Law News and Tips

Overtime … Or Not

Fred Vilbig - Monday, November 28, 2016

As many of you may know, the Labor Department on May 18, 2016, issued new regulations revising the overtime rule under the Fair Labor Standards Act. Basically, the rule fairly drastically modified the definition of “white-collar” workers substantially increasing the number of “non-exempt” workers.

The rule has three parts to it. The first part is that the employee must be paid on a salary (not hourly) basis. The third part of the rule is that the employee’s duties must be professional, administrative, executive, or outside-sales in nature. The second part of the rule is tied into compensation. If the employee makes less than a set amount (currently $23,660 annually), then he or she doesn’t fall into the white-collar exemption.

What did the Obama administration did was they more than doubled the salary component. What that would mean is that an additional 4.2 million (by the Labor Department’s estimate) workers would now be hourly employees entitled to overtime pay. Conversely, they would only be paid for the hours that they actually worked. Depending on your perspective, this could be good news or bad news. The other two parts of the rule remained unchanged. The Department just raised the salary threshold.

As you can imagine, a number of employers were not happy with this change. What may be surprising is that 21 states were also upset. They all sued in federal District Court in Sherman, Texas.

All of the plaintiffs in the case asked the court to stop the implementation of the revised rule. This is an injunction. In addition, they asked that the injunction be nationwide. On November 22, the judge agreed and issued a nationwide injunction stopping the implementation of this change in the rule.

In his 20 page opinion, the judge basically said that by so radically increasing the compensation part of the test (which isn’t even mentioned in the statute), the Labor Department effectively overrode the other two components of the test, which are in fact referred to in the statute. He felt that by doing so, the Department exceeded the authority given to it by Congress.

The government can appeal this decision. It would initially have to be appealed to the Fifth Circuit Court of Appeals which has not historically been favorably disposed to the government. So the case would probably end up in the US Supreme Court.

Although appeals can sometimes be expedited, it is almost a certainty that President-Elect Trump will have been sworn in before we see that happen. Many observers believe that he will not pursue this case, or he may simply abandon it. Although I don’t think it is on his first 100-days agenda, withdrawing the entire regulatory revision is a possibility as well.

For now though, the old rule stays in place. If an employee makes less than $23,660 annually, he or she is a non-exempt employee, no matter what. If he or she makes more than that, is paid on a salary basis, and performs professional, administrative, executive, or outside-sales duties, then the employee is probably an exempt employee.

We’ll have to keep an eye on this case as time goes on.


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