Federal Judge Strikes Down Department of Labor Overtime Rule

September 5, 2017 | Bulletin No. 127412.1

On Thursday, August 31, 2017, a federal district judge in Texas struck down an Obama Administration rule from the Department of Labor that would have extended overtime pay to an estimated 4.2 million workers across the country.

The rule would have increased the minimum annual salary for “white-collar” exemptions from $23,660 to $47,476. In other words, employers would have been required to pay overtime to workers earning less than $47,476 annually, rather than $23,660, greatly extending overtime pay.

Judge Mazzant, who enjoined implementation of the rule last year, stated that the Department of Labor exceeded its authority in issuing the rule. Specifically, DOL focused too heavily on the amount of money that workers were making instead of their job duties. According to the court, Congress intended the Fair Labor Standards Act (FLSA) overtime exemptions to apply to employees engaged in executive, administrative, or professional duties, and thus the primary consideration should be employee’s job duties and responsibilities, not their salary.

The court did not entirely prohibit the consideration of salary. The salary floor is permissible because it helps to screen out employees that are clearly non-exempt. However, the DOL’s rule, by doubling the salary limit, “would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.” As a result, a significant amount of previously exempt employees would be subject to overtime rules regardless of their job duties. Because the new rule would supplant an analysis of an employee’s job duties in favor of salary test, the rule does not carry out Congress’ intent and is invalid.

Reminder to California Employers

The federal FLSA sets the overtime “floor” nationwide, but California has a higher standard. The minimum compensation for application of the white collar exemptions under state law is two times the minimum wage for full time employees. Presently, minimum wage in California is $10.50 per hour, which means that the minimum annual compensation for exempt employees is $43,680. In 2018, these amounts will increase to $11.00 per hour and $45,760 per year and will continue to rise annually through 2022.

There are additional differences between state and federal law with regard to overtime exemptions. As such, any employer creating an “exempt” position, or trying to determine the exempt status of a current or past employee should consult counsel for guidance in this complex area of law.

Questions

If you have any questions concerning this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

David Tyra
dtyra@kmtg.com916.321.4594

James Ward
jward@kmtg.com | 916.321.4371