A federal district court judge in Texas struck down a rule adopted last year by the Department of Labor (DOL) that would have hiked the wage threshold for employees to be considered exempt from overtime pay.
The Obama-era change had never gone into effect after the court issued a stay late last year. The attorneys general of 21 states and 55 employer groups, such as the U.S. Chamber of Commerce and the National Retail Federation, had filed lawsuits to challenge the regulation’s legality.
The rule would have raised the minimum salary threshold for most overtime exemptions from $23,660 in annual salary to $47,476, and would have changed the criteria set forth to define the job responsibilities that also help define exempt supervisors, managers and executives.
Judge Amos Mazzant held that while it is legal for DOL to increase the dollar number of wages for exempt employees, the department had gone too far by attempting the change definitions of the duties of who would be exempt, which are set by law. It is the sole domain of Congress to make any changes in the duties that determine who is an exempt employee, the judge held.
Mazzant wrote that DOL “does not have the authority to use a salary-level test that will effectively eliminate the duties test” which was explicitly laid down by Congress in the Fair Labor Standards Act. “Nor does the department have the authority to categorically exclude those who perform ‘bona fide executive, administrative or professional capacity’ duties based on salary level alone,” he said.
He also pointed out that nothing in the law permits DOL to make salary, rather than an employee’s duties, determinative of whether that person should be exempt from overtime pay. The court also struck down the mechanism included in the rule that would have automatically updated the minimum salary threshold every three years.
The Trump Labor Department is not expected to appeal the court decision. However, in late July—more than a month before the court ruling was handed down on Aug. 31—DOL had asked for public comment on what the appropriate dollar amount should be for establishing a new threshold level. Trump’s Labor Secretary Alexander Acosta has said that he believes the salary level of $47,476 a year was too high, and that a more reasonable annual level probably would be somewhere between $30,000 and $35,000.
The deadline for public comments is Sept. 25, and there is a possibility the Labor Department will attempt to press forward with a more modest revision of the exempt salary level.
Among the questions DOL raised for comment was what measure of inflation it should use to determine increases. DOL also asked about what kind of preparations employers had made in their operations and accounting systems to prepare for the 2016 rule and what kind of impact these changes had. This may have included doing things like having increased the salaries of exempt employees to retain their exempt status, or having converted worker pay from salary basis to hourly wages.
DOL also sought input on whether the regulations should contain multiple standard salary levels and how such a system would be set. It suggested this could be on the size of the employer, census region, census division, state, metropolitan statistical area or some other method. Another possibility broached was setting different standard salary levels for the executive, administrative and professional exemptions that were already defined in the law, as DOL had done before changes adopted in 2004.
However, the court decision may have rendered much of this discussion moot, particularly having to do with questions DOL raised regarding proposals having to do with the duties test.