Employer Groups Win Texas Lawsuit Against Obama Administration’s Revised Overtime Rule

During the Obama administration, the minimum salary needed for the federal “white collar” overtime exemptions was to increase more than 200% on December 1, 2016. See our original post on this controversial change. However, this revision was blocked by a Texas federal judge days before it was slated to take effect, in response to legal challenges mounted by numerous business groups and state governments. State of Nevada, et al. v. U.S. Department of Labor, No. 4:16-CV-731 (Nov. 22, 2016, Dkt. #60).

The U.S. Department of Labor (DOL) promptly appealed the Texas court’s nationwide preliminary injunction against Obama’s revised overtime rule (the Final Rule). That appeal has been pending ever since, while the Trump administration considered its options. The U.S. Court of Appeals for the Fifth Circuit set oral argument on the appeal for early October 2017. The Trump-led DOL continued pursuing the Obama-filed appeal by challenging only the Texas judge’s ruling that the Fair Labor Standards Act (FLSA) does not permit DOL to set a minimum salary level when defining what constitutes an overtime‑exempt executive, administrative or professional (EAP) employee.

However, the case took a dramatic turn in employers’ favor on the eve of Labor Day 2017, when the Texas federal judge ruled as a matter of law that the Final Rule is invalid. He concluded that DOL exceeded its statutory authority by setting the Final Rule’s minimum salary level at so high a level as to “effectively eliminate[] the duties test” Congress intended to control use of the EAP exemptions. Id. (Aug. 31, 2017, Dkt. #99) Slip Op. at 14.

In disapproving the Final Rule, the court cited DOL’s concession that the FLSA did not permit the Department to create a “salary only” test for the EAP exemptions. It also cited DOL’s estimate that the Final Rule would render 4.2 million employees eligible for overtime pay without any changes in their EAP duties, simply because their salaries were not high enough. The court opined that, “Because the Final Rule would exclude so many employees who perform exempt duties, the Department fail[ed] to carry out Congress’s ambiguous intent” and exceeded its statutory authority. Slip Op. at 16. However, the court clarified it was not holding that the FLSA prohibited DOL from using any salary level test in the EAP exemption standards. Instead, the court clarified that it only was evaluating the lawfulness of the Final Rule’s substantial increase in exempt employees’ minimum salary level.

The court went on to briefly address a novel provision in the Final Rule, which called for automatically updating the minimum EAP salary level every three years, based on changes in a benchmark salary level. Given its holding that the Final Rule is invalid, the court “similarly determine[d] that the automatic updating mechanism is unlawful.” Slip Op. at 17.

Two business days after the court’s decision that the Obama Final Rule is unlawful, the Trump administration filed an unopposed motion to dismiss as moot its appeal from the 2016 preliminary injunction of the Final Rule. If this appeal is dismissed – as seems likely – then the attention of employers and employees alike will shift back to the rule-making process, as DOL works to develop a replacement for the Final Rule. See our related post on this subject.