December 1, 2016
Private: Texas Federal Court Halts Implementation of Overtime Rule Just When Workers Need It Most
Ruben J. Garcia
by Ruben J. Garcia, Professor of Law, University of Nevada Las Vegas William S. Boyd School of Law
Today, Dec. 1, was the day that the Obama Administration’s revision to the overtime rules would have gone into effect, were it not for a nationwide injunction issued by a federal court last week. The revised rule aimed to increase the amount under which employees would be automatically eligible for overtime pay for hours worked over 40 in a week. The rule required all employees earning below $47,476 to be paid time and a half for hours worked over 40 in a work week. Now, those employees will only be eligible for overtime if they also meet the tests for exempt duties as promulgated by the U.S. Department of Labor (DOL), a subject of frequent litigation because of the inherently subjective elements the exempt duties tests.
On Nov. 22, a federal court in the Eastern District of Texas enjoined the DOL’s revision of the Rule which determine when an employee is “exempt” from the overtime pay requirements. Business groups complained primarily about the Rule’s index which would automatically keep the salary threshold in line with increases in cost of living—the absence of which has kept the minimum salary at a stagnant level for decades. States sued to block the rule principally on a federalism challenge, which was turned away by the federal court in short order based on Supreme Court precedents.
But the Court accepted the challenge of the states and the private plaintiffs under the Administrative Procedure Act, finding that the DOL went beyond its authority in setting the salary minimum at $47,476. On this theory, the DOL has a minimal role in filling out congressional intent about the extent of the overtime exemption for “bona fide executive, administrative, and professional” exemption from overtime requirements under the Fair Labor Standards Act of 1938. For decades, the DOL has set a presumptive salary threshold, beneath which workers are eligible for overtime regardless of their duties. Over that threshold, workers might be exempt if they perform sufficient duties. The revised rule did not affect the duties standards most recently revised in 2004 during the Bush administration. The 2016 revision, however, raised the salary threshold from $23,660 to $47,476. This doubling of the threshold beneath which employees are automatically entitled to overtime pay brought loud protests from the business community about how the increase would decrease the flexibility of employers and workers. Nonetheless, many employers increased employee salaries to ensure that workers would still be over the salary limit for the overtime exemption. Although the court expressly stated it was not challenging the authority of the DOL to set any threshold, the court did not say what salary level would have been reasonable.
The history and experience of workers makes clear why DOL must set a salary threshold. First, the overtime exemptions clearly contemplate that workers with bona fide executive and professional duties are more likely to be paid more, thus obviating the need for overtime and the salary threshold provides a good benchmark for what that pay should be. Second, setting a presumptive threshold under which overtime pay is due is in the interest of employers and employees because it eliminates disputes and uncertainty about whether employees are exempt, unlike those which occur with employees paid just over the salary threshold.
Over four million people were likely going to be affected by the revised rule — either by getting overtime pay for the first time or by having their salary increased over the $47,476 per year mark to continue being exempt from overtime pay. Irrespective of the injunction granted last week, the Trump administration faces the prospect of revising the threshold downward to where it was before or setting a new salary test at some level between $23,660 and $47,476. Or, the administration might take the Texas federal court opinion to its end-point and argue that the DOL has no authority to set a salary minimum at all, thus throwing it to the Republican-controlled Congress. Any choice could be politically unpopular to workers who see their anticipated salary increase evaporate with the coming of the new Administration.
Many working-class voters who voted for the president-elect in the November election who would have benefited from the Obama administration’s overtime rule now face the prospect that the person they voted for will move to limit their eligibility for overtime in the next Congress. Whether that causes them to regret their vote, they still may make their voices heard in the rulemaking process, just as over 293,000 commenters did during the 2016 revision of the rule. Unless successfully appealed to a higher court, the decision of a single court in Texas has made that process moot for the entire nation.