Labor / Employment, On The Job

What Happened To The Obama DOL's New Overtime Rules?

Employers, take note -- and start your planning now, because new rules are coming.

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This week I’m sharing an update on a topic that affects millions of American workers and most employers in the United States: the Department of Labor’s overtime rules.

Listen, I know that wage and hour law usually isn’t very sexy. It’s basically Math Law. It can be deceptively complicated, and it’s full of landmines for the uninitiated. Most people’s eyes glaze over when the topic comes up.

But the DOL’s proposed changes to its overtime rules in 2016 caused a lot of hubbub for practically everyone because companies were facing a big hit to their bottom lines and a lot of employees were hopeful for a big pay raise. The litigation over the proposed changes and the change in administration complicated matters, however. This left employers and employees alike wondering what’s going to happen. Here’s the story.

I’m Not An Employment Lawyer, Give Me A Little Background.  

Here’s the quick and dirty. The Fair Labor Standards Act requires employers to pay employees overtime pay for hours worked over 40 in a workweek. There are of course exceptions to this general rule. The-most common exceptions are for employees who work in white collar jobs that are executive, administrative, or professional in nature. These (along with some others) are referred to as the white-collar exemptions.

For a particular position to qualify for one of the white-collar exemptions, the job must satisfy two tests: (1) the duties test, and (2) the salary test.

The first part of the test is exactly what it sounds like. The DOL’s regulations specify certain types of tasks or activities a position must perform to fit under one of the exemptions. If the employee in the job doesn’t perform the requisite duties, they don’t qualify and must be paid overtime.

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The second part of the test is as simple as it sounds. An employee must be paid at or above the minimum salary set by the DOL to qualify for an exemption.

What Did the DOL Do?

The minimum salary required by the DOL to qualify for one of the white-collar exemptions is currently $23,600 annually (or $455 per week). This was set back in 2004. In May 2016, the Obama DOL issued new rules moving that number up significantly to $47,476 annually (or $913 per week). The new rules included an automatic update provision that would have increased the amount every three years. The new rules were supposed to be effective December 1, 2016.

This was a huge big deal for a lot of employers. This is because many companies (especially in the food services and retail sectors) pay large groups of employees (for example, store managers) above the current annual salary requirement, but well below the DOL’s proposed new salary threshold. Employers were thus scrambling to figure out how to handle these significantly increased labor costs.

This was a big deal for a lot of workers, too. Under the new rules, many employees would have seen a (possibly significant) pay raise, or they would have found themselves working fewer hours. Some estimated the new rules would have affected some 4.2 million workers.

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Then What Happened?

A bunch of states and business-centric organizations filed lawsuits. They were consolidated into a single case in the U.S. District Court for the Eastern District of Texas. The lawsuit asked for a preliminary injunction to halt implementation of the new rules, which was granted on November 22, 2016, by Judge Amos Mazzant. This ruling was appealed to the Fifth Circuit.

While the appeal of the injunction was pending, the case continued and the plaintiffs moved for summary judgment, arguing that the DOL exceeded its rulemaking authority in issuing the new rules. Judge Mazzant granted the motion on August 31, 2017. (I won’t go into the details of the opinion, but –spoiler alert — he held that the new rules didn’t pass the Chevron test and that the DOL did exceed its authority.) Following that ruling, the DOL then dismissed its appeal at the Fifth Circuit on September 5, 2017, ending the litigation.

Is That It?

That’s the end of the road for the Obama DOL’s new rules. On July 26, 2017, however, the DOL issued a Request for Information seeking comments from the public concerning the amount of the salary test (among other things). (The DOL’s Request states, “The Department is aware of stakeholder concerns that the standard salary level set in the 2016 Final Rule was too high.”) Comments must be submitted in response to the Request for Information by September 25, 2017.

Statements from the current Secretary of Labor, Alexander Acosta, indicate that that the Trump DOL will probably set the annual salary level in the $34,000 to $36,000 range ($650 to $700 per week).

That’s all for now. Perhaps we’ll have additional information from the DOL before the close of 2017 so that employers and workers can begin their planning. I think it’s a safe bet to assume that there will be an increase in the minimum salary test in the coming months, and so employers should begin their preliminary planning now.

evan-gibbsEvan Gibbs is an attorney at Troutman Sanders, where he primarily litigates employment cases and handles traditional labor matters. Connect with him on LinkedIn here, or e-mail him here. (The views expressed in this column are his own.)

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