Last week, a federal district court in Texas struck down the Final Rule, associated with overtime, that was proposed by the U.S. Department of Labor (DOL) under the Obama administration. According to the DOL, the rule would have expanded eligibility for overtime pay under the Fair Labor Standards Act (FLSA) to approximately 4.2 million workers. In November 2016, the same court issued a temporary injunction, blocking the rule from taking effect on December 1, 2016, until it could determine the legality of the rule and whether the DOL has the authority to enact it.

Under the FLSA, employers must pay employees at least the federal minimum wage – currently, $7.25 per hour – for all hours worked, as well as overtime pay at 1½ times their regular rate of pay for all hours worked above 40 in a week. The FLSA exempts “any employee employed in a bona fide executive, administrative or professional capacity” from the minimum wage and overtime requirements. Under current federal regulations, to be exempt from overtime pay, an employee must meet the following three criteria:

  1. The employee must be paid on a salary basis (the salary-basis test);
  2. The employee must be paid at least the minimum salary level established by regulations (the salary-level test); and
  3. The employee must perform executive, administrative or professional capacity duties as established by regulations (the duties test).

In response to a March 2014 memorandum from President Obama directing the Secretary of Labor to “modernize and streamline the existing overtime regulations for executive, administrative and professional employees,” the DOL proposed a revision to the minimum salary level required for exemption from overtime pay (the salary-level test).  Under what is referred to as the Final Rule, the minimum salary level for exempt employees more than doubled – from $455 per week ($23,660 annually) to $913 per week ($47,476 annually) – and would be automatically adjusted every three years.

When the court issued its final decision on August 31, 2017 invalidating the rule, it did so on grounds that the minimum salary required to qualify for an exemption from overtime was so high that it would “effectively eliminate” other requirements for overtime eligibility, such as the kind of duties an employee performs (the duties test). In his ruling, Judge Amos Mazzant wrote, “The department creates a final rule that makes overtime status depend predominantly on a minimum salary level, thereby supplanting an analysis of an employee’s job.”

While there is speculation that the DOL under the Trump administration will propose a more modest increase to the minimum salary level, the current federal regulations remain in effect.

Click here to read the decision from the United States District Court, Eastern District of Texas.