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Court Invalidates Proposed Rule Raising Salary Level of Exempt Employees under FLSA

In Nevada v. United States Department of Labor, 227 F. Supp. 3d 696 (E.D. Tex. 2017), the United States District Court for the Eastern District of Texas ruled the final rule issued by the United States Department of Labor (“DOL”) during the Obama Administration that sought to increase the salary of exempt employees under the Fair Labor Standards Act (“FLSA”) from $455 per week to $913 per week exceeded DOL’s authority and, thus, was invalid.

By way of background, shortly before the effective date of the new regulation, 22 states, led by the State of Nevada, filed a lawsuit against DOL challenging the final rule, claiming it unlawfully regulated the states. The Plano Chamber of Commerce, among others representing the interests of businesses, filed their own lawsuit also claiming the final rule was invalid. The two lawsuits were consolidated in the Eastern District of Texas. On November 22, 2016, the court issued a preliminary injunction (written about here), preventing the new regulation that sought to change the salary level of exempt employees from taking effect on December 1, 2016. Prior to the preliminary injunction, the business plaintiffs had moved for expedited summary judgment on the validity of the final rule, and the state plaintiffs later joined in that motion.

In granting the business (and state) plaintiffs summary judgment, the court examined the plain meaning of the FLSA. In this regard, it noted that the executive, administrative, and professional exemptions (collectively referred to as the “EAP Exemption”) by their plain meaning consider the exempt status of an individual based on his/her performance of “bona fide” exempt job duties. The court then noted that the FLSA authorizes DOL to define or set limits on the reach of the EAP Exemption, but the FLSA did not authorize DOL to define the reach of the EAP Exemption with “a salary-level test that will effectively eliminate the duties test as prescribed by Section 213(a)(1)” of the FLSA. The court also noted that DOL does not “have the authority to categorically exclude those who perform [EAP Exempt] duties based on salary level alone.” The court found that because the final rule more than doubled the minimum salary previously used to identify exempt employees, “[t]his significant increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.” “As a result, entire categories of previously exempt employees who perform ‘bona fide [EAP Exempt]’ duties would now [not] qualify for the EAP exemption based on salary alone.” This is not what Congress intended according to the court and, therefore, the final rule is not entitled to deference for enforceability under the Chevron test (the test established by the United States Supreme Court in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984).

It is unclear at this point whether the federal government will appeal the court’s decision. If the government does not appeal, the salary test that has long been in effect will continue to govern exempt status determinations for the foreseeable future, as it appears unlikely that this Administration will seek to increase the exempt salary level to a more modest amount. Even if the government were to appeal the decision, businesses will be able to continue to operate under the “old” paradigm for the foreseeable future, as the preliminary injunction has been in effect for nearly one year and it will be a long time before the appellate court were to issue a ruling. Thus, it appears that there will be no new salary test for businesses to apply to determine the exempt status of employees under the FLSA for the foreseeable future.

If you have any questions regarding this post, please contact Stephen B. Stern at sstern@hwlaw.com or (410) 260-6585 or Amitis Darabnia at adarabnia@hwlaw.com or (410) 260-6592.

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