In a ruling much anticipated by employers and employees alike, a federal district court in Texas, on August 31, 2017, overturned an Obama Administration Department of Labor rule that would have extended overtime pay to more than 4 million previously exempt workers. In the case of State of Nevada, et al. v. United States Department of Labor, U.S. District Judge Amos Mazzant granted summary judgment in favor of the State of Nevada and numerous other states and business groups that had challenged the new overtime rule, which raised the minimum salary level for certain “white-collar” executive, administrative, and professional exemptions under the Fair Labor Standards Act.

Under the FLSA, workers performing certain executive, administrative, and professional duties, and earning a certain minimum salary, have long been exempt from overtime rules. To qualify for the exemptions, an employee must: (1) be paid on a salary basis; (2) be paid a salary not less than the requisite minimum under the regulations; and (3) perform bona-fide executive, administrative, or professional duties.

The Department of Labor (DOL), under the Obama Administration, attempted to “modernize and streamline” the existing overtime regulations by drastically increasing the salary floor for white-collar exemptions. Currently, the minimum salary level for the exemptions is $455 per week ($23,660 annually).  The new rule more than doubled the minimum salary threshold to $913 per week ($47,476 annually), with automatic increases every three years.

In response, several states and business groups sought an injunction to challenge the new regulation, which would have taken effect on December 1, 2016. In November 2016, the Texas district court issued a nationwide injunction, which temporarily prevented the rule from taking effect.  Since then, employers have been in limbo waiting for clarity on the overtime rule.  Had the new rule been valid, an estimated 4.2 million workers, who would have previously fallen within one of the white-collar exemptions, would have automatically become eligible for overtime pay without a change in their duties, functions, or tasks.

Considering the plain language of the statute along with Congress’s intent, the district court held that the DOL exceeded its authority by using salary level rather than job duties to determine whether employees are exempt from the overtime rules. In so holding, the court clarified that, while the DOL can use a salary test “because salary serves as a defining characteristic when determining who, in good faith, performs actual executive, administrative, or professional capacity duties,” the eligibility for overtime pay must be based on a combination of salary and duties. The court suggested that the salary threshold under the new rule is so high that it effectively eliminates the duties analysis.

While the minimum federal salary level for exempt employees remains at $23,660 per year, the Department of Labor under the Trump Administration may modestly increase the salary floor for white-collar exemptions through new rulemaking in the future. In the meantime, however, employers do not need to make any changes to employee classifications and can breathe a sigh of relief.


Blogger: Laura Hoffman with Erin Webb and Jack Hoblitzell


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