Perspective: Kirton McConkie Law Blog

Federal Court Blocks New Overtime Rule from Taking Effect

The Fair Labor Standards Act (“FLSA”) generally requires that most employers pay nonexempt employees overtime compensation for all hours worked over 40 during a workweek.  Overtime compensation must be at least one and one-half (1½) times the employee’s regular rates of pay.  Some employees are exempt from the FLSA’s minimum wage and overtime requirements.  The FLSA specifically exempts, among others, “any employee employed in a bona fide executive, administrative, or professional capacity.”  29 U.S.C. § 213(a)(1).  These three exemptions have often been collectively referred to as the “white collar” exemptions. 

Starting in 2004, the United States Department of Labor (the “DOL”) amended the rule defining the white collar exemptions to require that employees covered by these exemptions be paid a predetermined salary and be paid at least $455 per week (or $23,660 annually) (the “Salary-level Test”).  In May of 2016, the DOL revised the rules to increase this minimum salary.  The new rule increased the salary threshold to $921 per week (or $47,892 annually).  The anticipated upshot of this rule change was many more workers would be entitled to overtime under the FLSA.  This new rule was to take effect on December 1, 2016.  In addition, another new feature of the rule was automatic increases to the amount that had to be paid under the Salary-level Test, which were to start in 2020. 

The DOL’s new rule also increased the minimum salary that an employee must receive to qualify for the Highly Compensated Employee exemption.  The total compensation that must be paid to an employee falling within this exemption was raised from $100,000 a year to at least $134,004. 

Several states and employers filed lawsuits to challenge the updated salary-level requirement.  On November 22, 2016, Judge Amos L. Mazzant of the Eastern District of Texas issued an injunction, which placed the implementation of the new rule temporarily on hold.  The injunction is applicable nationwide.  In its ruling, the Court recognized that the delegation of rule-making authority allowed the DOL to update the rules regarding when the white collar exemptions apply, but the Court also stated that “nothing in the [white collar] exemption[s] indicates that Congress intended the [DOL] to define and delimit with respect to a minimum salary level.”  Accordingly, the Court ruled that the updated Salary-level Test of the new final rule was unlawful. 

On December 1, 2016, the date on which the new rule was to have taken effect, the DOL filed a notice of appeal of the Injunction.  The Appeal will be heard by the Fifth Circuit Court of Appeals.  At this point, it is difficult to predict how the appellate court will rule.  But one thing is certain:  Until the appeal is determined, employers will not have to comply with the increased salary threshold for the white collar exemptions.

In addition, it is unclear whether a new DOL administration appointed by President-elect Trump may decide not to pursue the appeal.  President-elect Trump has nominated Andrew Puzder, who has been somewhat critical of the new rule.  The new DOL leadership may decide to abandon the appeal or not to move forward with the new rule altogether.  This is an area that employers need to watch carefully.