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Judge kills Obama administration's overtime rule

Joe Mont | September 1, 2017

A Texas judge has invalidated the Obama administration’s controversial regulation regarding overtime pay.

Judge Amos Mazzant, of the Eastern District of Texas, concurred with plaintiffs who argued that the final rule was not aligned with the intent of Congress in the Fair Labor Standards Act. His ruling was released on Aug. 31.

The 2016 Department of Labor rule modifies the Fair Labor Standards Act and its application to white-collar workers. Previously, only employees with an annual salary of more than $23,660 who performed certain duties could be required to work more than 40 hours a week without being compensated with overtime. The rule reset that threshold to $47,476 a year and expanded the definition of “salary basis” to allow non-discretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the standard salary test requirement.

Employers were given flexibility in designing systems to make sure appropriate records are kept to track the number of hours worked each day. The final rule also established an automatic updating mechanism that adjusts the minimum salary level every three years. The first automatic increase was intended to occur on Jan. 1, 2020.

Mazzant’s ruling isn’t much of a surprise given his previous rebuke of the rule when grating a November 2016 emergency injunction that halted the intended Dec. 1 effective date on a nationwide basis. The delay was effective until his final legal decision was made on the legality of the requirements.

In reaching his decision in State of Nevada v. U.S. Department of Labor, Mazzant agreed with the arguments presented by attorneys general of 21 states, the U.S. Chamber of Commerce, the Plano Chamber of Commerce, and more than 50 other business organizations. The Court consolidated the separate business plaintiffs’ action with the state plaintiffs’ action without objection from any of the like-minded parties.

Specifically, the judge found merit with arguments that the rule would create a financial hardship, violate the Administrative Procedures Act, exceed the Labor Department’s statutory authority, and go beyond Congressional intent of the Fair Labor Standards Act.

The plaintiffs had challenged the lawfulness of the final rule, the Department’s authority to promulgate it, and whether the automatic updating mechanism complied with APA requirements.

Mazzant, in agreeing to the injunction, also agreed that arguments claiming that the final rule is not “based on a permissible construction” of the Fair Labor Standards Act warranted further legal review. “The automatic updating mechanism violates the APA because the salary level is adjusted without a notice and comment period,” he wrote.

“Employers on the verge of increasing salaries or reclassifying employees are facing the most difficult decisions because, by the 11th hour, employees have developed certain expectations,” he wrote. “Employers may decide to postpone the changes indefinitely, but they first need to consider what they have communicated thus far to their workforces.”

 

U.S. Chamber President and CEO Thomas J. Donohue praised the decision. “We have consistently said that the last administration went too far in its 2016 overtime rule, and we are pleased that Judge Mazzant granted a final judgment that makes permanent his previous ruling against the overtime rule.”

“This means that small businesses, nonprofits, and other employers throughout the economy can be certain that the 2016 salary threshold will not result in significant new labor costs and cause many disruptions in how work gets done,” he added. “The Obama administration’s rule would have resulted in salaried professional employees being converted to hourly wages, reduced workplace flexibility and remote electronic access to work, and halted opportunities for career advancement. We look forward to working with the Department of Labor on a new rule to develop a more appropriate update to the salary threshold.”

In June, the Department of Labor published a Request for Information regarding the potential for a revised rule.

“The RFI is an opportunity for the public to provide information that will aid the department in formulating a proposal to revise these regulations which define and delimit exemptions from the Fair Labor Standards Act’s minimum wage and overtime requirements for certain employees,” a July 25 statement from the agency says.

The RFI solicited feedback on questions related to the salary level test, the duties test, varying cost-of-living across different parts of the U.S., inclusion of non-discretionary bonuses and incentive payments to satisfy a portion of the salary level, the salary test for highly compensated employees, and automatic updating of the salary level tests.

“The Department is aware of stakeholder concerns that the standard salary level set in the 2016 final rule was too high,” the RFI says. “Stakeholders have expressed the concern that the new salary level inappropriately excludes from exemption too many workers who pass the standard duties test, especially given the lack of a lower long test salary for employers to utilize for lower wage white collar employees.”

In the 2016 Final Rule the Department estimated that 4.2 million salaried white collar workers would, without some intervening action by their employers, change from exempt to non-exempt status, it adds.

The Labor Department requested public comments on the rule and a variety of questions. Among the queries:

  • Should the regulations contain multiple standard salary levels? If so, how should these levels be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method?
  • Should the regulations set multiple salary levels using a percentage based adjustment like that used by the federal government in the General Schedule Locality Areas to adjust for the varying cost-of-living across different parts of the United States?
  • Should the Department set different standard salary levels for the executive, administrative and professional exemptions as it did prior to 2004 and, if so, should there be a lower salary for executive and administrative employees as was done from 1963 until the 2004 rulemaking?
  • Is the amount of the standard salary level relevant in determining whether and to what extent such bonus payments should be credited?
  • Should there be multiple total annual compensation levels for the highly-compensated employee exemption?  If so, how should they be set: by size of employer, census region, census division, state, metropolitan statistical area, or some other method.

The Department has received more than 293,000 comments on the now invalidated rule, including comments from businesses and state governments.