What’s Next for the Federal Overtime Rule?

Employers aren’t required to take action based on the recent ruling striking down the overtime rule

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Updated Sept. 6: The Justice Department on Sept. 5 asked the 5th U.S. Circuit Court of Appeals to dismiss its pending appeal in the case. The department said its appeal is moot in light of the district court's Aug. 31 final judgment. 

Even though a federal judge has invalidated the Obama-era overtime rule that would have more than doubled the salary threshold for the Fair Labor Standards Act's (FLSA's) "white collar" exemptions, that doesn't mean employers have to make any changes right now.

"Employers are waking up in the same world that they went to sleep in before the ruling," said Richard Meneghello, an attorney with Fisher Philips in Portland, Ore. He noted that the salary threshold will likely be raised at some point, just not to the level that the U.S. Department of Labor (DOL) intended during the Obama administration.

Many employers already made changes to their pay practices last year, before the 2016 overtime rule was enjoined last November. Employers either gave raises to exempt employees who were earning less than the new salary threshold ($47,476) or reclassified them to nonexempt status.

The same process employers went through last November is still applicable today, said Russell Bruch, an attorney with Morgan Lewis in Washington D.C. If they already communicated raises, they shouldn't flip-flop on their position, because it may hurt employee morale and confuse workers, he said.

Employers will still need to think about how they want to classify and pay employees moving forward in light of the ruling and any potential future changes to the exemption criteria, said Robert Boonin, an attorney with Dykema in Detroit and the former chairman of the Wage and Hour Defense Institute of the Litigation Counsel of America. For now, those decisions will be more business related than legal, he added.

White Collar Exemptions

To qualify for the FLSA's "white collar" executive, administrative and professional exemptions, employees must meet certain requirements. First, they must be paid on a salary basis, rather than paid an hourly rate. Second, an exempt worker's salary must be at least $23,660. Finally, employees must perform certain duties to qualify for the exemption. For example, an exempt executive must regularly supervise two or more other employees, among other things.

If employees don't meet all the requirements, they must be paid time-and-one-half for all hours worked beyond 40 in a workweek.

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

The Obama DOL attempted to raise the salary threshold to $47,476—which would have made over 4 million workers newly eligible for overtime pay. But Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas in November 2016 temporarily prevented the rule from taking effect. On Aug. 31, he issued an order permanently blocking the Obama DOL's rule.

Mazzant said the DOL doesn't have the authority to raise the salary threshold so high that it effectively eliminates the duties test. The overtime rule "essentially makes an employee's duties, functions or tasks irrelevant if the employee's salary falls below the new minimum salary level," he wrote. Mazzant also found that a provision that would have provided for automatic adjustments to the threshold every three years was unlawful. 

The Aug. 31 ruling was a final decision on all the issues before the judge in Texas, Boonin said.  He said that the DOL under President Donald Trump's administration likely won't appeal the order.

Employers will need to wait and see what the DOL's next step will be, but overall the department should be pleased with the court's order, Bruch said.

"The district court's ruling definitively addresses previous concerns about the status of the court's previous preliminary injunction preventing the Obama overtime rule from going into effect," said Maury Baskin, an attorney with Littler in Washington, D.C., who represented business groups in the case.

On the Horizon

There are three tracks of activity to follow with respect to the overtime rule, Meneghello explained. First, the 5th U.S. Circuit Court of Appeal is still scheduled to hear oral arguments Oct. 3 on the appeal from Mazzant's November injunction. The Trump DOL limited the appeal to affirm whether the department has the authority to set a salary level. Before Mazzant's latest ruling, the DOL asked the court to cancel the arguments so that the parties could attempt to narrow the issues or potentially eliminate the appeal altogether. Meneghello said it isn't clear what will happen with that motion. Boonin noted that the 5th Circuit could find that the case before it is moot in light of Mazzant's latest order.

Second, the DOL is working on a new rule. The department "has already initiated a new rulemaking process to come up with a new salary test, one that we anticipate will comply with the court's order by lowering the salary threshold to a more moderate level," Baskin said.

The department has asked the public to submit comments about the overtime rule. The DOL's questions in its request for information (RFI) indicate that the department is open to considering the reasons people were critical of the Obama DOL's rule, Boonin said. He added that the department might address more than just the salary threshold in a new proposal. For example, changes may be phased in, and a new overtime rule might have exceptions for nonprofits and employers in rural areas.

Bruch noted that a new rule from the DOL may take a while. It will take time for the department to process the information it receives from the RFI and to go through a new rulemaking process, he said.

Third, the AFL-CIO or other worker advocacy groups could take legal action to try and revive the 2016 overtime rule, Meneghello said. The advocacy groups could attempt to take over for the DOL in the current case or bring a new lawsuit, he added.

 

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