CEI Comments to DOL on Overtime Rule

On behalf of the Competitive Enterprise Institute (CEI), we are pleased to submit the following comments on the Department of Labor’s (DOL) proposed rule on Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, known as the EAP exemption. The proposed rule aims to raise the salary threshold for overtime eligible employees to $679 per week ($35,308 annually) from $455 per week ($23,660 annually), among other changes to overtime requirements.

Founded in 1984, the Competitive Enterprise Institute is a non-profit research and advocacy organization that focuses on regulatory policy from a pro-market perspective. A strong focus of CEI is on removing regulatory barriers that deny individuals the right to earn a living.

CEI’s comments will focus on the DOL’s proposal to update the salary threshold level “every four years through notice-and-comment rulemaking.”^[i] This proposal, while far superior to the invalidated Obama overtime rule—which would automatically have raised the salary threshold every three years and avoid a notice-and-comment rulemaking—is unnecessary.

In the proposed rule, the DOL explains the primary purpose of the provision to update the salary threshold every four years is to “prevent the earnings threshold levels from becoming significantly outdated in the future and to provide predictability and certainty for the benefit of workers and employers.”^[ii] The agency is concerned that, without frequent updates, the salary threshold will lose its effectiveness and fail to serve its primary purpose “as a dividing line between nonexempt workers and workers who may be exempt.”^[iii]

However, committing the agency and future administrations to updating the salary threshold every four years is a solution in search of a problem. The salary threshold will only become outdated due to Labor Department inaction. The text of the Fair Labor Standards Act (FLSA) already delegates authority to the Labor Secretary to modify overtime requirements “from time to time by regulations.”^[iv] Therefore, the Labor Secretary possesses the authority to modify overtime requirements at his or her discretion when it is determined that the salary threshold has lost its effectiveness and failed to screen out obviously non-exempt employees.

Another justification for this provision is that without frequent updates, the salary threshold may fail to fulfill its primary purpose of screening out obviously non-exempt employees. While this is a possibility, again, the Labor Secretary possesses the authority to issue regulation from time to time to ensure this does not occur.

In addition, frequent updates to the salary threshold increases the probability that the DOL raises the salary level too high and to an amount that conflicts with a recent ruling from the Eastern Texas District Court. In that decision, the Judge ruled the FLSA does not grant the DOL authority to decide which employees are eligible for overtime based on salary. Rather, as the court ruling determined, the plain text of the FLSA states that overtime exemptions are predominantly based on the duties employees perform, not how much they earn. The court found:

This [Obama overtime rule] is not what Congress intended with the EAP exemption. Congress unambiguously directed the Department to exempt from overtime pay employees who perform “bona fide executive, administrative, or professional capacity” duties. However, the Department creates a Final Rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties. …

Because the Final Rule would exclude so many employees who perform exempt duties, the Department fails to carry out Congress’s unambiguous intent.^[v]

By committing the agency to update and increase the salary threshold every four years, the DOL puts itself at unnecessary risk of running afoul of the Eastern Texas District Court’s ruling. Since the DOL is prohibited from setting the salary threshold at a level that supplants the duties test, it is imprudent to mechanically raise it every four years. Although the Eastern Texas District Court decision did not put an exact numerical figure on when the salary threshold supplants the duties test, frequent updates could easily raise the salary threshold level to a point that is contrary with this ruling and intent of Congress.

A better solution exists. What is necessary is continuous monitoring of 1) the impact of overtime requirements on the economy and 2) whether the salary threshold no longer effectively acts as a dividing line between exempt and non-exempt employees.

In this regard, the Labor Department already has the tools at its disposal to determine when the overtime salary threshold is causing harm to the economy or no longer serving it primary purpose of screening out obviously non-exempt employees.

Section 204(d)(1) of the FLSA requires the Secretary of Labor to submit a biennial report to Congress that “studies wage and hour provisions established by the FLSA and present recommendations to prevent curtailment of employment opportunities. Another area of research includes evaluating and appraising the effects of minimum wage and overtime requirements by taking into account increased costs and other relevant factors.”^[vi] The Secretary must also examine how to increase employment opportunities for groups with historically high levels of unemployment—including minorities, youth, and the elderly, as well as other groups.

The production of this report would provide evidence that could guide the DOL on whether there is need for changes to the overtime requirements, including the salary threshold.

Unfortunately, it appears that the DOL has long neglected its duty to produce this report, as required by statute. Instead of committing to updating the salary threshold every four years, the DOL should begin to produce this report every two years. As such, this analysis would inform the agency when the salary threshold has eroded and no longer screens out obviously non-exempt employees. 

If, as it appears, the DOL has not recently met the requirement to submit a biennial report to Congress on how to prevent job loss related to wage and hour laws, it is time to begin.

Respectfully,

Trey Kovacs
Policy Analyst
Competitive Enterprise Institute
[email protected]

RE: Docket ID No. WHD-2019-0001, Department of Labor, Proposed Rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, RIN 1235-AA20

Trey Kovacs

On behalf of the Competitive Enterprise Institute (CEI), we are pleased to submit the following comments on the Department of Labor’s (DOL) proposed rule on Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, known as the EAP exemption. The proposed rule aims to raise the salary threshold for overtime eligible employees to $679 per week ($35,308 annually) from $455 per week ($23,660 annually), among other changes to overtime requirements.