A federal judge has overturned the Obama administration's controversial overtime rule that would have cost U.S. businesses more than $1 billion in labor costs.

Ruling in the U.S. District Court for the Eastern District of Texas, Judge Amos Mazzant called the rule's new salary threshold for establishing overtime eligibility "unreasonably high."

Overtime pay rule
The Obama administration's overtime rule would have cost businesses more than $1 billion according to the Congressional Budget Office.

The U.S. Department of Labor issued the rule in May 2016, increasing the salary eligibility threshold for mandatory overtime pay to $47,476 from $23,660—or $913 a week from $455.

Mazzant said the department overstepped its authority to establish a salary threshold by focusing too heavily on workers' pay, rather than job duties, to determine overtime eligibility.

"This significant increase would essentially make an employee's duties, functions or tasks irrelevant if the employee's salary falls below the new minimum salary level," Mazzant said.

FLSA Exemptions

The rule addressed the white collar exemptions under the Fair Labor Standards Act for executive, administrative, and professional employees. The act requires employers to pay non-exempt employees overtime for all hours worked beyond 40 hours a week.

FLSA permits employers to exempt workers from overtime pay requirements if they make more than $23,500 annually and perform certain managerial duties.

Last November—nine days before the new rule's effective date—Mazzant issued an injunction in response to lawsuits filed by a coalition of 21 states and a number of business groups.

The ruling eliminates any possibility a subsequent court decision might revive the rule and impose crushing overtime pay obligations.
— CBIA's Mark Soycher
CBIA HR counsel Mark Soycher said the judge's latest ruling was "welcome news" for Connecticut employers.

"It eliminates any possibility a subsequent court decision might revive the rule with a retroactive application imposing crushing overtime pay obligations on employers," Soycher said.

"While there is still some remaining litigation activity in related cases and efforts by the AFL-CIO and other advocacy groups to sustain the 2016 overtime standards, that is a highly unlikely outcome."

What's Next?

Following Mazzant's latest ruling, the U.S. Department of Justice asked a court to dismiss its pending appeal of the judge's November 2016 injunction order.

DOJ lawyers told the U.S. Court of Appeals for the Fifth Circuit that Mazzant's new decision made the appeal moot.

The Labor Department is already reconsidering the threshold rule, and has asked for public comment.

Soycher noted the department's reconsideration of the rule is at the earliest stages of the regulatory process.

"While change is likely, it will be some time before employers have to make adjustments to current compensation practices," he said.

U.S. Labor Secretary Alexander Acosta has suggested the department may issue a new rule with a more moderate salary threshold increase, possibly in the low $30,000 range.