District Court Invalidates Obama-Era Overtime Rule and DOL Withdraws Fifth Circuit Appeal: E.D. Texas | Practical Law

District Court Invalidates Obama-Era Overtime Rule and DOL Withdraws Fifth Circuit Appeal: E.D. Texas | Practical Law

In State of Nevada v. U.S. Department of Labor, the US District Court for the Eastern District of Texas invalidated the Department of Labor's (DOL) Obama-era rule increasing the minimum salary threshold for certain overtime exemptions under the Fair Labor Standards Act (FLSA). As a result, the DOL moved to withdraw its Fifth Circuit appeal of the district court's injunction.

District Court Invalidates Obama-Era Overtime Rule and DOL Withdraws Fifth Circuit Appeal: E.D. Texas

by Practical Law Labor & Employment
Law stated as of 24 Sep 2019 • USA (National/Federal)
In State of Nevada v. U.S. Department of Labor, the US District Court for the Eastern District of Texas invalidated the Department of Labor's (DOL) Obama-era rule increasing the minimum salary threshold for certain overtime exemptions under the Fair Labor Standards Act (FLSA). As a result, the DOL moved to withdraw its Fifth Circuit appeal of the district court's injunction.
On August 31, 2017, Judge Amos Mazzant of the Eastern District of Texas granted summary judgment in favor of several business groups challenging the DOL's overtime rule (State of Nevada, et al. v. U.S. Department of Labor, et al., No. 4:16-cv-731 (E.D. Tex. Aug. 31, 2017)). Citing the district court's order, the DOL moved to voluntarily dismiss as moot its Fifth Circuit appeal of a nationwide injunction issued by the lower court (State of Nevada, et al. v. U.S. Department of Labor, et al., No. 16-41606 (5th Cir. Sept. 5, 2017)).

Background

The Obama-era overtime rule:
  • Doubled the minimum salary required for exemption from overtime of executive, administrative, and professional employees (also known as EAP or white collar exemptions) from $455 to $913 per week.
  • Established a mechanism to automatically update the salary and compensation levels every three years.
See Legal Update, DOL's Final Rule Doubles Minimum Salary Required for White Collar Exemptions Under the FLSA.
Several business groups challenged the rule and on November 22, 2016, the Eastern District of Texas issued a nationwide preliminary injunction enjoining the rule before its December 1, 2016 effective date (see Legal Update, DOL's Final Rule Increasing Minimum Salary for FLSA Exemption Enjoined Nationwide: E.D. Texas). The district court denied a DOL motion to stay proceedings while the agency's interlocutory appeal from the injunction was pending before the Fifth Circuit.

Outcome

Granting summary judgment to the business plaintiffs, the district court concluded that:
  • Congress unambiguously intended the EAP exemptions to be defined by the duties associated with a bona fide executive, administrative, and professional capacity.
  • The DOL is authorized to use a minimum salary level as a defining characteristic of employees who, in good faith, perform actual executive, administrative, or professional capacity duties.
  • The DOL is not authorized to impose a minimum salary level that effectively eliminates the duties test established by Congress.
  • The DOL's overtime rule makes overtime status largely depend on a minimum salary and would exclude millions of previously exempt employees who perform exempt duties. This failure to carry out Congress's unambiguous intent does not qualify for Chevron deference and is unlawful.
  • That portion of the DOL's rule providing for automatic adjustments to the minimum salary level every three years is also unlawful for the same reasons.
Oral argument on the DOL's Fifth Circuit appeal is set for October 3, 2017. However, on September 5, 2017, the DOL filed an unopposed motion to voluntarily dismiss that appeal as moot in light of the district court's final judgment in favor of the plaintiffs. (See Practice Note, Latest Developments: DOL's Final Rule Increasing Minimum Salary for EAP Exemptions Under FLSA.)

Practical Implications

Employers and their counsel should continue to monitor agency and judicial developments concerning the DOL's overtime rule (see Practice Note, Latest Developments: DOL's Final Rule Increasing Minimum Salary for EAP Exemptions Under FLSA).
Employers should also note that the Texas district court's decision does not affect ongoing compliance with state and local law. For example, New York has adopted new minimum salary thresholds for exemption, effective December 31, 2016, that vary based on an employer's size and location (see Legal Update, New York State Department of Labor Implements New Salary Basis Thresholds for Exempt Employees). Employers should be familiar with any minimum salary thresholds and other requirements for exemption under applicable state and local law.
Update: On September 6, 2017, the Fifth Circuit entered a clerk's order dismissing the DOL's appeal, pursuant to the agency's unopposed motion for voluntary dismissal under Federal Rule of Appellate Procedure 42(b).
Update: On September 24, 2019, the DOL announced its final overtime rule, updating minimum salary and compensation levels for certain exemptions effective January 1, 2020. The agency also formally rescinded its 2016 final overtime rule, invalidated by a federal district court before its December 1, 2016 effective date. For more information on the DOL's 2016 final rule, subsequent litigation, and the 2019 rulemaking, see Practice Note, Latest Developments: DOL Rulemaking to Increase the Minimum Salary for White Collar Exemptions Under the FLSA.