Texas Judge Invalidates Obama Era Wage-and-Hour Rules

Edgar M. Rivera

On August 31, 2017, in State of Nevada v. United States Department of Labor, the U.S. District Court for the Eastern District of Texas invalidated the Department of Labor’s final rule, which increased the salary threshold for “white collar” exemptions under the Fair Labor Standards Act (FLSA).

Employers claiming that an employee is exempt under the executive, administrative, or professional exemption from FLSA overtime requirements (called the “white collar” exemptions since they pertain to white-collar workers) must show that the employee performs specific job functions (the duties test) and is paid a salary above a certain threshold (the salary test). Under the Obama Administration, the Department of Labor promulgated a final rule that would double the salary threshold, moving it from $455 a week (or $23,660 annually) to $913 a week (or $47,476 annually). The new salary level is based on the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage and most impoverished U.S. census region—the South—which comprises the states Texas, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Georgia, Florida Tennessee, Kentucky, West Virginia, Maryland, Delaware, Virginia, Washington D.C., North Carolina, and South Carolina. The final rule was intended to go into effect on December 1, 2016.

But, in November 2016, in State of Nevada v. U.S. Department of Labor, a Texas federal court granted an emergency motion for a preliminary injunction in a consolidated case challenging the rule brought by 21 states and a business coalition, holding that Congress intended the white-collar exemptions to depend on an employee’s duties rather than an employee’s salary. On August 31, 2017, the Texas federal court granted the plaintiffs’ motion for summary judgment, holding that the Department had exceeded its Congressional mandate in issuing the final rule.

In Chevron, U.S.A, Inc. v. Nat. Res. Def. Council, Inc., the Supreme Court established a two-step standard for reviewing agency decisions: first, a court must determine whether Congress has directly and unambiguously spoken on the precise question at issue, and, second, if Congress has not, the court must determine whether the agency’s interpretation is based on a permissible construction of the statute. Applying the first step of Chevron, the court found that the updated salary-level test contained in the final rule does not give effect to Congress’ unambiguous intent. “Specifically, the Department’s authority is limited to determining the essential qualities of, precise signification of, or marking the limits of those bona fide executive, administrative, or professional capacity” employees who perform exempt duties and should be exempt from overtime pay,” wrote the court. But the final rule “makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

Because the final rule would exclude so many employees who perform exempt duties, the rule does not carry out Congress’ unambiguous intent, concluded the court.

Applying the second step, the court held that even if the intent of Congress was ambiguous, the Department’s construction of the FLSA is impermissible. By more than doubling the previous minimum salary level, the Department “effectively eliminates a consideration of whether an employee performs bona fide executive, administrative, or professional capacity.”

The court’s opinion, however, is not without problems. After resting its decision to invalidate the final rule on Congress’s unambiguous intent to only permit the Department to make rules regarding job duties—and not salaries—and finding that the Department’s final rule was not “based on a permissible construction” solely because it doubled the salary level, the court stated that its opinion “is not making any assessments regarding the general lawfulness of the salary-level test of the Department’s authority to implement such a test.”

In short, the court found that the Department does not have the explicit authority to use a salary test, but that a salary test might be permissible so long as it does not effectively eliminate the duties test. According to the court, raising the weekly rate from $455 to $913 is doing just that. The court suggested, however, that raising the salary level would be permissible if it were simply adjusted for inflation, which would increase the threshold to $578.10 a week. The court did not provide any basis for why $913 is an “effective termination of the duties test” but $578.10 is not. Indeed, the salary threshold in the final rule is based on the 40th percentile of the lowest-wage census region, so more than 60 percent of U.S. employees would be above the salary threshold, which seemingly contradicts the court’s reasoning that the Department’s final rule would effectively terminate the duties test.

The original preliminary injunction is presently being appealed at the Fifth Circuit; however, the Department, now under the Trump administration, has backed off considerably from the Obama administration’s defense of the overtime rule. In a June 30, 2017 brief, the Department said it “has decided not to advocate for the specific salary level ($913 per week) set in the final rule at this time and intends to undertake further rulemaking to determine what the salary level should be.” Accordingly, the Department requested that the Fifth Circuit address “only the threshold legal question of the Department’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule.” It is likely that the Department will win on this limited issue, but how much the Department can raise the salary level—and what would make that level acceptable—is anyone’s guess.

If your employer has violated your rights under wage-and-hour laws, including failing to pay you overtime, contact The Harman Firm, LLP.