August 31, 2017
By Chris Opfer
A federal judge in Texas Aug. 31 shot down an Obama-era rule that would have made some 4 million workers newly eligible for overtime pay but drew sharp criticism from business groups.
The Labor Department exceeded its authority by issuing the rule, which would have doubled—to $47,000 per year—the salary under which workers are automatically entitled to overtime pay for all hours beyond 40 a week, Judge Amos Mazzant said. The DOL focused too heavily on the amount of money workers make, instead of their job duties, according to Mazzant ( Nevada v. DOL , E.D. Tex., No. 4:16-CV-731, 8/31/17 ).
The decision is another nail in the coffin for the overtime rule, which Mazzant put on hold temporarily before it went into effect late last year. It also paves the way for the Trump administration to potentially issue a new rule with a more moderate increase to the salary threshold that was last updated by the Labor Department under George W. Bush.
“Judge Mazzant is not saying you can’t have a salary level,” Paul DeCamp, a management-side attorney at Epstein Becker Green who worked as wage and hour chief in the Bush administration, told Bloomberg BNA. “He’s just saying that the salary level in this rule was too high.”
The Obama administration hailed the rule as a way to combat wage stagnation for working families, particularly at a time when Congress was unlikely to raise the federal minimum wage. Supporters also said the existing rule had been watered down by inflation.
“I think it’s disappointing, but not unexpected,” Celine McNicholas, a labor lawyer for the Economic Policy Institute, told Bloomberg BNA. McNicholas was a National Labor Relations Board official in the Obama administration. McNicholas said the ruling was based on “flawed logic.”
Business advocates and mostly Republican lawmakers argued the rule would force employers to shed jobs to meet payroll costs. A group of states and business groups sued last year to challenge the Obama rule.
President Donald Trump’s Labor Department signaled in June that it plans to reconsider the rule and has since asked for public input. Labor Secretary Alexander Acosta has indicated the DOL may consider revising the salary threshold to somewhere near $32,000 a year.
A Labor Department spokeswoman didn’t immediately respond to Bloomberg BNA’s request for comment. The decision “brings clarity, certainty and closure to the business community and government alike,” Nevada Attorney General Adam Paul Laxalt said.
The department asked an appeals court to affirm the DOL’s authority to take salary into account for eligibility purposes. The appeal—arguments had been slated for Oct. 3—could be off the table following Mazzant’s decision.
“It wouldn’t surprise me to see that appeal withdrawn,” DeCamp said.
Still, the decision leaves some uncertainty about just how high the DOL can set the salary threshold.
The Fair Labor Standards Act generally requires employers to pay workers overtime for all hours worked beyond 40 per week. The law also delegates to the labor secretary the power to determine which workers should be removed from overtime requirements under the law’s white-collar exemption for workers in “bona fide executive, administrative, or professional” positions.
The overtime standards created in 2004 by the Bush administration allow employers to exempt workers who make more than $23,500 annually and perform certain managerial duties. When the DOL rolled out the new rule in 2015, then-Labor Secretary Thomas Perez said doubling the threshold was the easiest way to put more money in workers’ pockets and avoid some of the uncertainty that comes with the “duties test.”
As in his earlier decision, Mazzant appeared to acknowledge that the DOL can consider salary levels to a certain extent. But he also said the department cannot “categorically exclude” workers from the white-collar exemption “based on salary level alone.”
“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,” Mazzant wrote. “Instead, the Court is evaluating only the salary-level test as amended by the Department’s Final Rule.”
Mazzant also rejected the Texas AFL-CIO’s request to intervene in the case. The labor group was hoping to fight to save the Obama rule after the Trump administration decided not to defend it.
To contact the reporter on this story: Chris Opfer in New York at firstname.lastname@example.org
Text of the opinion is at https://www.bloomberglaw.com/document/X1Q6NT66VV82?fmt=pdf.
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