A federal district court in Texas last week invalidated the U.S. Department of Labor's (DOL) pending overtime regulations—finalized under the Obama Administration—aimed at increasing the salary threshold for overtime exemptions under the Fair Labor Standards Act (FLSA). The court's opinion follows its decision last November to preliminarily enjoin the rules from being implemented.

The court's August 31 ruling, on a summary judgment motion filed by the same business groups and states that had requested the injunction, mainly serves as a prelude to the pending appeal of the injunction and the Trump Administration's likely revision of the regulations.

Had the rules gone into effect as planned, the salary threshold for white-collar employees to qualify for the FLSA's overtime exemption would have increased from $455 per week ($23,660 annually) to $913 per week ($47,476 annually), and the salary threshold would have increased every three years. The court determined that such dramatic changes exceeded the DOL's authority to enforce the FLSA. It reasoned that Section 213 of the FLSA, which establishes the overtime exemption for any individual employed in a bona fide executive, administrative, or professional capacity, specifically entrusts the Secretary of Labor to define those terms based on the duties of the employees, not their salaries. According to the district court, the FLSA permits the DOL to impose a minimum salary-based test as a way to identify employees who may qualify for a duties-based analysis, but, by increasing the salary threshold by so much, the DOL effectively replaced the duties test with a predominantly salary-based standard that is not endorsed by the statute.

The Obama-era DOL immediately appealed the court's November preliminary injunction order to the U.S. Court of Appeals for the Fifth Circuit. The DOL—now led by Trump-appointee Alexander Acosta—has since announced its plan to review and revise the new rules, and has asked the Fifth Circuit to rule only on the issue of whether the DOL has the authority to set a salary threshold at all—an issue called into question by the district court's injunction ruling.

While this opinion may have limited practical impact, it previews the arguments that the Fifth Circuit will consider in reviewing the earlier injunction. It also may guide the DOL in revising the rules to determine how far it may go to increase the salary threshold of the overtime exemptions without exceeding its statutory authority.

Ballard Spahr's Labor and Employment Group routinely assists employers in navigating the FLSA's overtime rules and in preparing for compliance with the new rules if and when it is required.

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