On May 22, 2024, thirteen industry associations and businesses jointly filed a federal lawsuit in the Eastern District of Texas challenging the Department of Labor’s (“DOL”) newly updated overtime exemption rule. The updated rule is set to go into effect on July 1, 2024, and increases the minimum salary thresholds for the Executive, Administrative, and Professional (“EAP”), and Highly-Compensated Employee (“HCE”) overtime exemptions. Further details about the salary threshold changes are covered in a previous Michael Best client alert: Show Them the Money: Department of Labor Sets Aggressive New Overtime Exemption Salary Thresholds.
In the lawsuit, plaintiffs assert the DOL unlawfully overstepped its authority by passing the new overtime rule. Specifically, the plaintiffs advance three arguments: (1) the minimum salary threshold exceeds DOL authority under the Fair Labor Standards Act (“FLSA”), the Administrative Procedure Act (“APA”), and current legal precedent, (2) the three-year renewal provision exceeds DOL authority under the FLSA in violation of the APA, and (3) the rule is arbitrary and capricious, in violation of the APA. The plaintiffs liken the new rule to the 2016 Obama-era overtime rule, struck down by a federal court on grounds the increased salary thresholds effectively created a de facto salary-only test. Following the playbook used to strike down the 2016 rule, the plaintiffs contend the new rule, which is estimated to cause 4 million workers to be reclassified as non-exempt, sets salary thresholds so high that it creates a de facto salary test in defiance of the prior federal court decision. The plaintiffs also cite employer concerns about compliance costs, salary compression caused by increasing pay to maintain exemptions, and impacts on employee morale and productivity of reclassified employees.
Plaintiffs ask the court to vacate the rule and declare it unlawful. Additionally, plaintiffs seek an expedited review of the case due to the looming July 1, 2024 effective date for the first threshold increase, as well as an injunction preventing the DOL from implementing the new rule. The court has yet to rule on issuing an injunction or expediting the case.
Takeaways:
For now, the DOL’s new overtime rule remains in place. The Eastern District of Texas has not determined whether it will issue an injunction that stops the rule from taking effect while the case works its way through court and it is too early to determine when it will do so. Accordingly, employers should continue to operate under the assumption that the DOL’s overtime rule will go into effect starting July 1, 2024. To prepare for the upcoming salary threshold changes, employers should:
- review salaried exempt employees whose salary levels are below the new thresholds
- consult with legal counsel on:
- whether exempt employees meet the duties test for their exemptions.
- Whether employees may qualify for an exemption without a salary threshold.
- whether any employees are affected by any state law exemptions.
- what remedial action to take and how changes, if any, should be implemented and communicated.
Michael Best & Friedrich LLP continues to actively monitor the legal challenges to the DOL’s rule and will provide updated information as it becomes available. We dove into the thresholds of the original ruling and potential next steps employers would need to take. In case you missed it or need a refresher, view the webinar recording here.
Thank you to our summer associate, Jacque Dixon, for her contributions to this alert.