- The compliance clock is ticking. Under the Department of Labor’s recent overtime final rule, organizations need to meet the initial salary threshold by July 1.
- Court cases are occurring. Three lawsuits are challenging the rule, claiming the DOL exceeded its authority under the Fair Labor Standards Act and that the rule violated the Administrative Procedure Act.
- An injunction is a distinct possibility. The judge presiding over the most prominent case may block the rule, but if he does, he is currently unsure whether an injunction could occur at the national level or just within the state of Texas.
Total rewards professionals are getting edgy, agitated and confused as the initial compliance deadline for the U.S. Department of Labor’s overtime final rule is just days away.
Where does the rule currently stand? Is it “all systems go,” “hold your horses” or “umm, never mind”? This article aims to bring some clarity, given everything that has taken place as of Thursday, June 26.
The Back Story
Under the final rule announced by the Department of Labor (DOL) on April 23, organizations have until July 1 to ensure all employees who are classified as exempt from overtime are making at least $43,888 in base salary. This is the first red-letter date in a multi-step federal plan to expand overtime protections for many American workers by increasing the salary thresholds required in the Fair Labor Standards Act (FLSA). The subsequent deadline under the rule is Jan. 1, 2025, on which date organizations must ensure those exempt employees meet or exceed a higher threshold — $58,656 in base salary.
Multiple lawsuits are challenging the rule, claiming the DOL exceeded its authority under the FLSA and that the rule violated the Administrative Procedure Act (APA). If the courts intervene and put the brakes on one or both of the initial threshold dates via an injunction, the rule may very well suffer the same fate as regulations issued by the Obama Administration in 2016. (On Nov. 23, 2016, a federal court in Texas permanently enjoined those regulations one week before they were to go live.)
The Court Drama
Of the three lawsuits challenging the new Biden Administration regulations, Texas v. U.S. Department of Labor is most likely to drop first … and have the greatest impact on rule efficacy. A decision could come any day now. (Workspan Daily will provide coverage whenever a decision is rendered.)
This case may also provide an odd bookend to the multi-administration FLSA saga since the originating lawsuit was filed in the U.S. District Court in Eastern Texas — the same court that ruled against the 2016 Obama regs. The new suit alleges the 2024 regulations have the same legal issues as the 2016 regulations.
The court proceedings in Texas v. U.S. Department of Labor kicked off Monday, June 24, with a 90-minute hearing … and the initial drama was certainly thick.
Reuters reported on June 24 that Sean Jordan, the U.S. district judge presiding over the case, seemed likely to issue an injunction of some sort but expressed doubts on whether he could block the rule at the national level or just in Texas. According to the news agency, Jordan remarked that, in his viewpoint, the DOL had openly disregarded federal wage law by basing eligibility for OT pay on salaried workers’ wages instead of their actual job duties.
“Not every case can be decided by salary, and you can have people who are not earning a particular salary you might expect who otherwise meet the exemption,” the judge told the court.
When Brian Rosen-Schaud, a U.S. Department of Justice lawyer, told Jordan the DOL would continue examining worker duties along with their wages, Jordan replied, “But if you meet the salary, you don’t even get to the duties test.”
According to news reports, Jordan has appeared less certain on the question of national vs. state decision-making power in this matter and has sought input on the issue from both sides of the case.
Garrett Greene, a lawyer for the State of Texas, urged Jordan to impose a national injunction, pointing to a federal law that regulates agency rulemaking. Greene said, in his interpretation, the law gives courts the power to act at that higher level.
Beyond Texas vs. Department of Labor
The two other lawsuits challenging the 2024 regulations are also filed in Texas. In Plano Chamber of Commerce v. U.S. Department of Labor, which was also filed in the U.S. District Court in Eastern Texas, the plaintiffs argued that because the Eastern District entered a permanent injunction against the 2016 regs, it still had enforcement jurisdiction in such matters and could use it to block the new regs.
The other case, Flint Avenue LLC v. U.S. Department of Labor, was filed in the U.S. District Court in Northern Texas. That lawsuit alleges the FLSA doesn’t allow the DOL to consider a salary-level test when drafting regulations to determine whether an employee is exempt from OT.
Stay the Course and Be Prepared
With all the legal machinations occurring, employers still need to retain focus and, since one or more court decisions have yet to be rendered, they and their HR and total rewards teams should be prepared for the rule to go into effect. This may require your organization to reclassify employees, shift job duties or even provide salary increases to avoid misclassification claims down the road.
Editor’s Note: Additional Content
For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics:
Check out previous WorldatWork / Workspan Daily content resources on the overtime final rule:
