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Federal Court Strikes Down Final Rule Changes to White Collar Overtime Exemptions

In a 20-page decision, United States District Judge Amos L. Mazzant has issued a temporary injunction blocking the United States Department of Labor’s controversial Final Rule increasing the minimum salary level for exempt “white collar” executive, administrative and professional employees, and requiring overtime pay for an estimated 4.2 million additional workers nationwide. The final rule would have raised the minimum salary level below which “white collar” workers would have to be paid overtime from $455 per week to $913 per week, or $47,476 annually.
Congress enacted the Fair Labor Standards Act (“FLSA”) in 1938. The FLSA requires that employees engaged in commerce receive not less than the federal minimum wage for all hours worked, and in addition, overtime pay at one and one-half times the employee’s regular rate of pay for all hours worked above forty in a week.

When enacted, the FLSA contained a number of exemptions to the overtime requirement. Section 213(a)(1) of the FLSA exempts from both minimum wage and overtime requirements “any employee employed in a bona fide executive, administrative, or professional capacity.” This exemption is commonly referred to as the “white collar” or “EAP” exemption.

gavelThe Department’s initial regulations, found in 29 C.F.R. § 541, defined “executive,” “administrative,” and “professional” employees based on the duties they performed in 1938. The regulations were revised over time, most recently in 2004. The 2004 regulations, which are currently in effect, require an employee to meet three criteria to qualify for the EAP exemption. First, the employee must be paid on a salary basis (the “salary-basis test”). Second, an employee must be paid at least the minimum salary level established by the regulations (the “salary-level test”). The current minimum salary level to qualify for the exemption is $455 per week ($23,660 annually). And third, an employee must perform executive, administrative, or professional duties (the “duties test”).

On March 13, 2014, President Obama signed a Presidential Memorandum directing the U.S. Department of Labor (“DOL”) to update and modernize the federal regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. In response, the DOL published its final rule revising the “white collar” overtime exemption regulations on May 18, 2016.

The DOL’s final rule, which was to become effective December 1, 2016, raised the salary level for exempt employees from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) and established an automatic updating mechanism to re-adjust the minimum salary level every three years.

Nevada and several other U.S. states filed suit in District Court in Texas seeking an order enjoining the DOL’s Final Rule from taking effect, on the grounds that that the Final Rule would harm the public by increasing state budgets, causing layoffs and disrupting governmental functions, because they would not be able to increase salaries or pay overtime to affected workers and stay within budget.

Judge Mazzant held that the state plaintiffs were entitled to an injunction. The Court examined the regulations pertaining to the EAP exemptions and found that that because Congress unambiguously expressed its intent for employees doing “bona fide executive, administrative, and professional capacity” duties to be exempt from overtime, Congress intended for the EAP exemption to depend on an employer’s duties rather than an employee’s salary. By stating that “[w]hite collar employees subject to the salary level test earning less than [$913] per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities”, DOL exceeded its delegated authority and ignored Congress’ intent by raising the minimum salary level such that it supplants the EAP exemption duties test.

Judge Mazzant further found that the state plaintiffs would be irreparably harmed insofar as many of their governmental agencies would be unable to increase salaries or pay overtime to comply with the Final Rule, and that the public interest would be served by an injunction, as the balance of hardships weigh in favor of the state plaintiffs seeking the injunctive relief, and the injunction preserves the status quo until a final determination as to the Final Rule’s validity can be made by an appellate court.

The injunction is effective, and affects employers nationwide. Until and unless an appellate court overturns Judge Mazzant’s ruling, the injunction halts enforcement of the DOL Final Rule, meaning employers will not be subject to the increased EAP exemption salary level standards unless the injunction is overturned.

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