by Barry L Weller, EA
On November 22, 2016, a Texas based U.S. District Court Judge Amos Mazzanta issued a nationwide temporary injunction that halted the Department of Labor’s (DOL’s) new rule on overtime that must be paid to administrative, professional and executive workers.
The ruling is based on the judge’s finding that the plaintiffs (21 States and a group of businesses) would (1) suffer irreparable harm if the rule were to go into effect prior to a court ruling on its validity; and (2) that the plaintiffs were likely to prevail when the court decides the merits of the case. On the merits, the judge wrote, it is likely the court would find that the DOL rule exceeds its statutory authority under the Fair Labor Standards Act (FLSA) “white collar” exemption from the FLSA overtime rules.
On December 1, 2016, the Department of Justice on behalf of the Department of Labor filed a notice to appeal the preliminary injunction to the U.S. Circuit Court of Appeals for the Fifth Circuit. The Department has moved to expedite the appeal.
The DOL rule, which had been scheduled to take effect on December 1, 2016, would have required overtime be paid to professional, executive and administrative workers who earn less than $47,476/year. Timing of a final decision is uncertain but there should be some indication of what will happen early in the new year. In the meantime, overtime rules for “white collar” exemption workers remain as they were in effect prior to the new DOL rule (the salary threshold being $23,600/year).
Since 1940, the Department's regulations have generally required each of three tests to be met for the FLSA's executive, administrative, and professional (EAP) exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee's job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”). The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees.
Summarizing what all of this means, while it is highly likely that this rule (which in 2014, President Obama directed the Secretary of Labor to update) will at least change and may be killed, the “how” and “when” of the final action is still uncertain. First, the court could rule that the new rule is valid and a new implementation date could be established. If this happens, Congress could enact a law killing the rule. Second, the court could find that DOL exceeded its statutory authority. Then, the incoming Trump Administration could decide against appealing that decision which would kill the rule. Or, the new Administration could direct DOL to reopen the rulemaking with an eye to changing the rule perhaps by phasing it in or by changing the salary threshold to a level below $47,476.
Barry L Weller, EA is the president of Barry Weller & Associates with offices at 216 E Philadelphia Ave, Boyertown, PA 19512 Phone (610) 367-8280 He is an enrolled agent, licensed to represent taxpayers before the IRS. (updated 12/16/2016)