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New Overtime Rules Delayed

Categories: Employment, Blog

New Department of Labor overtime rules delyed

In a crucial blow to the Obama administration, a federal judge in Texas granted a nationwide preliminary injunction against the Department of Labor's new overtime rules (“the Final Rule”) that would have, among other things, increased the minimum salary for certain exempt employees from $23,660 to $47,476. The Final Rule was supposed to take effect on December 1, 2016, and many employers had already taken steps to adjust their employee's salaries. Provided below is a summary of the court’s decision and what employers and employees should expect going forward.

Why the Changes are Delayed

Under the Fair Labor Standards Act (“FLSA”), employees can be exempt from overtime if they perform executive, administrative or professional duties. This is sometimes referred to as the “duties test.” To qualify for the exemption, these employees must also be paid a minimum salary. The U.S. Department of Labor, through its rule-making authority, recently enacted the Final Rule, which increased the minimum salary from $23,660 to $47,476. A coalition of 21 states and several different business groups recently filed a legal challenge to the Final Rule, claiming that the U.S. Department of Labor exceeded the scope of its rule-making authority by changing the duties test in a manner that is inconsistent with Congressional intent. They argued that the duties test was supposed to focus on the employee’s duties – not their salary.

The judge held, “With the Final Rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the minimum salary level such that it supplants the duties test... If Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change.” The judge held that the Final Rule is unlawful because it "creates essentially a de facto salary-only test." 

The Department of Labor Pushes Back

The U.S. Department of Labor (“DOL”) has stated that it strongly disagrees with the decision and that it is currently considering its options. The DOL can appeal to the Fifth Circuit Court of Appeals, but that court has been known for being conservative and may not overturn the decision. The Fifth Circuit has stymied President’s Obama's actions before, namely blocking President Obama’s executive actions on immigration in 2015.

In the meantime, the Final Rule could be upended by Congress or withdrawn by President elect Trump's Department of Labor.

  • A detailed description of the Final Rule can be found here.  
  • A copy of the court’s decision can be found here.

The right to overtime came about because Congress passed laws requiring it. The decision about who is to receive overtime and under what circumstances is both a legal and a political decision. As can be seen, it is subject to change, and every employer should carefully monitor its obligations.

Kraig J. Marton is the chair of the employment law department at the Phoenix law firm of Jaburg Wilk.  He helps employers comply with the many state and federal employment laws. 

Jeffrey A. Silence is an employment law attorney at Jaburg Wilk that helps employers navigate these and other difficult issues.