On Aug. 31, a federal district court permanently invalidated changes made to the Overtime Rule under President Obama. This follows a Nov. 22, 2016, preliminary injunction barring enforcement. The final rule was scheduled to take effect on Dec. 1, 2016 and would have expanded overtime eligibility for 4.2 million employees.
As part of the final rule, the salary level under which employees qualify for overtime pay would have increased from $455 per week ($23,360 annually) to an estimated $913 per week ($47,476 annually). In addition, the rule included automatic updates to the threshold every three years without seeking public comment.
The Obama Administration argued that the changes would have boosted wages for workers by $12 billion over the next 10 years. Employers from a variety of sectors disputed this arguing that it would force more employees to be converted from exempt to non-exempt without increasing annual wages. In addition, it would reduce flexible work arrangements and advancement opportunities.
A broad coalition of business groups, and 21 states, had challenged the rule on the grounds that DOL exceeded its authority by raising the salary threshold too much and providing automatic updates to the threshold without stakeholder input.
In issuing his ruling, Judge Amos Mazzant ruled that the Department of Labor (DOL) put too much emphasis on salaries in determining overtime pay and did not adequately consider an employee’s regular duties.
“The department creates a final rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties,” noted Judge Mazzant in his written opinion. “Because the final rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress’s unambiguous intent.”
In July 2017, DOL issued a Request for Information (RFI) as a precursor to a new rulemaking. NLBMDA attended a roundtable on Sept. 8 in Washington, D.C. regarding DOL’s RFI. In its oral comments, NLBMDA stated the continued need for the driver and outside sales exemptions, retaining the current duties test, and having the salary threshold serve as bright line test for eligibility.
NLBMDA filed written comments on Sept. 25 arguing in favor of the approach adopted by DOL in its 2004 rule, when the current thresholds and duties tests were established.
That approach was based on setting thresholds low enough to automatically establish as overtime eligible only those workers who would not meet the duties tests.
The duties tests would then be used to determine if the remaining workforce were eligible for exempt status. NLBMDA’s comments opposed any changes to both the duties tests as well as automatic increases to the salary threshold.
NLBMDA is also a member of the Partnership to Protect Workplace Opportunity (PPWO) and signed on to their comments regarding the RFI. PPWO is a diverse group of associations, businesses, and other stakeholders representing employers with millions of employees across the country in almost every industry. The Partnership is dedicated to advocating for the interests of its members in the regulatory debate on changes to the overtime rule.
DOL is expected to restart the rulemaking process increasing the salary threshold for overtime eligibility. There is speculation that DOL will ultimately increase the salary threshold for overtime eligibility to a level in the mid-to-upper $30,000 range.
The overtime rule was last changed in 2004 when it created the current three-pronged test: 1) work must be executive, administrative, or professional in nature; 2) the worker must be paid on a salary basis not dependent on work performed; and 3) the worker must be paid at least $455 per week.
There is a general exemption for outside sales professionals provided the following criteria are met: 1) the employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a compensation will be paid by the client or customer; and 2) the employee must customarily and regularly be engaged away from the employer’s place or places of business. A general exemption also exists for drivers of commercial trucks involved in interstate commerce.
NLBMDA remains engaged on the issue of overtime pay eligibility, will continue to monitor developments, and weigh-in with DOL when changes are formally proposed. The association formally opposes a dramatic increase to the overtime pay eligibility threshold that does not take into consideration regional variations in wages and cost of living, decreased workplace flexibility, and greater difficulty developing future managerial talent.
More regulatory guidance from NLBMDA on the Overtime Rule can be found in the Regulatory Affairs section at dealer.org.