The Department of Labor has announced plans to appeal a court ruling that invalidated previous rulemaking during the Obama Administration that established thresholds for mandatory overtime pay. Efforts to craft a revised rule remain underway, it says.
The 2016 rule modified 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.
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.
In August, U.S. District Court Judge Amos Mazzant invalidated the regulation regarding overtime pay and granted summary judgment against the Department of Labor. The court held that the Final Rule’s salary level exceeded the Department’s authority, and concluded that the Final Rule is invalid.
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. In reaching his decision in State of Nevada v. U.S. Department of Labor, he 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.
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.
On October 30, 2017, the Department of Justice, on behalf of the Department of Labor, filed a notice to appeal the decision to the U.S. Court of Appeals for the Fifth Circuit. Once this appeal is docketed, the Department of Justice will file a motion with the Fifth Circuit to hold the appeal in abeyance while the Department of Labor undertakes further rulemaking to determine what the salary level should be.
In public comments, the Labor Department has made it clear that the appeal is not an indication it wants the rulemaking reinstated exactly as it was. Rather, the legal action is intended to reestablish the authority to promulgate such rulemaking with adjusted parameters. Secretary of Labor Alexander Acosta has indicated a desire to adjust the salary threshold, specifically recommending a target of $33,000.
While legal matters sort themselves out, the process behind the Department’s revised rule is well underway.
On July 26, 2017, the Department of Labor published a Request for Information regarding the rule. It asked for public input on what changes to the rule the Department should propose. “That comment period has ended and the Department is reviewing those submissions,” the Oct. 30 statement says.
In June, the Department 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 statement said.
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 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.
“The Department is aware of stakeholder concerns that the standard salary level set in the 2016 final rule was too high,” the RFI said, setting the stage for new, potentially less onerous requirements. “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.”