Just days before it was to go into effect on December 1, a federal judge in Texas blocked the Obama Administration’s update in overtime pay from taking effect. The upshot is that millions of workers who should receive time-and-a-half pay when they work over forty hours a week are now at risk of losing that extra income.
The judge’s injunction was based on legal reasoning which, given historical precedent, makes no sense. Essentially, he argued that the Labor Department, which issued the rule, lacks the authority to establish a core component of the Fair Labor Standards Act overtime standard: the salary threshold below which workers must be covered by OT. Since the salary rule has been a central determinant of overtime pay for over 70 years, and was previously updated by various past administrations, the implication of the judge’s logic is that the federal government has been breaking the law for a very long time.
Instead, the court leans heavily on the so-called “duties test,” wherein employers are supposed to classify workers’ eligibility for overtime pay based on the tasks and responsibilities of their job. But this emphasis fails to understand both the importance and the efficiency of the salary test, a point Ross Eisenbrey and I stressed in work that helped lead up to the Obama administration’s rule change. In 1940, the Labor Department underscored this point: “the final and most effective check on the validity of the claim for exemption is the payment of a salary commensurate with the importance supposedly accorded the duties in question.”
Later, in 1958, the department called the salary test “an index of the status that sets off the bona fide executive from the working squad leader, and distinguishes the clerk or subprofessional from one who is performing administrative or professional work.”
Far from being subservient to the complicated duties test, the simple salary test has, as Eisenbrey and I argued in 2014, “become increasingly important over the years as a bright-line indicator of which employees are clearly exempt and which are not. However difficult it might be to judge whether an employee’s primary duty is truly that of an executive or exempt administrative employee, an employee and her employer can easily determine the level of the employee’s pay. The salary level is the clearest, most easily applied test of exemption.”
Unlike the Texas court, those of us who worked on updating the salary threshold did due diligence to set it at a reasonable level. The figure below shows that, by raising the threshold to $913, the revised rule only partly reverses the extent to which inflation has eroded the threshold since the 1950s (for some reason, the judge mistakenly lists both $921 and $913 as the new threshold in his order; only the latter number is correct). The update sets the threshold lower than the 1975 level in today’s dollars, when it was last adequately set to capture most workers whose duties at work fit into the spirit of the FLSA.
In our earlier work, we evaluated the management and supervisory responsibilities of workers by salary level and found that those with such duties consistently earned well above the new threshold, and conversely, those earning below the threshold had largely nonsupervisory responsibilities.
In other words, from its inception, there’s always been a salary test for a simple, sensible, intuitive reason: it’s the best way to determine executive, administrative, and/or professional status for most salaried employees. It prevents employers from evading overtime payments by misclassifying workers who don’t have real managerial responsibilities.
The duties test recognizes that some workers above the threshold, based on what they do on the job, should also get OT. But it was never intended to preclude or preempt the salary test.
Strangely, in a footnote, the judge appears to realize that his attack on the salary threshold implicates every Department of Labor since the OT rule was introduced, and tries to back out of that corner by arguing that his unprecedented view on the salary test refers only to the new rule: “The Court is not making a general statement on the lawfulness of the salary-level test for the EAP exemption. The Court is evaluating only the salary-level test as amended under the Department’s Final Rule.”
Again, this makes no sense. Either the salary test is now and has always been a valid part of the law or it isn’t and it never has been.
The test’s history and purpose clearly suggests that it is core to the purpose of the overtime standard. Millions of workers—men and women who were just about to get paid for working extra hours for which they should have been paid a premium for years now—depend on a higher-level court reversing this nonsensical ruling on appeal.