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The DOL's 2016 Proposed Overtime Rule Under the Trump Administration: Reading the Tea Leaves

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The Department of Labor's Fair Labor Standard Act (FLSA) Overtime Rule was slated to take effect on December 1, 2016. The new regulations would have extended the rights to overtime compensation to millions of additional employees in the workforce by redefining exempt-level employment under the Act. However, the rule has yet to actually take effect because it is presently bogged down in litigation. Before offering a theory as to what may happen in the immediate future, a brief digression regarding the FLSA itself will provide context for a discussion of the rule.

Since roughly 1940, DOL regulations have afforded overtime compensation to employees who work in excess of 40 hours per week. However, as with most things, there are exceptions to the general rule. The exceptions, in this instance, come in the form of a three-part test: (a) salary basis test; (b) salary level test; and (c) job duties test. The proposed rule's change would affect the salary basis and salary level test. The job duties test remains unchanged. Under the "old" and still existent standard, (assuming the job duties test is satisfied), an employee could be exempt from overtime compensation if he/she minimally earned $23,660 per year (salary level), at least $455 per week (salary basis) and performed exempt level functions (job duties). Under the proposed rule's change to the salary basis and salary level test, those amounts are increased, respectively, to $47,476 and $913.

As one would imagine, the announced rule's change caused a considerable uproar, which led to a number of states, primarily under Republican leadership, and corporate interests filing suit against the DOL. That particular lawsuit is still pending in the Fifth Circuit Court of Appeals. Speculation has been rampant regarding what may ultimately happen with the proposed overtime rules change given the inauguration of a new White House Administration, principally due to the fact that the revisions came in the waning days of the Obama Administration. For its part, the current Trump Administration has signaled a clear preference toward deregulation, further fueling predictions of the demise of the proposed overtime regulations.

While no definitive statement has been made, or even suggested by the White House, the recent Senate confirmation hearing of the Trump Administration's nominee for the position of U.S. Secretary of Labor, Alexander Acosta, may offer a glimpse of what to expect. During that hearing, which took place on March 22, 2017, the topic of the proposed rule's change was a featured point of conversation.

In response to both friendly, and occasionally more hostile questions, during his confirmation hearing, Mr. Acosta offered the following three important insights. First, while acknowledging the fact that the overtime rules have not been updated since 2004 to reflect cost of living increases, Mr. Acosta expressed concerns that doubling the salary level test would "stress" the economy and may have unintended harmful consequences for non-profits and geographic areas where lower wages are prominent. Second, Mr. Acosta opined that he was unsure if elevating the salary level threshold was even within his authority. Third, in a response to Senator Tim Scott's (R-SC) question regarding the issue of cost of living adjustments, Mr. Acosta agreed that if a straight inflation adjustment were applied, the salary level test would rise to roughly $33,000. Despite that particular observation, he was extremely hesitant in his responses to Sen. Scott and other members of the Health, Education, Labor and Pensions Committee to adopt a position in favor of any increase, repeatedly noting his need to further research the issue and consult officials within the Justice Department and DOL. One final observation regarding Mr. Acosta's testimony is that at no point did he hint of a rooting interest in the litigation being favorably adjudicated for the DOL.

So what happens next? There are several possibilities that come to mind all predicated on what takes place in the pending Fifth Circuit lawsuit. For instance, if the DOL prevails and the salary basis and level tests are increased as a result, the current administration could do nothing, thereby permitting the new regulations to take effect. That seems to be the most unlikely reaction. The more probable outcome of a DOL victory in the Fifth Circuit would be that the current administration, under Mr. Acosta's leadership, would reissue a new set of regulations, rolling back the increases. Perhaps it would come by way of compromise regulations seeking either a gradual or a single step increase of the salary level threshold to $33,000 per year ($634/wk), which would take cost of living adjustments since 2004 into consideration. Mr. Acosta seemed to express some ease with this option during his confirmation hearing. Alternately, if there is an unfavorable ruling for the DOL in the current the lawsuit, it's quite possible that there will be no renewed effort by the present administration to resuscitate the issue at all. That outcome would certainly incur the wrath of Senate Democrats, but is not entirely inconceivable given present Capitol Hill partisan tensions.

Needless to say, it will be very interesting to see how both the litigation and the reaction by the new administration to those results play out in the coming months. If you have any questions regarding FLSA obligations and best practices, please contact Neil Duke or any member of Baker Donelson's Labor & Employment Group.

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