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A Real Life Texas Hold'em: DOL Overtime Rule Struck Down by Texas Federal Court

September 6, 2017

On August 31, 2017, a federal district court in Texas issued its final ruling in State of Nevada v. United States Department of Labor that invalidated the Department of Labor's ("DOL") white collar exemption overtime rule. That rule would have raised the salary threshold to $47,476 per year for executive, administrative and professional overtime-exempt employees. The rule was scheduled to go into effect in December 2016 but was enjoined since November 2016 while the district court considered the case. This is now the trial court's final decision and is consistent with its prior ruling. In its earlier ruling, the court held that the DOL exceeded the authority delegated to it by Congress by increasing the minimum salary to $913 per week for the Executive, Administrative, and Professional exemptions under the Fair Labor Standards Act ("FLSA").  

In its August 31 ruling, the court reasoned that Congress created an exemption to the FLSA's overtime regulations for "bona fide executive, administrative, and professional employees." In doing so, it defined the exemption according to job duties, not a minimum salary. The court stated that Congress delegated authority to the DOL to define the exemptions, but that authority was limited to defining an exemption based on job duties. By increasing the minimum salary for exempt status to $913 per week, the court believed that the DOL excluded a large number of employees from exempt status whose job duties otherwise met the duties requirements for the executive, administrative, or professional exemptions. That, the court held, exceeded the DOL's authority under the FLSA.

The court's reasoning and its decision raise an interesting question – if the DOL lacks authority to set $913 per week as the minimum salary to qualify for exempt-status, does the current minimum of $455 per week also conflict with the statute? No, says the court. The court recognized that the DOL does have the authority to implement a salary-level test, just not at the level in the rule at issue because the salary level excluded many employees whose job duties did qualify for one of the exemptions.

So what now? The DOL had previously appealed the court's November 2016 injunction ruling to the Fifth Circuit Court of Appeals. In its appeal, the DOL asked the court to affirm the DOL's authority to use a salary threshold in determining overtime eligibility. On September 5, 2017, the DOL withdrew its appeal of the lower court's November 2016 ruling, likely because the lower court's ruling essentially provides the DOL the right to set a salary level. By withdrawing the appeal, the DOL will likely continue soliciting comments in response to the Request for Information ("RFI") it issued on July 26, 2017 (see Clark Hill's e-alert on Department of Labor Releases a Request for Information Seeking Public Comment on Overtime Regulations). The RFI seeks public input regarding what salary level or levels, if any, the DOL should use moving forward to determine the annual salary requirement for executive, administrative, and professional exemptions. The comment period for the RFI expires on September 25, 2017. Following the comment period, it is believed that the DOL will propose a more modest increase to the current minimum of $455 per week, but what that proposal will be remains to be seen. We will continue to monitor any proposed changes to the overtime rules and to update you on any important developments.

If you have any questions regarding the FLSA overtime regulations and/or the DOL's Request for Information, please contact Scott Cruz at (312) 985-5910 | or another member of Clark Hill's Labor and Employment Law practice group.

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