Nevada v. U.S. Department of Labor—Federal Court Invalidates 2016 Overtime Regulations: After Preliminarily Enjoining U.S. Department of Labor’s Overtime Exemption Regulations, Federal Judge Issues Permanent Injunction

Sullivan & Cromwell LLP - September 5, 2017

On August 31, 2017, the United States District Court for the Eastern District of Texas issued a ruling holding that the U.S. Department of Labor’s 2016 overtime exemption regulations were unlawful.  The court previously preliminarily enjoined the regulations from coming into effect.  As noted in our prior Client Alert, the 2016 regulations provided that employees could not qualify for the white-collar exemption to the minimum-wage and overtime requirements of the Fair Labor Standards Act (“FLSA”), regardless of their duties, unless they earned more than $47,476 per year.  This ruling makes the prior preliminary injunction permanent.  The district court held that the Department exceeded its statutory authorization because Congress intended for the white-collar exemption to apply based on employees’ job duties.  The court reasoned that although the Department has the authority to implement a salary-level test for overtime exemption eligibility, the 2016 regulations raised the salary level too high, thereby impermissibly supplanting an analysis of an employee’s job duties.

The decision significantly decreases the risk to employers who chose not to comply with the 2016 overtime regulations in reliance on the preliminary injunction.  In light of the decision, earlier today the Department asked the Fifth Circuit to dismiss its prior appeal of the preliminary injunction.  The Department had challenged the district court’s preliminary injunction ruling to the extent it held that the Department may not use a salary-level test in its white-collar exemption regulations.  But in its August 31 decision, the district court clarified that the Department may use a salary-level test so long as it does not supplant a duties test.  It bears mention that the ruling does not affect state overtime laws, which were not affected by the August 31 decision.