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Is The DOL’s Obama-Era Overtime Rule DOA?

What does all the recent activity in the overtime rule saga mean for employers?

While many opponents breathed a sigh of relief after a federal judge in Texas issued an order officially invalidating the rule last week, experts are quick to point out that this latest ruling doesn’t mean the overtime saga is necessarily over.

Employers have been closely watching the fate of the Obama-era rule that would have doubled the annual salary threshold employees are required to meet in order to be considered exempt from the FLSA’s overtime pay regulations under the white collar exemptions of the Fair Labor Standards Act (FLSA) for nearly a year.

News on DOL's overtime rule

A quick refresher on the overtime rule

The new rule came about after a March 2014 directive from then-President Barack Obama, who charged the Department of Labor (DOL) with modernizing and simplifying the FLSA’s overtime regulations. The final rule was published almost two years later, in May 2016, and was set to take effect on December 1, 2016.

There were three main changes the new rule would have made to the overtime provisions of the FLSA:

  1. The standard salary threshold employees must meet to qualify as exempt would have been set at the 40th percentile of earnings of full-time salaried workers. This would have caused the current threshold to jump from $23,660/year to $47,476/year.
  2. The total annual compensation requirement to classify someone as a highly compensated employee (HCE) exempt from the FLSA would have been set at the 90th percentile of full-time salaried workers. This would have increased the current threshold from $100,000/year to $134,004/year.
  3. The new rule would also have established a mechanism that would have automatically updated the salary and compensation levels listed above every three years to keep pace with changes in wages.
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For a more visual overview of these changes, check out G&A Partners’ infographic: The DOL’s New Overtime Rule.

How did we get here?

Just days before the final rule’s effective date of December 1, 2016, a federal judge for the U.S. District Court for the Eastern District of Texas issued an injunction blocking the overtime rule and delaying its effective date indefinitely, the result of staunch opposition by 21 states and more than 50 business groups who sued to block the rule. The DOL subsequently appealed the injunction, and then asked for repeated extensions from the court after President Trump was inaugurated, creating uncertainty that left both employers and workers in limbo.

In June 2017 the DOL filed a brief with the Fifth Circuit Court of Appeals indicating that it was not planning to reinstate the higher salary thresholds proposed under the final rule, and was instead planning to revise the final rule. As part of this brief, however, it did ask the court to overturn the Texas judge’s finding that the DOL overstepped its rulemaking authority by raising the salary threshold as high as it did (the crux of the case that resulted in the injunction). A few weeks later, the DOL issued a Request for Information (RFI) seeking public input on alternate salary levels the agency should use, if any, if it decides to issue a revised rule.

On August 31, 2017, the same Texas judge who issued the original injunction issued a new order that found that the DOL’s 2016 rulemaking was invalid, stating that the DOL did indeed overstep its authority by setting a salary level test that essentially eliminated the need to consider whether employees met the duties test of the white collar exemptions.

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Yesterday (September 5), the Justice Department filed a motion with the Fifth Circuit of Appeals asking the court to dismiss its previous appeal of the injunction, stating that its case is “moot” given the most recent ruling.

So, is the overtime rule dead?

It’s too early to tell just yet. The DOL’s comment period for the RFI it issued earlier this year ends on September 25, 2017, and it will take some time for the agency to go through all the comments it receives. (To make a comment or read the current public comments, click here.)

Whether or not the DOL will actually take the next step of submitting a notice of proposed rulemaking regarding a new overtime rule isn’t clear at this time. At his confirmation hearing, Secretary of Labor Alexander Acosta said that the 2016 final rule’s salary threshold increase to $47,476 was excessive, but did indicate that he was open to the agency updating the salary threshold to a more reasonable amount – “somewhere around $33,000,” according to the National Law Review. If the agency does decide to proceed with a new rule, however, employers can reasonably expect that any increase to the salary threshold will be lower than that of the 2016 rule – a thought that offers a level of reassurance to many small business owners.

G&A Partners will continue to monitor and update its clients and readers on any further developments regarding the overtime rule. 

This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

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