By: Brittany Flaherty Theis

New Development in the FLSA Final Rule Challenge

The United States District Court granted summary judgment in favor of the business plaintiffs, who challenged the validity regulations promulgated to implement the Fair Labor Standards Act, in a memorandum opinion and order issued August 31, 2017. Section 213(a)(1) of the Fair Labor Standards Act (“FLSA”) exempts from minimum wage and overtime requirements “any employee employed in a bona fide executive, administrative, or professional capacity.” It is commonly referred to as the “EAP exemption.”

After Congress created the EAP exemption, the Department of Labor (the “Department”) promulgated regulations defining and delimiting those terms on the bases of minimum salary and duties, and has revised those regulations over the years. On March 23, 2014, the Secretary of Labor was directed to develop regulations to “modernize and streamline the existing overtime regulations for executive, administrative, and professional employees.” After receiving and reviewing more than 293,000 comments on its proposed rule, the Department published a final rule on May 23, 2016 (the “Final Rule”). Under the Final Rule, the minimum salary level for exempt employees doubled from $455 to $913, based upon the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage region of the country. The Final Rule also included an automatic updating mechanism that adjusts the minimum salary level every three years beginning January 1, 2020.

Two lawsuits were filed that challenged the Final Rule. Those cases were consolidated. On November 22, 2016, the United States District Court in the Eastern District of Texas preliminarily enjoined the Final Rule from going into effect on December 1, 2016, as scheduled, on a nationwide basis. In its August 31, 2017 order, the court found the Final Rule invalid.

In considering whether the Department exceeded its authority, the court started by analyzing the plain language and meaning of Section 213(a)(1). 29 U.S.C. § 213(a)(1). After determining the plain meaning of “executive, administrative, and professional capacity” related to a person’s performance, conduct, or function, the court held that “it is clear Congress defined the EAP exemption with regard to duties.” Further, it held that the updated salary-level test under the Final Rule does not give effect to Congress’s “unambiguous” intent because it would “effectively eliminate the duties test as prescribed by Section 213(a)(1).” Specifically, the court found significant that the Department estimated 4.2 million workers currently ineligible for overtime, and who fall below the minimum salary level, will automatically become eligible under the Final Rule without a change to their duties. “Because the Final Rule would exclude so many employees who perform exempt duties, the Department fails to carry out Congress’s unambiguous intent,” which is the first step in applying Chevron deference to administrative agencies.

Alternatively, the court held that even if Congress’s intent in Section 213(a)(1) is ambiguous, the Department’s Final Rule is not based on a permissible construction of the statute, which is the second step in the Chevron test. “Nothing in Section 213(a)(1) allows the Department to make salary rather than an employee’s duties determinative of whether a ‘bona fide executive, administrative, or professional capacity’ employee should be exempt from overtime pay.”  According to the court, the Department exceeded its authority and is not entitled to Chevron deference – the Final Rule is unlawful.

Whitt Law will continue to monitor legal developments regarding the EAP exemption, and whether this ruling is appealed. Please contact Whitt Law Attorney Brittany Flaherty Theis if you have any questions regarding the Fair Labor Standards Act generally, or the Final Rule, in particular.

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