Federal Court Strikes Down Overtime Rule

On August 31, 2017, a federal district court in Texas invalidated the Obama-era Department of Labor’s (DOL) overtime rule, which more than doubled the minimum salary threshold for the “white collar” exemption under the Fair Labor Standards Act (FLSA). The same federal court had temporarily blocked the rule in November of last year.  Because the court’s ruling allows for the continuation of the prior overtime rule (and salary thresholds) in effect, employers do not need to take any immediate action based on the court’s ruling.  However, it is likely the DOL will seek to issue a new rule that will raise the salary thresholds to a more moderate level.

Background.  The DOL rule struck down by the court would have increased the standard salary level test for the “white collar” exemption from $455 per week ($23,660 per year) to $913 per week ($47,476 per year), and would have increased the total annual compensation level for “highly compensated employees” (HCEs) from $100,000 to $134,004 per year.  The new rule also set automatic increases for the salary thresholds.  For additional details related to the DOL’s release of the overtime rule, please see our prior HRBenefitsAuthority dated May 18, 2016; and for additional details related to the temporary halt of the overtime rule, please see our prior HRBenefitsAuthority dated November 30, 2016.

The district court’s final ruling.  In striking down the overtime rule, the court held the DOL did not have the authority to raise the salary threshold to a level that would effectively eliminate the duties test. The duties test requires that, in addition to being paid on a salary basis and satisfying the salary threshold, employees must perform certain duties to qualify for the exemption.  Specifically, the court concluded that the “significant increase would essentially make an employee’s duties, functions, or tasks irrelevant” and would make overtime status depend predominately on a minimum salary level, which is contrary to the intent of the law.

The court also held that the automatic increases to the salary threshold every 3 years were unlawful.

What does this mean for employers?  The court’s order clarifies that employers are not required to comply with the Obama-era overtime rule.  However, employers should be aware of the following:

• The DOL plans to take further action.  While the DOL likely will not appeal the final order, it already has initiated a process to determine whether there is a need for a new rule to provide for a more moderate increase in salary threshold levels.
• The federal court’s final order invalidated the entire overtime rule, including the portion dealing with HCEs.

Contact Information.  For more information, please contact Don Mazursky (404.888.8840), Randall Constantine (404.888.8877), Emily Friedman (404.888.8871), or Chandra Burns  (404.888.8834).

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