Federal district court permanently enjoins DOL salary level test
September 5, 2017
By Michael Burns, courtesy of SBAM Approved Partner ASE
Another blow was landed against the Obama administration’s effort to change US wage and hour law without passing an amendment to the almost 80-year old Fair Labor Standards Act (FLSA). The same Texas federal court that originally temporarily stayed the implementation of a new salary level test rule issued a permanent injunction against those rules last week. The Court’s reason for the permanent injunction remained the same: the salary level set by the new regulations was too high and changed the FLSA’s intent pursuant to the original exemptions.
For most jobs exempt status is determined by passing three tests set by Department of Labor (DOL) regulation. These tests are: 1. salary basis test; 2. salary level test; and 3. job duties test. There are several classifications of jobs that are “exempt” from the record keeping and overtime pay requirements of the FLSA. The main classifications are: Executive; Administrative, Professional, Outside Sales, and a relatively new classification called Computer Professional. This Court’s ruling impacts the Executive, Professional and Administrative exempt classifications.
Previous to 2016, the salary level test was set at $455/week ($23,660/yr.). The new rules would have set the salary level test at a much higher $913/week ($47,746/yr.). So high in fact, upon challenge by a consortium of business groups in court, the Texas federal court agreed with the Plaintiffs that by changing just the salary level test, the Department of Labor overstepped their authority and in effect were illegally changing the FLSA law by doing so.
The judge stated in his opinion that “The department exceeded its authority and [went] too far with the final rule.” By setting such a high salary level the department “makes overtime status dependent predominantly on a minimum salary level, thereby supplanting an analysis of employee’s job duties.” Job duties are one of three components, all of which must be considered when determining if the job is exempt.
This decision finalizes the lower federal court action against the new DOL rule. As EPTW has reported in recent weeks, the Fifth Circuit Court of Appeals, a Court whose other employment rulings recently have come down in favor of employers, is currently considering the appeal of the original temporary injunction.
The Obama rule is now suffering under a number of attacks. The Department of Labor Secretary Alex Acosta (Trump administration appointee) is currently having the rule reviewed for revision. The current DOL is testing the position that a salary level test should be set somewhere between the current level of $455/week and the level set by the now challenged rule. In doing so, it is walking a thin legal line between maintaining the DOL’s regulatory authority and revising the rule so it and the DOL’s regulatory authority is maintained against judicial review.
So even if the Fifth Circuit Court of Appeals finds the Obama administration’s salary level test acceptable, the DOL could adjust it down eventually.
The Fifth Circuit is also looking at a larger legal principal.
The bigger issue at play is judicial. The challenge to the Court is whether it can or should over rule the Executive Branch’ rule-making authority. The US Supreme Court’s Chevron standard, used by federal courts to determine if a regulatory body has the authority to make a rule under a particular law, must be weighed. This rule generally holds that the judiciary courts will give special “deference to” an agency’s regulatory authority if the rule in question does not change the law that the rule is based upon.
One other component of the DOL salary test rule that gave the Court’s pause was the fact that the salary level set by the new rules was indexed to automatically increase every three years pursuant to an increase in the inflation rate. This too was seen as going too far and taking too much power away from Congress, who is in charge of making laws, not the regulatory agencies.
So for now the 2004 salary test level for exempt status remains in place – $455/wk. $23,660/yr. ASE will continue to monitor developments as this regulation is changed or challenged. Regardless of the DOL rule or the Fifth Circuits decision, employers should make sure their jobs are properly classified.