On June 30, 2017, DOJ filed its reply brief in the case and requested that the Court of Appeals reverse the judgment of the district court (related to the legal authority of DOL to use salary level as part of the EAP exemption) but not rule on the validity of the salary level set in the 2016 rule. Goals and Provisions of the Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) is the primary federal statute providing labor standards for most, but not all, private and public sector employees. Its major provisions include a federal minimum wage, overtime pay requirements, child labor protections, and recordkeeping requirements. In addition, the FLSA does not limit the number of hours an employee may be required to work in a day or a week. Section 7(a) of the FLSA specifies requirements for overtime pay for weekly hours worked in excess of the maximum hours. In general, unless an employee is specifically exempted in the FLSA, he or she is considered to be a covered nonexempt employee and must receive pay at the rate of one-and-a-half times ("time-and-a-half") the regular rate for any hours worked in excess of 40 hours in a workweek. Employers may choose to pay more than time-and-a-half for overtime or to pay overtime to employees who are exempt from overtime pay requirements under the FLSA. Although not necessarily elaborated upon at the time of enactment, the general rationale for including the EAP exemptions in the FLSA is often construed to be related to the type of work and the presumed labor market power of EAP employees: (1) the nature of the work performed by EAP employees seemed to make standardization difficult, and thus the output of EAP employees was not as clearly associated with hours of work per day as the output for typical nonexempt work (e.g., manual labor); and (2) bona fide EAP employees were considered to have other forms of compensation (e.g., above-average benefits, greater opportunities for advancement, greater job security, greater mobility) not available to nonexempt workers. Following enactment of the FLSA in 1938, DOL issued regulations defining required duties for exemption for two categories of employees—"executive and administrative" and "professional"—and required salary thresholds for exemption for each of these two categories. The long tests combined relatively lower salary thresholds with a duties test that included quantitative limits on the percentage of work time an exempt employee could spend on nonexempt work. Since the enactment of the FLSA in 1938, DOL has required that an employee earn above a certain salary in order to qualify for the EAP exemption. Importantly, as will be discussed below, DOL determined the EAP salary level thresholds for the long test first, and the short test salary level was typically set as percentage of the long test salary levels. The methodologies that DOL used in the eight revisions to the EAP salary level since 1938 have differed in specifics but generally may be categorized into three periods based on the approaches used to define and delimit the EAP exemptions: the 1940 and 1949 rules; the 1958, 1963, 1970, and 1975 rules; and the 2004 and 2016 rules. Specifically, the 2004 rule on the EAP exemptions eliminated the long and short duties tests in favor of a single, standard duties test (the 2016 rule kept the standard test) and used a wage distribution from a data source that included exempt and nonexempt employees to set the salary level threshold for exemption. Data in Figure 1 show the 2016 standard salary level of $913 per week compared to the previous inflation-adjusted weekly salary levels used in the short test (1949-1975) and the standard test (2004). Upon introducing the standard duties test in 2004, DOL acknowledged that differences between the standard and short duties tests were minimal:
Given the lack of data on the duties being performed by specific workers in the Current Population Survey, the Department concludes that it is impossible to quantitatively estimate the number of exempt workers resulting from the deminimis differences in the standard duties tests compared to the current short duties tests. From 1950 through 1975, the ratios averaged 2.94. In increasing the salary level for the administrative exemption from $30 to $50 per week, DOL did not include a limit on nonexempt work for employees in this category. DOL justified a new, separate short test for duties and salary on the basis of findings that
the higher the salaries they were paid, the more likely employees were to meet all requirements for exemption; the use of a higher salary threshold with a lower, more qualitative duties test (compared to the percentage cap on nonexempt work in the long test) was intended to provide a "short-cut test of exemption" to ease administration of the EAP exemptions; the short test salary level needed to be "considerably higher" than the long test level so that it would include employees about whose exemption status there was normally no question; and the new short test was unlikely to lead to "injustice" because a bona fide EAP employee not meeting the higher salary test would still be likely to qualify for exemption under the long test. In establishing the salary level at the 40 th percentile of weekly earnings of full-time salaried employees, rather than the 20 th percentile used in 2004, DOL argues that the 2004 threshold was too low because of the elimination of the long tests and the adoption of a standard test based on the short duties test.
