New Overtime Rule Blocked by Federal Court

The United States District Court for the Eastern District of Texas granted a preliminary injunction on a nationwide basis enjoining the Department of Labor’s final rule updating and modernizing the overtime regulations (“Final Rule”). The Final Rule would have gone into effect on December 1, 2016. The Order was issued on November 22, 2016 in a consolidated case brought against the United States Department of Labor by twenty-one states and more than fifty business organizations challenging the Final Rule.

The Final Rule would increase the minimum salary level for exempt employees from 5 per week (,660 annually) to 1 per week (,892 annually). It also includes an automatic updating mechanism that would adjust the minimum salary level every three years. The first automatic increase would occur on January 1, 2020.

In issuing the Order, the Court found that the Department of Labor exceeded its authority promulgating the Final Rule, because Congress, when enacting the Fair Labor Standards Act (“FLSA”), included an exemption for employees performing certain duties. The statute provides an exemption for bona fide executive, administrative and professional employees, often referred to as the “white collar” or “EAP” exemption. The Court found that Congress intended the exemption to depend on an employee’s duties rather than an employee’s salary. The Final Rule was found to be “directly in conflict” with Congress’ intent, because it raises the minimum salary level so high that it would supplant the duties test. The Court opined that if Congress intended the salary requirement to supplant the duties test, then Congress, not the Department of Labor, should make that change.

The Court’s Order puts a temporary hold on the enforcement of the Final Rule. Thus, the current salary threshold of $455 per week ($23,660 annually) remains in effect for the EAP exemption under the FLSA.

We will continue to monitor developments on the enforcement of the Final Rule as they become available.