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Court rules Obama's salaried worker overtime policy went too far

Although the Labor Department says it followed the comprehensive administrative rulemaking process required by law when implementing President Obama's executive order, a federal judge has ruled that the administration's overtime policy for salaried workers unlawful.

Obama announced the new policy in May, calling it "the single biggest step I can take through executive action to raise wages for the American people." Basically, it recognized the inherent conflict between businesses and workers when it comes to overtime pay.

Executives, administrators, professionals and certain other workers are exempt from the Fair Labor Standards Act and its requirement for overtime pay. However, businesses have found the standards for classifying these workers to be complex and confusing. Often enough, employees who don't qualify for exemption are classified as exempt, which typically reduces their pay. Misclassification can also risk costly employee lawsuits.

Obama's executive order was intended to reduce the confusion. When classifying their employees, companies have long struggled to correctly apply the test Congress created within the FLSA. That test depends on each employee's individual duties and scope of authority.

Obama's policy did not abandon the "employee's duties" test entirely, but set a red-line salary cap on the exemption. Even if an executive, administrator or professional would otherwise have been correctly classified as except from overtime, they would be considered non-exempt if they made less than $47,892 per year.

Whether the policy would have been effective is difficult to say -- and it doesn't matter, according to the federal judge who overruled it. The Obama administration did not have the authority to add the salary cap because, unlike many administrative rules, the "employee's duties" test was set down by Congress in the statute. The administrative rulemaking process is intended to produce an interpretation of the laws passed by Congress. You can't change the law by changing an administrative rule.

As you can tell, this area of the law is quite complex and can change as the administration changes. If your organization has questions about the proper classification of employees, set up an appointment with a knowledgeable attorney.

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