The Department of Labor’s (“DOL”) 2016 revisions to the rule determining exemptions from the Fair Labor Standards Act (“FLSA”) were blocked nationwide by a Texas federal district court (“District Court”) on November 22, 2016. The revisions, which were to take effect December 1, 2016, required an employee classified as exempt to be paid at least $913 weekly ($47,476 annually); raised the highly compensated employee base to $134,004 annually and provided for periodic adjustments to the minimum weekly salary. The $913 per week salary aspect of the 2016 revisions has received most of the national attention. The DOL has estimated 4,200,000 United States workers would be impacted by the new exemption rules.
When Congress enacted the FLSA in 1938, it provided that “any employee employed in a bona fide executive, administrative, or professional capacity” is exempt from its minimum hourly rate and overtime requirements. Congress delegated to the DOL the authority to define those who are employed in a bona fide executive, administrative, or professional capacity (“EAP exemption”). Since 1940, the DOL has required compliance with three tests for the EAP exemption: 1) payment to employees of a predetermined and fixed salary not subject to reduction based on quality of work (the “salary test”); 2) a minimum salary established by the DOL (the “salary level test’); and 3) job duties primarily involving executive, administrative or professional responsibilities (the “duties test”). In 2014, President Barack Obama instructed the DOL to review the EAP exemption in order to modernize and simplify it. The last time the DOL undertook such a review was in 2004 when it raised the minimum weekly salary pay to $455 a week ($23,660 annually). Following the President’s directive, the DOL engaged in rule-making, resulting in publication in July, 2015 of its proposed revisions to the EPA exemption rule. In response, the DOL received more than 293,000 comments by the close of the September 4, 2015 comments period. The Final Rule was published on May 23, 2016.
Two groups challenged the DOL’s new $913 salary level test: a group of over fifty business organizations and a group of twenty-one states. The groups claimed that the DOL exceeded the Congressional delegation of authority to define groups who are bona fide executives, administrators and professionals and requested the revisions be enjoined. On November 16, 2016, the District Court heard oral arguments on the challengers’ preliminary injunction motion and on November 22, 2016 issued its Order.
The District Court examined the language Congress used to establish the EAP exemption: “any employee in a bona fide executive, administrative or professional capacity … as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor].” Based on this language, the District Court concluded that Congressional intent was that workers doing bona fide executive, administrative or professional duties were excluded from the FLSA. Therefore, the District Court said that it was not required to defer to the DOL’s interpretation of the statute. Instead, the District Court said that under authority Congress delegated to it, the DOL was authorized it to define the types of duties that qualify for executive, administrative or professional responsibilities. The authority did not include making a salary level the predominate part of the EAP exemption rule.
The District Court said that the 2016 EAP exemption rule raising the minimum weekly salary to $913 has the effect of making the salary level test solely determinative of the exemption virtually eliminating the duties test. This is a result that was not intended by Congress, the District Court said. Concluding that the 2016 EAP exemption rule revisions are unlawful, the District Court then decided that since the revisions are applicable to all states a nationwide injunction was appropriate.
A final note: the District Court limited its injunction to the 2016 EAP exemption revisions, stating that the lawfulness of a salary level test for an EAP exemption as a whole was not being addressed. As an agency of the United States, the DOL has 60 days to take an appeal of the preliminary injunction.