Today, the Eastern Texas District Court struck down the Obama administration’s misguided overtime rule. This is a crucial victory for the rule of law and the disparately impacted entities like small businesses, non-profit organizations, universities, and local governments, which could ill afford the higher labor costs caused by the rule.
The Obama administration’s goal in raising the salary threshold so high—from a little over $23,000 to above $47,000—was to make as many employees as possible overtime eligible, despite what job functions they perform. As stated in the final rule, the agency estimated 4.2 million employees who were previously exempt from overtime eligibility would go from exempt to nonexempt status without any action taken by employers. This directly contradicts the intent of Congress in regard to the exemptions it created for overtime pay.
Exemptions from overtime pay in the Fair Labor Standards Act (FLSA) are based on what duties an individual performs, not his or her compensation. By raising the salary threshold for overtime eligibility so high that it supplants what duties an employee performs is outside of the Labor Department’s authority.
Eastern Texas District Judge Amos Mazzant said: “This significant increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.”
Raising the salary threshold so high that millions of employees lose exempt status irrespective of their workplace duties conflicts with the unambiguous text of the FLSA:
[A]ny employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools), or in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary …
The basis for overtime exempt status in the FLSA does not mention anything about how much employees make. Rather, the exemption focuses on the duties an employee performs.
Historically, the salary threshold test was adopted to screen out obviously non-exempt employees and to simplify enforcement, not act as the litmus test for overtime eligibility.
It is true that the Labor Secretary was granted a wide breadth of authority to define and delimit overtime exemptions under the Act, and courts must give agencies deference in interpreting statutes.
However, Judge Mazzant ruled:
This [the Obama overtime rule] is not what Congress intended with the EAP exemption. Congress unambiguously directed the Department to exempt from overtime pay employees who perform “bona fide executive, administrative, or professional capacity” duties. However, the Department creates a Final Rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties. …
Because the Final Rule would exclude so many employees who perform exempt duties, the Department fails to carry out Congress’s unambiguous intent. Thus, the Final Rule does not meet Chevron step one and is unlawful.
Not only did the DOL fail to carry out the intent of Congress, but the court determined that the Obama overtime rule was “not a reasonable interpretation” of the FLSA and, again, not entitled to deference.
Hopefully, if the Trump administration continues on its current path to make changes to overtime regulations, it uses this ruling as guide.