Federal Overtime Exemption Rule Invalidated

On Thursday, August 31, 2017, the United States District Court for the Eastern District of Texas granted summary judgment to business interests and multiple states, permanently invalidating a federal regulation that would have significantly increased the minimum salary threshold to qualify for executive, administrative, and professional exemptions from overtime pay under the Fair Labor Standards Act.

For employers, this means that the minimum salary threshold to qualify for one of these “white collar” exemptions remains unchanged at $455 per week ($23,660) and employers can continue to plan their pay practices based on federal regulations as they have existed since 2004.

Many employers have been following developments in this area closely, as the final rule — issued in May 2016 and scheduled to take effect on December 1, 2016 — would have increased the minimum salary threshold to qualify for these exemptions to $913 per week ($47,476 annually).

Many employers adjusted their pay practices in anticipation of the new rule, but just days before the effective date, the same Texas federal court referenced above issued a nationwide preliminary injunction temporarily barring the Department of Labor from implementing the rule. The court has now issued a final order invalidating the rule. The Department is highly unlikely to appeal this decision; it recently withdrew its appeal of the Texas court’s preliminary injunction with the Fifth Circuit Court of Appeals. That court dismissed the Department’s appeal on September 6, 2017.

Although the Department may propose another increase to the minimum salary threshold for these exemptions, that rule-making process takes time and public involvement. In the meantime, employers can rely on the current regulations.

If there is a silver lining to the federal overtime rule rollercoaster of the past year, it is that many employers may have taken the opportunity to audit their pay practices and to confirm compliance where claiming white collar exemptions.