employee employed in a bona fide executive, administrative, or professional capacity….” The Department is tasked with issuing regulations to interpret the exception and, as noted in the Court’s Opinion, regulations from 2004 require an employee to meet three criteria to be exempt from overtime. One criterion, and the one at the center of this dispute, is that the employee must be paid a minimum salary of $455 per week, or $23,660 annually (the “salary-level test”). Another requirement is that the employee must perform executive, administrative, or professional capacity duties (the “duties test”).
The overtime rule struck down by the Court would have more than doubled the minimum salary to $47,476. Judge Mazzant wrote the Department “does not have the authority to use a salary-level test that will effectively eliminate the duties test as prescribed in Section 213(a)(1)…Nor does the Department have the authority to categorically exclude those who perform bona fide executive, administrative, or professional capacity duties on salary level alone.” He further noted this increase in the minimum salary level goes against Congress’ intentions, writing “This significant increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level…The Department has exceeded its authority and gone too far with the Final Rule.” In addition to invalidating the new minimum salary level, Judge Mazzant also found the portion of the rule that would automatically adjust the minimum salary level every three years to be unlawful.
While it is unlikely the overtime rule proposed during the Obama administration will take effect, changes could still be on the way during the Trump administration. Indeed, on June 30, 2017, the Department asked the Fifth Circuit to “reaffirm the Department’s statutory authority to establish a salary level test.” Further, the Department requested the Court “not address the validity of the specific salary level set by the 2016 final rule ($913 per week), which the Department intends to revisit through new rulemaking.” A few weeks later, the Department published a Request for Information inviting public comment to assist in drafting a new proposal to revise the regulations regarding overtime exemption. The comment period ends Sept. 25.
If you have questions regarding the impact of Judge Mazzant’s ruling or would like additional information regarding wage and hour laws and regulations, please contact your Dinsmore attorney.