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New Overtime Rule Suspended – Federal Court says the DOL Went Too Far

Posted on November 28, 2016

On November 22, 2016, a federal district judge in Texas issued an order suspending implementation of the U.S. Department of Labor’s new rule that would have required employers to pay any salaried white collar employee who makes less than $47,892 per year overtime, regardless of the duties they perform. The new rule was set to take effect Dec. 1, 2016, but is now temporarily suspended while the federal court continues to hear evidence and argument before it makes a final decision.  The Court’s order has the legal effect of preserving the status quo while the lawsuit moves forward, which means that until further notice, the old overtime rules will remain in effect.  Though issued by a judge in Texas, the Order has nationwide application.  This means that it applies to everyone the same regardless of where they live, so employers don’t have to worry about different rules in different locations.

The Federal Department of Labor who wrote the new overtime regulation is an administrative agency. Agencies are part of the executive branch, which is controlled by the President, whose job it is to implement and enforce federal law.  Federal agencies write regulations to help with implementation and enforcement, but only Congress has the power to make laws.  If a federal agency tries to make law with its regulations rather than just implement a law, they cross a constitutional line.  When that happens, the agencies regulation is considered legally invalid and cannot be enforced.  The federal courts have the power to make those determinations.  This is all part of our constitutional checks and balances, and is how federalism works to keep one branch from exercising too much power.  These principals of federalism are implicated by the overtime rules, and it is important for people to understand the new rule did not come from Congress, but from an executive branch agency.

The lawsuit started when about twenty states, including Ohio, sued the federal government to block enforcement of the DOL’s overtime rule. Shortly after, a number of private business groups (chambers of commerce and like associations) joined the suit bringing the number of plaintiffs to over seventy.  The legal argument was simple – the DOL exceeded its authority by imposing a salary test rather than a duty test to determine which employees were exempt from mandatory overtime requirements.  The issue here isn’t whether more or less employees should be paid overtime if they work more than 40 hours per week.  The issue is whether the DOL had the legal right to make that decision, or whether under our federalist system, that decision had to be made by Congress.

When Congress passed the Fair Labor Standards Act and required mandatory overtime for employees, it made a specific exemption in the law for those employees who performed certain executive, administrative or professional duties. The actual law does not specify any salary requirement to determine overtime eligibility.  The DOL wrote a rule that said employees who were paid a salary of $455 per week ($23,660 per year) and performed certain duties were exempt.  The salary amount was purposefully set low to screen out obviously non-exempt employees without having to go through an analysis of their duties.  The idea being if an employee were paid less than $455 per week, there is no way they would have executive, administrative or professional duties.  Even under the old rule, the determining factor was still the duties the employee did, not their salary that determined whether they had to be paid overtime.

The new rule states only that any employee who makes less than $921 per week ($47,892 per year) will not be exempt from the law’s overtime requirement, regardless of what duties he or she performs.  Under the DOL’s new rule, an employee could have bona fide executive, administrative or professional duties, but if they were paid less than the DOL’s established salary criteria, that employee would not be exempt on that basis alone.  When you understand that the law Congress passed based the exemption on the duties, and not the compensation, it becomes obvious the DOL’s rule went too far and actually tried to change federal law.  According to the federal judge, the DOL supplanted the duties test with a salary test.  The judge also said that if Congress intended a salary requirement to supplant the duties test, then Congress is the one who has to make that change, not an administrative agency.  Executive branch agencies do not have the power to make laws in our system, and therefore, the federal court was correct to knock the rule down.

What do all these civics lessons mean for employers – they mean you don’t have to change the way you pay your executive, administrative or professional employees on December 1, 2016. It means that you should treat employees the same after December 1 as you did before that date when determining whether they are required to be paid overtime for hours worked in excess of 40 per week.  This will remain so until the federal judge issues additional orders.  Harpst Ross will continue to monitor the case and do our best to keep employers informed of these changes.

For now, employees should be told about this development. Some may have been expecting to start receiving overtime after December 1 and could be disappointed by this decision, thereby affecting morale.  Some employers may have already announced policy changes anticipating the new rule would take effect.  Until further notice, employers have two choices: (1) go ahead and keep whatever changes you have made or planned to make; or (2) tell employees that any changes in overtime policy will not be made until the federal government finalizes the law on this issue.  Employers need to make individualized decisions what action to take, knowing the law does not require them to make any changes at all for now. If you have questions regarding the new overtime regulations, or any other aspect of Federal or Ohio labor law, please contact the attorneys at Harpst Ross, Ltd.Business Lawyers for the Construction Industry®, at (330) 983-9971.

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