BREAKING: Court Blocks Implementation of DOL Overtime Rule

by Kimberly A. Klimczuk and John S. Gannon

In a surprising turn of events, a Texas federal Court put a hold on the controversial Department of Labor (DOL) overtime rule that would have made over 4 million more workers eligible for overtime starting December 1, 2016.  Yesterday evening, the Court issued an Order granting a preliminary injunction that was filed by 21 states across the country along with a coalition of business groups who were challenging the rule.  The Order effectively blocks the implementation of the rule nationwide, meaning the rules will not become effective on December 1, 2016 as previously expected.  The plaintiff states and business groups presented two main arguments: 1) that the Fair Labor Standards Act (FLSA), the law that provides for a federal minimum wage and federal overtime  requirements, is unconstitutional to the extent that it interferes with states’ independence to set their own minimum wage and overtime rules; and 2) Congress never intended to set any salary threshold for the overtime exemptions, and only allowed the government to issue rules related to the job duties of exempt executive, administrative, and professional employees.  The Court rejected the first argument but agreed with the second, finding that the DOL overstepped its authority when it issued the new salary requirements.

The Court based its reasoning on the fact that the language of the FLSA states that “any employee employed in a bona fide executive, administrative, or professional capacity…as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor]” shall be exempt from the FLSA’s minimum wage and overtime requirements.  When Congress grants a federal agency authority to issue regulations implementing a law, as in the case with the DOL and the FLSA, the agency may interpret or provide clarification on ambiguous language in the law, but it cannot change the meaning of unambiguous language.  When a court is asked to review an agency’s interpretation of a law, the court looks to the original language of the statute to determine if the language is ambiguous and, if so, whether the agency’s interpretation is in accordance with Congress’ original intent.  If the congressional intent is unclear, then the court will defer to the agency’s interpretation unless the agency’s interpretation is “arbitrary, capricious, or manifestly contrary to the statute.”

In this case, the court found that the language of the FLSA that exempts “any employee employed in a bona fide executive, administrative, or professional capacity” from its minimum wage and overtime provisions, without any reference to salary, expressed a clear intent by Congress to exempt employees based on the types of duties they perform and not based on any salary test.  The Court held that the DOL’s ability to “define and delimit” the terms “executive, administrative or professional capacity” gave the DOL “significant leeway to establish the types of duties that might qualify an employee for the exemption, [but] nothing in the EAP exemption indicates that Congress intended to define and delimit with respect to a minimum salary level.”

Although that reasoning seems to suggest that the DOL has no authority to set any minimum salary level, including the existing $455/week requirement, the Court made clear in a footnote that it was not making a general statement on the lawfulness of the existing salary-level test.  The court also suggested that the lower salary level test could be valid as a threshold to screen out the “obviously nonexempt employees,” making the duties test unnecessary.  By contrast, the court reasoned that the much higher salary threshold in the new rule created what was, in effect, a “salary-only” test which would lead to situations in which employees who clearly perform executive, administrative and/or professional duties would not be exempt from the statute.  This, the court said, is in direct conflict with Congress’ clear intent to exempt from the FLSA employees “any employee employed in a bona fide executive, administrative or professional capacity.”

This decision was not a final decision on the merits of plaintiffs’ arguments but was rather a decision on whether plaintiffs were likely enough to succeed on the merits to warrant a preliminary injunction delaying implementation of the rule. Although a final decision on the merits is yet to come, the court’s analysis in last night’s opinion is a strong indicator of the court’s view on the issue.   The DOL could (and likely will)  appeal the decision, as well as any final decision on the merits, but with Republicans controlling both houses in Congress and the Trump Administration taking office in January, the future of the overtime rule is certainly in doubt.  For now, if you have questions about enforcement of the rule and/or scaling back changes already in place, we suggest contacting employment counsel to discuss how this decision will impact your overtime compliance obligations.

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