Yesterday, millions of American workers were denied a long overdue raise. On December 1, 2016, a U.S. Department of Labor (DOL) rule should have made millions of Americans in salaried jobs eligible for overtime pay. Instead, a coalition of businesses and states sought a nationwide injunction blocking the new DOL rule from taking effect, forcing working families to wait indefinitely - and unnecessarily - for relief.
A Raise for Salaried Workers
Many believe that the federal Fair Labor Standards Act (FLSA) only offers wage and overtime protections to hourly workers, but it also applies to salaried employees who make below a certain amount each year and perform duties that are not exempt from the FLSA's requirements. As we reported previously, the current minimum salary for employees to be exempt from overtime pay is $455 per week or $23,660 annually. (Employees making over $455 per week also have to perform specific executive, administrative, or professional duties, such as supervising two or more full-time employees, to be exempt from overtime pay under the executive, administrative and professional exemptions.) Because the minimum salary requirement for these exemptions had not been adjusted to account for inflation since 2005, the DOL announced a rule change in May 2016 to modernize the regulations and raise the exemption level to $970 per week or $47,476 annually - based on the 40th percentile of income earned by full-time, salaried workers in the lowest wage region of the country. The new rule also would have automatically adjusted the minimum salary threshold to account for inflation every three years, beginning in 2020, bringing overtime regulations in line with the real wages of American workers and enabling more workers to earn a greater reward for their extra hours worked.
The increase, which was to take effect on December 1st, would have converted approximately 4.2 million workers that are currently not entitled to overtime pay into non-exempt employees eligible for overtime pay for time beyond a 40-hour work week. (See the DOL's Overtime Overview).
A Last Minute, Extreme Roadblock
After the proposed rule was finalized following a lengthy notice and comment period, employers began to prepare for the increase in the salary test by reclassifying workers as independent contractors, or raising exempt employees' salaries above the new threshold.
Various states filed a lawsuit against the DOL, however, challenging the validity of the new rule. On November 22, 2016, Judge Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas signed an order granting a national injunction that blocks the overtime rule change until a full hearing can be conducted. His decision suggested that this delay could be followed by a permanent injunction blocking the increase outright.
In the interim, the incoming Trump administration will have the opportunity to review or revise the increase, and employees can only hope that the incoming President - given his populist platform and pledges to protect American workers - will support, not roll back, overtime protections.
Shortsighted Resistance to an Important Wage Increase
The DOL's overtime exemption adjustment was not a gratuitous gift to employees, but a much-needed update to the nation's labor laws that resulted in a necessary "raise" of approximately $12 billion over the next ten years to help working families struggling to make ends meet. Recognizing this, many companies such as Walmart and TJX (parent company of brands such as TJ Maxx, Marshalls, and Home Goods) have taken steps to comply with the rule change, as their employees and other workers have begun to rely on the new protections. Letting the new rule take effect is beneficial to both employers and employees, and rolling the new protections back would give an unfair advantage to businesses that were late in preparing for the rule change.
In addition to blocking a raise for millions of workers and creating an unfair playing field for employers, Judge Mazzant's decision rests on extreme and shaky legal reasoning, including an unprecedented view of the DOL's authority to interpret the FLSA regulations. Throughout the DOL's 78-year history, courts have consistently held that the FLSA permits the use of a minimum salary level to determine exempt vs. non-exempt status, and that as long as the DOL follows proper notice, comment, and rulemaking procedures, deference must be given to the regulations it creates and enforces. Contrary to other federal judges as well as the justices of the U.S. Supreme Court, Judge Mazzant chose to diverge from precedent and misstated the legislative history of the Fair Labor Standards Act in making his decision to enjoin the rule change.
In response to Judge Mazzant's ruling, the Department of Labor filed an appeal on December 1st to end the injunction and allow the new overtime rules to take effect, while Congress members and worker advocates urged President-Elect Donald Trump to sustain the overtime rule at a press conference in Washington D.C. Senate Minority Leader Charles Schumer of New York indicated that how Mr. Trump chooses to act on this matter will be a "test" for making good on his promises to help working class Americans.
Employee rights, workplace fairness, and just compensation are of critical concern to the attorneys at Outten & Golden. We will continue to monitor and report on the developments surrounding the DOL's overtime rule change,