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Texas district court to put an end to the overtime rule; DOJ agrees

By Pamela Wolf, J.D.

The Texas district court that put the first nail in the coffin of the Labor Department’s controversial final rule, which would double the salary threshold for the executive, administrative, and professional (EAP) exemption (the so-called “white collar” exemption) at which FLSA overtime requirements would cease to apply, has done its best to finish the job.

Controversial overtime rule. The embattled final rule originally would have gone into effect December 1, 2016. Among other things, it would set the salary floor below which overtime must be paid to executive, administrative, and professional (EAP) employees at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, which is currently the south. That resulted in a salary floor increase from $455 a week, or $23,660 annually, to $913 a week, or $47,476 annually. Under the rule, the salary level would be automatically updated every three years at the same 40th percentile.

First nail in the coffin. But in November 2016, in State of Nevada v. U.S. Department of Labor, a Texas federal court granted an emergency motion for a preliminary injunction in a consolidated case challenging the rule brought by 21 states (and a business coalition), ruling that “Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary” (see Federal judge blocks DOL overtime rule,” November 23, 2016).

Trump DOL backs off a little. On appeal in the Fifth Circuit, the DOL backed off considerably from the earlier administration’s defense of the overtime rule. Under the Trump Administration, in a June 30, 2017, brief, the agency said it “has decided not to advocate for the specific salary level ($913 per week) set in the final rule at this time and intends to undertake further rulemaking to determine what the salary level should be. Accordingly, the Department requests that this Court address only the threshold legal question of the Department’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule.”

Chevron analysis seals the coffin. Giving another push from below, the district court on August 31, 2017, granted the business plaintiffs’ motion for summary judgment. On September 5, 2017, attorneys for the Justice Department asked the Fifth Circuit to voluntarily dismiss the appeal as moot because of the lower court’s final judgment, noting its motion was unopposed; thus, the district court appears to have done its best to put an end to the embattled final rule.

Applying Chevron, the court found that the updated salary-level test contained in the final rule does not give effect to Congress’ unambiguous intent. “Specifically, the Department’s authority is limited to determining the essential qualities of, precise signification of, or marking the limits of those ‘bona fide executive, administrative, or professional capacity” employees who perform exempt duties and should be exempt from overtime pay,” wrote the court. But the final rule “makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

Notably, even the DOL admits that the FLSA does not give the Secretary of Labor authority to “adopt a ‘salary only’ test for exemption.” Because the final rule would exclude so many employees who perform exempt duties, the rule does not carry out Congress’ unambiguous intent, concluded the court.

Moreover, even if the intent of Congress was ambiguous, the DOL’s construction of the FLSA is impermissible. By more than doubling the previous minimum salary level, the DOL “effectively eliminates a consideration of whether an employee performs “bona fide executive, administrative, or professional capacity,” the court said.

Intervention denied. In a separate opinion, the district court also denied the Texas AFL-CIO’s motion to intervene. As to mandatory intervention, the AFL–CIO failed to show its motion was timely. Even if the motion was timely, the court found that the defendants are adequately representing the union’s interests. The court also declined to grant permissive intervention.

Important victory. Steven Pockrass, co-chair of Ogletree Deakins’ Wage and Hour Practice Group, called the ruling “an important victory for employers.” He said that compliance with the revised overtime regulations would have been extremely costly and burdensome for many employers.

Less uncertainty. While many employers breathed a sigh of relief when the same court earlier issued a temporary nationwide injunction blocking the regulations, a temporary injunction is a preliminary decision, not a final one, and so there was still a lot of uncertainty about the future of the final rule, Pockrass noted. “A summary judgment ruling is a final decision on the merits, so it creates less uncertainty about the future than a preliminary injunction,” he said. Moreover, the summary judgment decision clarified the court’s position on certain key issues that had created confusion and added to the uncertainty.

One concern with the preliminary injunction decision was that it could have been interpreted as holding that the DOL could not set any minimum salary level as one of the tests for determining whether an individual is exempt from overtime under the executive, administrative, or professional exemptions, Pockrass explained. “In his latest ruling, Judge Mazzant clarified in footnotes that he was not passing judgment as to whether the DOL could or could not include a salary test, stating, ‘This opinion is not making any assessments regarding the general lawfulness of the salary-level test or the Department’s authority to implement such a test.’”

Another concern with the preliminary injunction decision is that one portion of the decision referenced most, but not all, of the regulatory provisions that were altered in the 2016 final rule, the Ogletree attorney added. “In his summary judgment ruling, Judge Mazzant concluded that the entire final rule was invalid.”

Looking ahead. What’s on the horizon? Pockrass predicted that, “although the salary level threshold for the EAP exemptions is not likely to increase to $913 per week under the Trump administration, an increase in the minimum salary level still is likely sometime in the future.” He pointed to statements by Secretary of Labor Alex Acosta indicating he believes the minimum salary level should be higher than the current $455 per week, and annualized, it likely should be in the $30,000 to $35,000 range.

Pockrass suggested that employers now need to focus their attention on what he called “a highly detailed Request for Information (RFI) concerning the overtime regulations that the DOL published in the Federal Register.” The RFI includes several questions related to appropriate salary levels. Pockrass said that it’s important that employers make their voices heard on this issue. He noted that comments in response to the RFI are due no later than September 25, which is less than a month away.