Overtime Exemption Regulation Blocked

After all the preparation and buildup to the December 1 implementation date of the Department of Labor's new regulation that would have expanded the number of American employees eligible for overtime, a surprise decision out of a Texas federal court has brought the entire process to a halt. Yesterday, November 22, 2016, a U.S. District Court in Texas granted a nationwide injunction to halt implementation of the salary threshold increases.

The attorneys general of Nevada and 20 other states had asked the court to freeze implementation of the Department of Labor's May 23, 2016 regulations, which more than doubled the existing salary threshold for the overtime exemption for executive, administrative, and professional employees from $23,660/year ($455/week) to $47,892/year ($921/week).

With the support of over 50 business organizations, including the U.S. Chamber of Commerce, the States moved for emergency injunctive relief. They challenged not only the adverse monetary impact the new rule would have on state budgets, but also the updating mechanism that provided for unlimited, automatic increases to the salary threshold based on labor department wage surveys.

The Court acknowledged that Supreme Court precedent allowed the Fair Labor Standards Act (FLSA) to be applied to the states, and that courts generally defer to regulatory agencies that implement laws through regulations. However, the Court found that Congress' intent was to exempt bona fide executive, administrative, and professional employees from overtime based on their duties, and that the Department of Labor overstepped its authority in decreeing a salary level that effectively supplanted the duties test: "The Department's role is to carry out Congress's intent. If Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change."

The Court found that the Department's regulatory action was not entitled to deference under the Supreme Court's Chevron test. That decision, much debated in recent years, holds that courts should bow to agencies' interpretation of the laws they enforce, but there are limits. Here, the Department exceeded the permissible limits on construction of the statute by setting the salary level so high that it effectively nullified Congress' "duties" test.

This decision is obviously big news for both employers and employees. Companies are free to reconsider or suspend wage increases planned to ensure December 1 compliance. Although this decision plainly is independent of the recent Presidential election, it may be a harbinger of regulatory rollback that will have widespread impact on the economy.