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Court stops December 1 FLSA overtime regulations

November 23, 2016

By Anthony Kaylin courtesy of SBAM Approved Partner ASE

Note: SBAM has been covering the impact these FLSA regulations will have on our members. For full coverage, please click here.

Yesterday, a Texas federal court granted a nationwide emergency injunction prohibiting the implementation of the final FLSA regulations that essentially doubled the current minimum annual salary level for exemption from $23,660 to $47,476 per year effective December 1st. 

As ASE reported earlier in the EPTW, 21 states (including Michigan) filed a lawsuit against the U.S. Department of Labor (DOL) and its Wage and Hour Division challenging the overtime regulations on September 20, 2016.  A few weeks later, the states filed an emergency motion seeking an injunction to halt or delay the implementation of the new overtime regulations.  Meanwhile, on October 19, 2016, another lawsuit was filed by Associate Builders and Contractors, Inc. (ABC) and various chambers of commerce and business groups aimed at preventing the implementation of the new regulations.  A temporary restraining order (TRO) was requested before the consolidation. These two lawsuits were consolidated before the same federal judge in Texas.

The crux of the States and the ABC lawsuit is that in the past the Department of labor studied the salaries actually paid to exempt employees and set the salary at no higher than the 20th percentile in the lowest-wage regions, the smallest size establishment groups, the smallest-sized cities and the lowest-wage industries. The new regulations created a minimum salary test that would exclude 40% or more of all salaried workers in the lowest wage Census region from the white-collar exemptions.  Further, bonuses are counted in a way that ignores all but the quarterly bonus, yet only 10% of it can be counted towards the salary level.  Finally, the rule’s automatic indexing is considered unlawful as there is nothing in the FLSA that authorizes it and would create a situation where most employees would be considered non-exempt by salary level.  The states’ lawsuit also alleged that by increasing the number of overtime eligible employees on non-exempt employment payrolls, the federal government is deliberately exhausting its state budgets by federal policy which violates the 10th Amendment.

U.S. District Judge Amos Mazzant in Sherman, Texas, yesterday agreed with 21 states and the business coalition that the rule, which was set to take effect December 1st, is unlawful.  The judge said the regulation likely contradicted Congress-passed labor laws by creating a de facto salary test for determining which workers fall under the Fair Labor Standards Act’s so-called “white collar” (Executive, Administrative and Professional or EAP) exemption.

More specifically, the judge wrote that “[d]irectly in conflict with Congress’s intent, the Final Rule states 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.”  The judge then admonished the DOL and stated that “[if] Congress intended the salary requirement to replace the duties test, then Congress, and not the Department, should make that change.  Congress did not intend salary to categorically exclude an employee with EAP duties from the exemption.”

The injunction does not necessarily kill the regulations but delays their implementation.  A court case is still pending with a summary judgement hearing scheduled next.  Appeals of the trial court’s decision will also delay implementation.  In the meantime, the Trump administration may rescind the regulations, making the case moot, or rescind and republish regulations, still increasing the base amount, but following the process as in the past.  Employers still need to be vigilant as to whether positions meet the duties test regardless of the salary amount.

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