SHERMAN, Texas — Two days before Thanksgiving, a federal judge there blocked the U.S. Department of Labor (DOL)’s final rule updating overtime regulations under the Fair Labor Standards Act.
The new rule, which would have impacted four million workers, including some dealership personnel, was set to go live this Thursday. That was before U.S. District Court Judge Amos Mazzant agreed with 21 states and a coalition of more than 50 business groups that the rule is unlawful. He also granted their motion for a nationwide injunction.
The rule to extend mandatory overtime pay would have more than doubled the salary threshold for overtime eligibility from $23,600 per year to $47,475 annually. That threshold would also be updated every three years to account for inflation.
"Last week, after 21 states filed an emergency motion, a federal judge in Texas issued a nationwide preliminary injunction which prevents the DOL's new overtime rule from taking effect on Dec. 1," said David Druzynski, director of human resources for Auto/Mate and regular contribitor to F&I and Showroom magazine. "The rule would have raised the minimum exempt salary threshold level from $455 per week to $913 per week. For now, the new overtime rules are on hold until the courts make a determination on the final rule's validity."
Announced in May, the final rule was published in response to a memorandum President Barack Obama signed in 2014. It directed the Department of Labor to update the regulations defining which white collar workers are protected by the FLSA’s minimum wage and overtime standards. The memorandum also instructed the department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.
“The long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their work,” read the Labor Department’s May announcement.
But in lawsuits filed in September, the states and business groups charged that the drastic increase in the salary threshold was arbitrary. They also argued that the FLSA’s overtime requirements violate the Constitution by regulating the states and coercing them to adopt wage policy choices that adversely affect their “priorities, budgets, and services.”
Mazzant ruled that the FLSA, which says that employees can be exempt from overtime if they perform executive, administrative, and professional capacity duties (EAP), does not allow the Labor Department to determine who is eligible for overtime pay based on salary alone.
“To be exempt from overtime, the regulations require an employee to have EAP duties; be paid on a salary basis, and meet a minimum salary level. The final rule raises that salary level from $455 per week to $913 per week,” Mazzant wrote in his 20-page ruling, noting that the salary level was purposefully set low to screen out obvious nonexempt employees so an analysis of duties was unnecessary.
“The department has admitted that it cannot create an evaluation ‘based on salary alone,’” Mazzant continued. “But this significant increase to the salary level creates essentially a de facto salary-only test.”
On its website, the Labor Department wrote that it has always recognized that the salary level test works in tandem with the duties tests to identify “bona fide EAP employees,” noting that it has updated the salary level requirements seven times since 1938.
“The department strongly disagrees with the decision by the court, which has the effect of delaying a fair day’s pay for a long day’s work for millions of hardworking Americans,” the department stated on its website. “The department’s overtime final rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule.
“We are currently considering all of our legal options.”
The U.S. Chamber of Commerce, which joined the states and business group coalition in their challenge of the Labor Department’s final rule, applauded the ruling. “If the overtime rule had taken effect, it would have resulted in significant new costs — more than $1 billion according to the Congressional Budget Office — and it would have caused many disruptions in how work gets done,” read a statement, in part, posted on the organization’s website. “Furthermore, the rule would have reduced workplace flexibility, remote electronic access to work, and opportunities for career advancement. This is a great result.”