New Rule for Executive, Professional, and Administrative Overtime Exemption Enjoined: How did That Happen?

Twenty states, including Arizona, filed an action in the South Texas Federal District Court requesting that the March 23, 2014 executive memorandum from the President directing the Department of Labor to modernize and streamline overtime regulation for executive, administrative, and professional employees, and the resulting rulemaking for 29 C.F.R. Part 541, finalized on May 23, 2016, be enjoined. Today, Judge Mazzant issued a twenty page Memorandum Opinion and Order on Plaintiffs’ Motion for a Preliminary Injunction, enjoining the Department of Labor from implementing and enforcing the new regulations.

The plaintiffs argued that the new regulations unconstitutionally regulate states. They contend that the new regulations coerce them to adopt wage policies that adversely affect state priorities, budgets, and services. That is, state governments should have independence to set employee compensation.

In Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528 (1985), the Supreme Court ruled that Congress had the authority to impose Federal Labor Standards Act minimum wage and overtime requirements on state and local employees.  How did the Texas District Court enjoin the new regulations while embracing Garcia?

The question is one of administrative authority. In another very important Supreme Court case, Chevron, U.S.A., Inc. v. Nat. Res. Def Council, Inc, 467 U.S. 837 (1984), that Court reviews an administrative agency’s construction and interpretation of statute (i.e., its regulations). The Supreme Court said that one must first look to “whether Congress has directly spoken to the precise question at issue” and follow the intent of Congress, if clear. If there is an ambiguity in Congressional intent, then a court must defer to the agency’s interpretation unless it is arbitrary, capricious, or manifestly contrary to the statute.   

Here, the issue is the meaning intended by Congress for the term “executive,” administrative,” and “professional” for the exemption.  Judge Mazzant found that Congress intended, unambiguously, that those terms meant individuals performing executive, administrative, or professional duties and that the test should be based on duties without a salary requirement. Since the current rule is not at issue, that salary requirement remains; but, the new rule cannot be implemented.

How broad is the ruling? Judge Mazzant issued a nationwide injunction and did not limit this to only the twenty states in the suit, and extended the injunction to all employees and employers.  Stay tuned. One would expect an appeal of this ruling to the Fifth Circuit.