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[Updated] U.S. Federal Court Strikes Down Obama-Era Overtime Rule; DOL Plans to File Appeal

Compliance
Article
11/01/2017

Update: On Oct. 30, 2017, the Department of Justice on behalf of the U.S. Department of Labor filed an appeal to the Aug. 31 ruling by federal court Judge Mazzant, which invalidated the prior administration’s Final Overtime Rule. The Labor Department also planned to ask the court to hold the appeal in abeyance to give them time to rewrite the Rule. On Nov. 6, 2017, Circuit Judge Jennifer Walker Elrod of the 5th U.S. Circuit Court of Appeals granted the Labor Department's motion to stay the appeal.

  • On Aug. 31, 2017, a federal court in Texas struck down an Obama-era rule that, according to the U.S. DOL, would have expanded overtime pay eligibility to as many as 4.2 million workers.
  • In granting summary judgement in the case, the judge indicated that although the U.S. DOL did have the ability to use a salary test to base eligibility for exemptions from the Fair Labor Standards Act (FLSA), the agency had used the test improperly in the 2016 Final Rule.
  • In July, Secretary of Labor Alexander Acosta released a Request For Information soliciting public comments on the current overtime regulations, signaling the agency’s intent to determine the need for new rulemaking.
  • Employers should continue to comply with existing federal overtime regulations, as well as applicable state requirements.

Federal district court grants summary judgement to invalidate Final Overtime Rule

U.S. employers scored a victory on Aug. 31, 2017, when a federal district court judge struck down an Obama administration rule that would have expanded eligibility for overtime pay to, according to the U.S. DOL, as many as 4.2 million workers. The court ruled in favor of more than 50 business groups and 21 states that had challenged the Department of Labor’s (DOL) Final Overtime Rule. In his decision, U.S. District Judge Amos Mazzant noted that the rule’s high salary level could encompass some management workers who should be exempt from overtime protections. In granting summary judgement in the case, the judge indicated that although the U.S. DOL did have the ability to use a salary test to base eligibility for exemptions from the FLSA, the agency had used the test improperly in the 2016 Final Rule.

On Nov. 22, 2016, Judge Mazzant had issued a temporary injunction pending review of the court to block the overtime rule from taking effect on the originally scheduled date of Dec. 1, 2016. The injunction was subsequently appealed by the U.S. DOL, although the appeal had yet to make it to oral arguments, recently scheduled for next month.

Employers feared higher labor costs, need to demote some salaried staff to hourly

Many employers opposed the Final Overtime Rule, fearing a surge in labor costs and the need to reclassify managers currently paid a salary. If implemented, the Final Overtime Rule would have:

  • Raised the salary threshold for the executive, administrative, and professional (EAP) white collar exemptions from $455/week to $913/week — or $47,476 for a worker who works the whole year;
  • Raised the annual salary for the Highly Compensated Employee (HCE) exemption from $100,000 to $134,004; and
  • Created a mechanism for automatic updates to the salary threshold for the EAP white collar exemptions and HCE annual salary every three years, based on wage growth over time.

In addition to the 4.2 million workers newly eligible for overtime pay, the DOL estimated that the Final Overtime Rule would have required raises for another 100,000 workers, putting their earnings above the new salary threshold.

Current federal overtime regulations still in effect

Employers should continue to comply with the current federal overtime regulations, and are cautioned to ensure compliance with applicable state overtime requirements that may incorporate salary levels that exceed the federal level.

Paychex will continue to monitor and communicate further developments as they occur.

 

An earlier version of this article was published on Sept. 1, 2017.

Tammy Tyler

Tammy Tyler is a senior compliance analyst with a focus on employment law at Paychex, Inc., a leading provider of integrated solutions for payroll, HR, retirement, and insurance services.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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