Obama's Overtime Rules: the Courts Step In

Yesterday, November 22, 2016, a Texas federal judge issued a nationwide preliminary injunction banning the US Department of Labor from enforcing the new overtime rules that were introduced by the Obama administration in May 2016.

Why did the courts step in?

Well, because a coalition of 21 states and 50+ business groups sued to invalidate the new regulations. The current ruling was issued on an emergency basis, however, and the final decision may differ. That said, there is some language in the opinion suggesting this court's decision may not change much as the case proceeds to completion at the trial level.

As things stood anyway, where the overtime rules were issued by the Obama administration, the specter of the new Trump administration was already calling into question whether Obama's rules were going to be in effect for long.

And on top of that, keep in mind that this new opinion was issued by a district court -- the lowest level court in the federal system. We're not even at the final decision stage yet, and when we get there, the losing party always has the opportunity to appeal it.

In short, things are greatly in flux. Contact me for advice on how to deal with your individual situation in the meantime (and keep in mind Massachusetts overtime laws still apply).

Why did the court ban the rules' enforcement?

To begin, some background. If you work more than 40 hours a week, the Fair Labor Standards Act (FLSA) requires that you be paid 1.5 times your hourly rate (“overtime”) for any work over 40 except in certain cases.

The Obama overtime rules applied to one of those exceptions: to “any employee employed in a bona fide executive, administrative, or professional capacity.” 29 U.S.C. § 213(a)(1). Sometimes it is referred to as the "EAP exemption."

To determine if an employee meets that exception or needs to be paid overtime for hours worked over 40, since 1940, the Department of Labor regulations have applied two tests, the “salary basis test” and the “primary [job] duties test.” For those, you look at:

1) how much the employee makes, and

2) what the employee's primary duties are.

The Obama administration rules changed the salary basis test, essentially doubling the amount one could make before being exempted from overtime. The updates never touched the primary duties test. The change would have made eligible for overtime approximately 4.2 million workers nationally who, without the rule change, were not eligible.

In very basic terms, the court ruled that the plain language of the FLSA indicated that Congress meant for the exception to apply to those employees who performed executive, administrative, and professional duties—without regard to their salary level— and as those terms were used in 1938, when the FLSA was passed. The court wrote, “The plain meanings of the terms in Section 213(a)(1), as well as Supreme Court precedent, affirms the Court’s conclusion that Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary.”

This conclusion, thus, removes the salary test from the analysis altogether, and is a departure from how this issue has been analyzed since 1940.

It also could have big ramifications for the workers who were about to become eligible for overtime.

But again, this issue is very much in flux. If you have questions about your personal situation, contact me.