Overtime Rules On Hold: States Granted Nationwide Injunction

A Texas federal district court issued a nationwide injunction preventing new overtime rules from going into effect. These rules would have made it more likely states and local governments would have had to pay more employees overtime.

Twenty-one states and a number of business organizations sued the Department of Labor. The rules were to go into effect on December 1, 2016.

Per the Fair Labor Standards Act (FLSA), executive, administrative, and professional “white collar” employees do not have to be paid overtime if they work more than 40 hours a week. Per Department of Labor (DOL) regulations, adopted shortly after the FLSA was adopted in 1938, employees must perform specific duties and earn a certain salary to be exempt from overtime as white collar employees.

On May 23, 2016, the DOL issued final rules nearly doubling the previous salary level test for white collar employees from $455 per week, or $23,660 per year to $913 per week, or $47,476 per year.

DOL also raised the salary threshold for highly compensated employees (who aren’t eligible for overtime no matter their job duties) from $100,000 per year to $134,004 per year. The rules automatically update the salary level every three years for white collar and highly compensated employees.     

As a practical matter states objected to these rules because they would cost more money and states “cannot reasonably rely upon a corresponding increase in revenue, [so] they will have to reduce or eliminate some essential government services and functions.”

The court issued a preliminary injunction in this case because in exempting executive, administrative, and professional employees from overtime Congress didn’t include a salary test. According to the court, “If Congress intended the salary requirement to supplant the duties test, then Congress, not the Department, should make that change.” It is surprising that the court seemed to imply that DOL could impose no salary test at all, though it has been doing so since the 1930s. (In a footnote the court said it was only evaluating the salary test in the 2016 final rule).

The court also concluded DOL lacks the authority to automatically update the salary level.  

The states asked the Texas district court to overturn Garcia v. San Antonio Metropolitan Transit Authority (1985), where the U.S. Supreme Court held that the FLSA applies to the states. Unsurprisingly, the court refused as only the Supreme Court may overturn its precedent. But the Texas court did note that the states made a persuasive argument Garcia may have been implicitly overruled.  

DOL may appeal this ruling to the Fifth Circuit. However, after taking office President Trump could instruct DOL not to continue defending the lawsuit.