The Fair Labor Standards Act (FLSA) is the primary federal statute providing labor standards for most, but not all, private and public sector employees. The FLSA standards require that "non-exempt" employees working excess hours in a workweek receive pay at the rate of one-and-a-half times their regular rate for hours worked over 40 hours. The requirements in the FLSA for overtime pay beyond this threshold refer to the "maximum hours," but the FLSA does not actually limit the number of hours that may be worked. Instead, it establishes standards for the pay required for hours beyond 40 hours in a workweek. The FLSA also provides several exemptions to the maximum hours requirement, some of the largest of which are the EAP (executive, administrative, and professional employees, or "white collar") exemptions. In effect, these exempt employers from overtime pay requirements for certain employees. The FLSA authorizes the U.S. Department of Labor (DOL) to "define and delimit" the EAP exemptions, rather than setting the specific parameters of the exemptions in the law itself. Since defining and delimiting the EAP exemptions upon the enactment of the FLSA in 1938, DOL has adjusted their parameters eight additional times, most recently in a 2016 rule. In August 2017, a U.S. District Court invalidated the 2016 rule and DOL has subsequently indicated that it is in the process of formulating a new proposal on the EAP exemptions.
As will be discussed in detail in the remainder of this report, the major features of DOL's rulemaking on the EAP exemptions are as follows:
In every rulemaking since 1938, DOL has required that EAP employees meet three tests to qualify for exemption from overtime pay (i.e., when employees are exempt, employers are not required to pay them for work in excess of 40 hours): (1) exempt employees must perform certain EAP duties ("duties" test), (2) exempt employees must be salaried ("salary basis" test), and (3) exempt employees must earn a salary in excess of the level set by DOL ("salary level" test). From 1949 to 2004, DOL used a "long" duties test paired with a relatively lower salary level along with a "short" duties test paired with a relatively higher salary level to determine exemption for EAP employees. The main difference between the long and short duties tests was a quantitative limit in the long test on the amount of time an EAP employee could spend performing nonexempt work (no more than 20% in a workweek). During this 55-year period of using long and short tests, the salary level for the short test averaged 149% of the salary for the long test. The logic of using the two approaches was that higher-salaried employees were more likely to meet all requirements for exemption, while lower-salaried employees needed a more-stringent duties test to qualify for exemption. In the 2004 rulemaking, DOL switched from the long and short tests to a standard duties test and salary level test for exemption. The standard duties test did not include a quantitative limit on the percentage of time performing nonexempt work, making it closer in nature to the defunct short duties test. In addition, the new standard salary level test was lower than the inflation-adjusted salary levels used in the previous short tests. In other words, the 2004 rule generally paired a short duties test with a salary level below the short test levels used in the past. The 2016 rule, which was subsequently invalidated, increased the standard salary level and left the standard duties test unchanged. Compared to the six previous rulemakings using the short and/or standard tests for exemption, the salary level in the 2016 rule ($913 per week) is below the inflation-adjusted levels in all but the 2004 rule. In addition, the ratio of the salary level test to the weekly minimum wage equivalent (40 hours per week at the prevailing minimum wage) in the 2016 rule is 3.15. The average ratio at the time of enactment of each new EAP salary threshold from 1949 through 2016 is 2.99, with a high of 3.33 (1949) and a low of 2.21 (2004). Since 1938, measures of the salary level have fluctuated according to DOL's identification of data sources most suitable for studying wage distributions and the department's determinations of the proportion and types of workers who should be below salary thresholds, as well as its determinations of whether regional, industry, or cost-of-living considerations should be factored into salary tests.