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Obama’s Overtime Rule Struck Down

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On May 23, 2016, the Department of Labor issued new Fair Labor Standards Act regulations which required all employers subject to the Fair Labor Standards Act to pay their “white collar” employees at least $913 per week to remain exempt from overtime.  This would have more than doubled the current $455 per week salary threshold.  The proposed salary test was projected to affect more than 4 million workers nationwide.

On November 22, 2016, seven days before the regulations were set to take effect, Judge Amos L. Mazzant, a federal judge for the Eastern District of Texas, issued a nationwide injunction preventing the Department of Labor from enforcing the new regulations.  The injunction was preliminary to a final decision of the Court.  In issuing the injunction, Judge Mazzant determined that the Department of Labor exceeded its statutory authority.  The court concluded that, while Congress intended the Department of Labor to delimit the types of duties required for an employee to fall within the “white collar” exemption — i.e., the duties test — it did not intend the Department of Labor to delimit a minimum salary threshold.  The court concluded that such a result was a de facto salary-only test and was contrary to congressional intent.

Today, Judge Mazzant issued his final decision and reached the same conclusion.  Judge Mazzant found that, “The Department does not have the authority to use a salary-level test that will effectively eliminate the duties test as prescribe…  Nor does the Department have the authority to categorically exclude those who perform “bona fide executive, administrative, or professional capacity” duties based on salary level alone”  Further, he found that the “significant increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level” resulting in the loss of exempt status on the basis of salary alone, a result which was clearly not the intent of Congress when the law was enacted.

What does this mean for employers?  In response to the initial regulations regarding the increased salary required for a position to remain exempt from overtime requirements, many employers reviewed the salary being paid to employees whose positions were classified as exempt under the FLSA.  In those instances where the current salary did not meet the increased salary threshold employers either increased the salary to meet the minimum salary test or reclassified the position as non-exempt and established a regular hourly rate of pay based on the employee’s salary.  To avoid incurring increased overtime costs if reclassifying the position as a non-exempt subject to overtime, employers implemented or reissued policies requiring all overtime to be approved in advance.  Based on the decision issued today, for those employers who undertook such an analysis, they may, but are not required to go back and determine whether any of those positions that were reclassified as non-exempt satisfy the requirements of a “white collar” exemption and could be reclassified as exempt from overtime.

While an appeal of the District Court’s decision is possible, President Trump is opposed to the dramatic increase in the salary threshold proposed under the Obama Administration.  As a result, it appears the old salary threshold of $23,660 will remain in effect for the foreseeable future.

If you have questions, please contact Susan Love at slove@buelowvetter.com or 262-364-0255, Dan Vliet at dvliet@buelowvetter.com or 262-364-0259 or Mary Hubacher at mhubacher@buelowvetter.com or 262-364-0254 or your Buelow Vetter Attorney.

This Legal Update is intended to provide information only on general compliance issues and should not be construed as legal advice. Please consult an attorney if you have any questions concerning the information discussed in this Legal Update.

In order to comply with Treasury Circular 230, we are required to inform you that any advice we provide in this Legal Update concerning federal tax issues is not intended or written to be used, and cannot be used, to avoid federal tax penalties or to promote, market, or recommend to another person any tax advice addressed herein.

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