Effective December 1, 2016, the U.S. Department of Labor’s (“DOL”) Final Overtime Rule (“Overtime Rule”) would have granted an estimated 4 million salaried executive, administrative, and professional employees earning less than $913 per week the right to overtime pay. Employers would have had to pay these workers overtime at a rate of at least one and one-half times their regular rate of pay for any work they performed after 40 hours in any given week.
On November 22, 2016, Judge Amos Mazzant of the United States District Court for the Eastern District of Texas granted an emergency motion for a preliminary injunction enjoining the DOL “from implementing and enforcing” the Overtime Rule in lawsuits filed by 21 states and 55 business organizations, including the Independent Insurance Agents & Brokers of America (Big “I”).
Between 1975 and 2016, overtime exempt workers grew from 38% to 93%
The disputed Overtime Rule resulted from a 2014 Presidential Memorandum, signed by President Obama, directing the Labor Department to update the Fair Labor Standards Act (“FLSA”) exemption allowing employers to avoid paying overtime to employees performing executive, administrative or professional duties. In his memorandum, President Obama stated the exemptions provisions, “have not kept up with our modern economy.”
One of the reasons cited by the DOL to show the exemption had not kept up with the economy and inflation was that, “In 1975, 62 percent of full time salaried workers had overtime protections based on their pay; today , just 7 percent have those protections.” The DOL cited this statistic as proving, “too few people are getting the overtime that the Fair Labor Standards Act intended.”
Before publishing the final version of the Overtime Rule on May 23, 2016, the DOL received more than 293,000 comments on the proposed rule, including comments and objections from businesses and state governments. Notwithstanding these comments and objections, the DOL made the Overtime Rule effective December 1, 2016, to increase the minimum salary level for exempting executive, administrative, and professional employees from overtime to $47,892 annually ($921 per week) from $23,660 annually ($455 per week).
Federal Judge, an Obama appointee, finds Overtime Rule violates FLSA
In September 2016, 21 state attorney generals filed suit in federal court in Texas against the Overtime Rule taking effect claiming, among other grounds, that the Overtime Rule exceeded the rulemaking authority of the DOL under FLSA. Also, in September 2016, over 55 business groups led by the U.S. Chamber of Commerce filed their own suit to invalidate the Overtime Rule in the
same Texas court. The two suits were consolidated for a November 16, 2016 hearing before Judge Amos Mazzant. In 2014, President Obama had appointed Judge Mazzant to his federal judgeship.
On November 22, 2016, Judge Mazzant, issued a 20-page decision finding that a nationwide injunction should issue enjoining the DOL, “from implementing and enforcing” the Overtime Rule. The judge ruled for an injunction based on his finding that the plaintiffs, had established all the grounds necessary to show the DOL’s Overtime Rule were issued “without statutory authority.”
“Big I” joined in successful suit to block overtime rules from taking effect.
The Independent Insurance Agents & Brokers of America (Big “I”) joined the United States Chamber of Commerce, along with over 55 trade and chamber of commerce groups to file suit in September 2016, to block the new overtime regulations from taking effect. See Agency Checklists’ September 27, 2016 article, “Big “I” Sues To Invalidate New Overtime Regulation Affecting Thousands of Agencies.”
In joining in the suit to stop the regulation, the Big “I” stated it believed that the overtime pay regulations to take effect on December 1, would adversely affect thousands of insurance agencies throughout the country.
In-coming administration and Republican Congress can kill Overtime Rule
The DOL will almost certainly appeal the preliminary injunction to the Fifth Circuit Court of Appeals in New Orleans. However, unless that appellate court grants an expedited appeal, the agency’s appeal will not be heard before the inauguration of President-Elect Donald Trump.
Once President Trump takes office on January 20, 2017, his administration’s new secretary of labor will decide whether to drop the appeal. Even if the Fifth Circuit granted an expedited appeal and upheld the Overtime Rule before the January 20th inauguration, the new secretary would still have the option to repeal or modify the Overtime Rule.
Additionally, the Republican-controlled Congress has the right under the Congressional Review Act to rescind, with the approval of the president, any regulations within 60 legislative days after the regulation is approved. Although the DOL issued the Overtime Rule in May of 2016, based upon what constitute “legislative days” rather than calendar or business days, the Congress may still have time to disapprove the new rule.
The Overtime Rule may challenge the new administration
After his inauguration, the Overtime Rule may be one of the first tests of President Trump’s political acumen.
Some political observers expect that the Trump administration will have a knee-jerk reaction to kill the Overtime Rule. On the campaign trail, he had cited the Overtime Rule as one of the regulations he hoped to undo. However, Mr. Trump campaigned on a platform of both rolling back regulations to aid businesses and creating well-paying jobs for American workers.
A post-inauguration decision to effectively deny 4 million middle-class workers a pay raise by letting Judge Mazzant’s injunction stand or by having the new secretary of labor repeal the Overtime Rule could cause political problems for President Trump. Mr. Trump made a campaign pledge to create “good-paying jobs.” That promise may ring hollow for executive, administrative, or professional workers earning less the $917 per week if the Trump administration kills the Overtime Rule.
Effect of the preliminary injunction
The preliminary injunction is a nationwide court order stopping the DOL’s Overtime Rule from taking effect as scheduled.
The result is that companies that have not otherwise changed their payment practices to comply with the regulation do not have to do so pending the ultimate decision in the Texas lawsuits by the Fifth Circuit Court of Appeals, or the DOL under the Trump administration withdrawing or amending the Overtime Rule.
Apparently, many companies have already acted anticipating that the Overtime Rule would take effect on December 1, 2016. Wal‑Mart, for example, raised the salary of its entry-level managers in October, in anticipation of the Overtime Rule taking effect, to $48,500 per year to avoid paying overtime. Other large companies have reportedly also made salary or work hour adjustments to comply with the Overtime Rule taking effect.
While possible, it seems unlikely that these companies will reverse their salary decisions, although the work hours may revert to their prior schedule based on the Overtime Rule not taking effect.
Existing regulations continue in force
The existing DOL regulation regarding overtime for executive, administrative and professional workers now remains in force. This regulation having been found valid in other court proceedings, required an employee to meet three criteria for salaried works to qualify for an exemption from overtime:
- First, the employee must be paid on a salary basis (the “salary-basis test”).
- Second, an employee must be paid at least the minimum salary level established by the regulations (the “salary-level test”). Presently, $455 per week ($23,660), and
- Third, an employee must perform executive, administrative, or professional duties (the “duties test”).
Agency Checklists will keep our readers updated on developments regarding the Overtime Rule going forward.
Prior articles by Agency Checklists with details of Overtime Rule and the suits against it
- Agency Checklists, November 8, 2016 “Overtime Starts December 1st for Employees Earning Less Than $913 Per Week”
- Agency Checklists, May 24, 2016, “New Law Sets $47,476 As Minimum Salary for Overtime.”