Will the New Federal Overtime Rule Face Legal Challenges?

 

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Will the New Federal Overtime Rule Face Legal Challenges?

The salary cutoff for workers to be classified as exempt from overtime pay under federal law was just raised, but litigation over a 2016 rule that hiked the threshold even higher is still pending. Employers may be wondering what will happen to that lawsuit and whether they can expect the new rule to be challenged, too. Here's what employment attorneys had to say.

The U.S. Department of Labor (DOL) issued a final rule on Sept. 24 that raised the salary threshold for the Fair Labor Standards Act's (FLSA's) so-called white-collar exemptions from $455 a week to $684 a week. The final rule will take effect Jan. 1, 2020, and is estimated to extend overtime protections to more than 1 million workers who are not currently eligible under federal law.

A blocked rule from President Barack Obama's administration would have doubled the threshold, but a federal judge in Texas halted the rule, saying the DOL exceeded its authority by raising the rate too high. The DOL's appeal of that decision is still pending before the 5th U.S. Circuit Court of Appeals.

"Now that the new final rule has been issued, the general expectation is that the DOL will move to dismiss its own appeal as moot," said Brett Coburn, an attorney at Alston & Bird in Atlanta.

"The DOL final rule reaches a fair compromise, finally bringing to a close a four-year effort to increase the minimum salary level for the white-collar exemptions," said Tammy McCutchen, an attorney with Littler in Washington, D.C. 

Prior Cutoff Deemed Too High

In addition to meeting the minimum salary requirement, employees must perform certain duties to qualify for the FLSA's white-collar (executive, administrative and professional) exemptions.

U.S. District Judge Amos Mazzant held that the 2016 overtime rule—which would have raised the cutoff from $23,660 to $47,476—increased the threshold so much that it made the duties tests irrelevant.

"Congress unambiguously intended the exemption to apply to employees who perform 'bona fide executive, administrative or professional capacity' duties," Mazzant wrote for the court.

The DOL doesn't have the authority to set a salary threshold that effectively eliminates the duties test, he said, adding that the department is supposed to set the minimum salary level as a floor in order to screen out obviously nonexempt employees.

The 2016 overtime rule also would have provided for automatic adjustments to the threshold every three years, but because the salary level was set too high, Mazzant deemed this provision to be unlawful, as well.

Notably, the new rule doesn't provide for automatic adjustments. Rather, DOL officials said they intend to "update these thresholds more regularly in the future."

"I think it was prudent for them to avoid inviting legal challenges to the department's authority to adopt automatic adjustments, since there appears to be a lack of statutory authority for them to impose that outcome," said Robert Boonin, an attorney with Dykema in Detroit.

Potential Challenges to New Rule

The DOL's commentary accompanying the new rule shows that the department tried very hard to craft the new rule in a way that avoids legal challenges, or at least minimizes the chance that a challenge would be successful, Coburn said. The commentary repeatedly refers to the rulemaking process and analysis behind the 2004 rule issued by President George W. Bush's administration, which was never challenged in court.

Some business groups may attempt to challenge the rule on the theory that the DOL doesn't have the authority under the FLSA to set a minimum salary test at all. "I think a challenge along these lines in the face of a more modest increase in the minimum salary threshold under the new rule is unlikely to be successful," Coburn said.

However, McCutchen noted that a challenge to the DOL's authority to require any minimum salary level may have more chance of success today than in the past, since more federal judges may be strictly interpreting statutory language, and the FLSA's language doesn't mandate a minimum salary threshold.

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

There could also be a challenge from employee-advocacy groups seeking a higher minimum salary threshold, likely on the theory that the rulemaking was not done in compliance with the Administrative Procedure Act (APA), Coburn said.

Under the APA, agencies must follow a very specific process that includes providing notice to the public about a proposed rule and giving interested parties an opportunity to comment on the proposal. Among other requirements, the agency must analyze and respond to the public's comments.

"Such a challenge would face a pretty steep uphill battle," Coburn believes, "because the challengers would have to show that the rule was procedurally flawed or arbitrary and capricious, which are very high bars to meet."

McCutchen, a former administrator of the DOL's Wage and Hour Division, said the new salary level will work everywhere in the country without harming economies in the South and Midwest. The rule also won't add new, unjustified costs to small businesses, nonprofits, local governments, colleges and universities, or the restaurant and retail industries, which are already struggling to meet increased minimum wage and paid-sick-leave requirements, she noted.

"[The new salary threshold] may seem low for employees in California, New York and other states with high costs of living," she said, "but, like the minimum wage, those states can and have adopted a higher minimum salary for exemption." 

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