Hunton Retail Law Resource

Earlier this month, the Department of Labor (“DOL”) dropped its defense of an Obama-era regulation that sought to increase the salary level for overtime-exempt employees from $23,660 per year to $47,476 per year. The regulation had been set to take effect in November 2016, but a last-minute preliminary injunction issued by a federal district court in Texas stayed the implementation of the regulation.

In the preliminary injunction ruling, the district court ruled that the new $47,476 salary threshold exceeded the scope of the DOL’s authority because such a high salary level had the effect of making an employee’s salary—and not their primary duty—the determinative factor in the exemption inquiry. Importantly, the district court’s preliminary injunction ruling went well beyond the appropriateness of the particular salary level at issue in the new regulation, and instead expressed the broader view that the DOL lacked the authority to impose any salary level requirement (regardless of the level of salary chosen) because the relevant provision of the FLSA focused on an employee’s duties, not their salary. 

The Obama-era DOL immediately appealed the preliminary injunction decision to the Fifth Circuit Court of Appeals. Many in the employer community had hoped that President Trump’s inauguration in January 2017 would result in the immediate withdrawal of the DOL’s appeal, which would have allowed the new regulation to die a slow death at the district court level. However, the DOL continued to pursue the appeal even after President Trump took office, citing concerns with the district court’s broader holding that the DOL could not impose any salary level requirement. It is no secret that President Trump’s newly appointed Secretary of Labor, Alexander Acosta, believes that an increase to the current salary level (albeit a more modest one than the increase proposed by the Obama-era DOL) is warranted in light of the increase in inflation and the cost of living since the salary level was last adjusted in 2004. In the DOL’s view, the district court’s broader holding that the DOL could never impose a salary requirement as part of the exemption test threatened the DOL’s ability to put in place a more modest increase to the salary level.

The DOL’s concerns regarding this broader issue were alleviated on August 31, 2017, when the district court issued a final decision on the underlying merits of the new regulation. As we previously reported, the district court permanently enjoined the Obama-era regulation, but it clarified that its holding was limited to the specific salary increase contained in the new regulation and was not a rejection of the DOL’s authority to make salary level a component of the exemption test.

Satisfied that the district court’s merits ruling preserved the DOL’s right to impose a salary requirement, the DOL requested that the Fifth Circuit allow it to withdraw its appeal of the preliminary injunction. On September 6, 2017, the Fifth Circuit granted that request.

Absent an unexpected appeal of the district court’s final decision, this development likely means that the Obama-era regulation will never take effect. As a replacement, the DOL under the Trump Administration has already begun the process of gathering information and data necessary to determine whether a more modest increase in the salary level is necessary and, if so, what the level should be. It's anticipated that, at some point in the future, the DOL will issue a notice of proposed rulemaking containing a less drastic, and perhaps a more gradually implemented, increase to the salary level.