Legal Challenge of Overtime Rule Is Likely

With the likelihood of lawsuits challenging the Department of Labor’s (DOL’s) new overtime rule, some HR professionals are wondering whether they should wait until just before the effective dates to comply. Don’t wait, experts say, but have a plan B, in case the rule is blocked by the courts.

“We fully expect legal challenges,” said J. Hagood Tighe, co-chair of Fisher Phillips’ wage and hour practice and an attorney in Columbia, S.C. However, he added, “employers should not sit back and wait to see what litigation may bring. They should be planning now for the new salary thresholds.”

The overtime rule raises the standard salary-threshold levels in two phases. Workers who do not earn at least $43,888 a year ($844 a week) as of July 1, 2024, would have to be paid any earned overtime, even if they’re classified as a manager or professional. The salary-level threshold rises to $58,656 a year ($1,128 a week) as of Jan. 1, 2025. There are automatic increases to the salary threshold every three years.

[Related Resource: SHRM Annual Conference & Expo 2024 concurrent session “Wage and Hour Compliance: A DOL Update and Ways to Avoid Common FLSA Overtime Liability Landmines”]

Possible Bases of Challenges

Keith Kopplin, an attorney with Ogletree Deakins in Milwaukee, said legal challenges likely will assert that the new rule places greater importance on the salary amount paid to the worker than it does on the duties performed.

“That was the primary argument in the litigation that ultimately resulted in the DOL’s proposed increase in 2016 being enjoined,” he said. “The DOL’s authority to automatically update the threshold every three years, without a separate notice of proposed rulemaking, will also likely face legal challenge.”

The update to the salary-level 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 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, explained 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.

In addition, because the Trump administration recently raised the salary-level threshold that was finalized in 2019 and took effect Jan. 1, 2020, the Biden administration’s increase doesn’t seem as compelling, according to Brett Coburn, an attorney with Alston & Bird in Atlanta.

“Such a significant increase really highlights the flipflopping that occurs between administrations from different parties, which can often rankle judges evaluating these kinds of challenges,” Coburn said.

By setting up an interim threshold based on the methodology used for prior successful threshold increases but then a different and more aggressive methodology for the Jan. 1, 2025, threshold, the DOL “is in some sense conceding” that the Jan. 1, 2025, threshold and its methodology “are subject to attack on the same basis that the court used to strike down the 2016 rule,” he said.

Might Supreme Court Hear a Challenge?

The 2016 rule did not make it to the Supreme Court because the case was never fully ruled on by the 5th U.S. Circuit Court of Appeals and the then-new Trump administration ultimately did not pursue the DOL’s appeal. Instead, it issued its overtime rule, