Court ruling striking down Obama overtime rules leaves workers high and dry

Court ruling striking down Obama overtime rules leaves workers high and dry

overtime-otDecember 1, 2016 was supposed to be a great day for an estimated 156,000 salaried workers in North Carolina. But thanks to a recent federal court order, the day instead brought disappointment and confusion for most of them.

For nearly seven months, thousands of North Carolinians have been anticipating an increase in their pay due to the Obama Administration’s new overtime rule for salaried workers. The rule, which was announced on May 18, 2016 and set to take effect last Thursday, would have raised the salary threshold for overtime eligibility from $23,660 per year to $47,476 per year, effectively raising the amount you must be paid in order for your employer not to have to pay you overtime.

This means that *most* workers making less than $47,476 per year (or $913 per week) would have to be paid overtime for each hour over 40 in one workweek in addition to their salary. (This rule only changes one of the exemptions from overtime and does not apply in all workplaces and to all types of jobs. It has to do with what are often referred to as white-collar jobs, or the Executive, Administrative, Professional exemption.) The new rule also includes a mechanism to automatically update the salary threshold every three years.

But recently a judge in Texas blocked the new rule from taking effect.

What does this mean for employers and workers in North Carolina? Well, it’s hard to say for sure. For the time being, it means that the salary threshold for overtime is still just $23,660 per year. Some businesses have undoubtedly used the last seven months to prepare for this change, adjusting salaries or switching salaried workers to hourly in preparation for the new rule. Some of them may choose to keep those changes in place and pay their employees more.

Other employers who were dreading having to pay their employees for overtime hours will happily put-off making any changes to their employees’ pay until it is absolutely necessary – which may still happen. The overtime rule could still take effect, but it will be up to the courts and will depend in large part on whether the Trump Administration decides to defend the new rule.

The case, State of Nevada, et al, v. United States Department of Labor, et al, was filed in the U.S. District Court for the Eastern District of Texas by 21 states (not including North Carolina) challenging the legality of the new overtime rule. The case was later consolidated with a similar challenge brought by more than 50 business groups and chambers of commerce. The decision by Judge Mazzant focuses on whether the U.S. Department of Labor had authority to issue rules about who is entitled to overtime under the Fair Labor Standards Act. Judge Mazzant concluded that the U.S. Department of Labor did not have that authority, that the States challenging the law are most likely going to win the lawsuit, and that therefore it is appropriate to issue a nationwide injunction – to stop the rule from taking effect before it causes irreparable harm – pending the final decision in the case.

When Congress passes a law, such as the Fair Labor Standards Act, it is usually necessary to also have regulations in order to implement that law. The agency responsible for enforcing the law, in this case the U.S. Department of Labor, is the entity responsible for creating those regulations. From time to time agency regulations are challenged in court and courts then engage in what has come to be known as the Chevron analysis (named after a 1984 Supreme Court decision when Chevron challenged a regulation from the Environmental Protection Agency) in order to determine whether the agency’s regulations are lawful.

The first step of Chevron analysis is to determine whether Congress has spoken clearly and unambiguously. If so, then the court must follow that clear message from Congress.  If not, then the court analyzes the agency regulation to see if it is reasonable.

Here, Judge Mazzant looked at section 213(a)(1) of the Fair Labor Standards Act, which says that “any employee employed in a bona fide executive, administrative, or professional capacity. . . as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor]” shall be exempt from overtime, and concluded that the language is clear and unambiguous. Because the words “executive,” “administrative” and “professional” are not actually defined in the statute, Judge Mazzant turned to dictionary definitions and concluded those words are defined just based on duties and have nothing to do with salary.

But Judge Mazzant did not address the other part of Section 213(a)(1) where Congress clearly delegated authority to the Secretary of Labor to define those terms. He also chose to interpret “bona fide” as underscoring the importance of the duties in order to determine what is an executive, administrative or professional capacity. A judge could have easily come to a different conclusion on that point – finding that “bona fide” means you should look to other indicators, such as salary level, to determine whether the employee is actually the type that Congress meant to exempt from overtime.

Congress’ intent is something courts should consider when trying to ascertain the plain meaning of a statute according to judicial precedent.  The Fifth Circuit Court of Appeals – the circuit that includes the Eastern District of Texas – has said that courts may also consider the legislative history and the legislature’s purpose to understand what Congress intended.

Congress enacted the overtime requirement, thought of as a maximum hours requirement at the time, to bring employees a better work-life balance by requiring employers to pay more to employees who are required to work more than forty hours in a workweek. Congress exempted higher status, “white-collar” employees from this requirement because, presumably, they had more power to advocate for themselves in the workplace and their decent salaries already compensated them for the extra hours they put in. In 1975, the salary threshold was updated by the Ford Administration to be 1.6 times the median wage so that employees who were not intended to be exempt from overtime would not be deprived of the law’s protection. The Obama Administration – well aware of Congress’s intent in passing the Fair Labor Standards Act – called for this new overtime rule with the higher salary threshold in order to restore the spirit of the overtime requirement.

Judge Mazzant’s opinion is certainly vulnerable to being overturned on appeal, but only if the Appeals Court is willing to fairly apply Chevron analysis.

Clermont Ripley is a staff attorney in the North Carolina Justice Center’s Workers’ Rights Project.