From the desk of the Attorney General
December 5-11, 2016
Why the overtime rule failed
By Lee Rudofsky
After 21 states, including Arkansas, brought suit, a federal district court enjoined the enforcement of the U.S. Department of Labor’s new overtime regulation. Judge Amos Mazant, an Obama appointee, concluded that the new regulation was likely inconsistent with the governing statute. While the decision was a surprise to many legal commentators, it should not have been. Judge Mazant’s reasoning was straight-forward and consonant with the continuing trend of cases subjecting agency decision-making to serious judicial scrutiny.
The Fair Labor Standards Act (FLSA) provides that workers get paid at least minimum wage and get paid overtime (usually time and a half) if they work more than 40 hours a week. Recognizing that such artificial restrictions in the employment market could hamper economic activity and reduce the number of available jobs, Congress focused the law on only those employees it felt absolutely needed protection and only on those jobs where the law made sense given the realities of the job responsibilities. Accordingly, the FLSA exempted several categories of employees from its requirements.
The FLSA exempts “any employee employed in a bona fide executive, administrative, or professional capacity.” The statute did not define “bona fide executive, administrative or professional capacity,” but directed the Department of Labor to do so. Initially, the Department identified what duties counted as executive, administrative and/or professional and used this “duties-test” to determine whether the exemption applied. Over time, the Department revised the test to include a low salary threshold as well as a duties component. Prior to the new regulation, the exemption test required that the employee must be paid on a salary basis (the “salary-basis test”), paid at least $23,660 annually (the “salary-level test”), and perform executive, administrative, or professional duties (the “duties test”). The new regulation used this general structure, but raised the salary-level test to $47,892 annually.
Judge Mazant concluded that the new heightened salary requirement is inconsistent with the plain language of the FLSA. In his view, the language Congress used in the exemption makes clear that the exemption was to be based on whether a job’s duties were “executive, administrative, or professional” as opposed to being based on whether the employee was paid a particular salary. And while the old regulation also included a salary test, the heightened salary threshold in the new regulation in effect (and unlawfully) supplants the duties test as the primary determining factor for the exemption. Judge Mazant’s ultimate point was that if Congress wants an FLSA exemption to be based on a salary threshold, it can say so expressly. But the President may not unilaterally transform a duties-based exemption into a salary-based one.
The decision is welcome news for state and local government, small businesses, non-profits, and most importantly employees. This rule would have caused states, local government, businesses, and non-profits to reduce headcount, freeze hiring, reduce salaries and/or reduce the opportunity for overtime. All of these options would have hurt the very employees or prospective employees who the administration claimed to want to help.
Lee Rudofsky is the Solicitor General of the State of Arkansas.
Leslie Rutledge is the 56th Attorney General of Arkansas. Elected on Nov. 4, 2014, she is the first woman and first Republican in Arkansas history to be elected to the office.
