Business groups sued the U.S. Department of Labor (DOL) in a federal district court in Texas on May 21 over the overtime rule, claiming the department went beyond its authority under the Fair Labor Standards Act (FLSA). The lawsuit also claimed the rule violated the Administrative Procedure Act (APA).
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Rule’s Two Phases
The DOL’s two-part approach to implementing its new overtime rule—establishing one raise of the salary threshold on July 1 and another on Jan. 1, 2025—gives employers options for adjusting the pay of their exempt employees.
Effective July 1, the FLSA’s annual salary threshold for white-collar exemptions to overtime requirements will increase from $35,568 to $43,888. As of Jan. 1, 2025, the annual salary threshold will rise to $58,656.
In addition, the final rule includes a three-year automatic adjustment mechanism for updating the salary threshold.
Deja Vu?
The recent lawsuit was filed in the same Texas court that struck down a similar overtime rule issued by the Obama administration that sought to raise the salary threshold to $47,476. In that 2017 ruling, Judge Amos Mazzant found that the DOL rule focused so much on a salary level to determine whether a worker was exempt from overtime, it eliminated the consideration of their job duties.
The latest lawsuit argues that the new rule ignores that precedent. The business groups suing over the rule include the American Hotel and Lodging Association, the Associated Builders and Contractors, and the National Retail Federation.
The lawsuit also contends that the automatic triennial updates to the salary threshold would violate notice and comment requirements under the APA.
‘Direct Defiance’
The plaintiffs said in their complaint that they “are back before this court because the department has done it again. In direct defiance of this court’s previous order, the department has issued yet another rule raising the minimum salary for the EAP [executive, administrative, and professional] exemption far beyond a level [that the] DOL is permitted to adopt, and again included an unlawful triennial ‘escalator’ provision.”
The plaintiffs argued that the 2024 rule will unlawfully make an employee’s salary rather than a worker’s duties determinative of whether an EAP-capacity employee should be exempt from overtime pay.
Steep Increase in 2025
The update to the salary threshold effective Jan. 1, 2025, of $1,128 per week represents the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage U.S. Census region—currently the South—based on data from the U.S. Bureau of Labor Statistics. In 2016, the DOL under the Obama administration had tried to set the standard minimum salary level for the white-collar exemptions at the 40th percentile, said Natalie Bare, an attorney with Duane Morris in Philadelphia.
By comparison, the Trump administration set the standard minimum salary at the 20th percentile, which resulted in the current salary level test of $684 per week ($35,568 a year) and is the methodology for the first update to $844 effective July 1, she said. The 20th percentile was also used to set the 2004 rule of $455 per week.
With regard to the salary threshold update to $1,128, “while the DOL is not using the exact methodology that resulted in invalidation of the 2016 proposal, at the 35th percentile, they are not that far from the invalidated 40th percentile, and they are nowhere near the previously adopted 20th percentile,” Bare said.
Rocket Mortgage Settles Overtime Lawsuit for $3.5M
Overtime violations and settlements can be costly. Rocket Mortgage recently settled a lawsuit alleging employee overtime was unpaid for $3.5 million, including $1 million for attorney fees. Rocket Mortgage did not respond to a request for comment.
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