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Department of Labor Overtime Rule Invalidated

On Thursday, August 31, 2017, the U.S. District Court for the Eastern District of Texas struck down the DOL Overtime Rule which had been previously announced on May 18, 2016.  The Court granted the expedited motion for summary judgment filed by the Plano Chamber of Commerce and more than 55 other business groups (“Business Plaintiffs”).  The motion for summary judgment was joined by the 21 states (“State Plaintiffs”) that had previously filed an emergency motion to prevent the new DOL Overtime Rule from being implemented.  The Overtime Rule, which was to take effect on December 1, 2016, required employees to earn at least $913/week or $47,476/year in order to be considered an exempt employee, even if the employee’s duties qualify as executive, administrative or professional.  However, the Overtime Rule never went into effect because the Court had granted the State Plaintiffs’ earlier motion on November 22, 2016, effectively blocking the Overtime Rule’s implementation.

The Court applied the two-step standard for reviewing governmental agency decisions, which was first established by the Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).  First, in examining the plain language of the Fair Labor Standards Act (“FLSA”), the Court found that Congress clearly referred to employees’ duties in the section providing for “bona fide executive, administrative, or professional” employees to be exempt from minimum wage or overtime requirements (“EAP exemption”).  Second, in evaluating the correct interpretation of the statute, the Court held that the Department of Labor did not have the authority to use a salary-level test that would essentially eliminate the duties test prescribed by Congress.  Because the Overtime Rule more than doubled the previous minimum salary level, the Court found that such an increase would “make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level”, which was not Congress’ intent in creating the EAP exemption.  The Court reasoned that the Department of Labor exceeded its authority, because the Overtime Rule is not based on reasonable interpretation and ignores Congress’ intent.  After finding the Overtime Rule to be unlawful under Chevron, the Court declined to address the Plaintiffs’ additional arguments.  The Court thus entered final judgment in favor of State Plaintiffs and Business Plaintiffs by granting their motion and subsequently dismissing the action.

There is no immediate impact to employers as a result of the Court’s decision because the Overtime Rule never went into effect.  Moreover, the future of any appellate proceedings is uncertain.  The Department of Labor had originally filed an appeal of the Court’s earlier order blocking the implementation of the Overtime Rule, and the Fifth Circuit Court of Appeals had scheduled oral argument for October 3, 2017.  However, on August 31, 2017, the same day as the district court’s entry of judgment in Plaintiffs’ favor, the parties filed a motion jointly requesting to cancel oral argument and suspend the appeal.  The parties indicated that they were engaging in ongoing discussions on how to narrow the scope of their dispute and potentially eliminate the need for the appeal.  On September 5, 2017, the Department of Labor voluntarily dismissed its appeal of the Court’s November 22, 2016 decision temporarily blocking the Overtime Rule’s implementation, noting that the appeal was now moot since the Court had entered final judgment in this case.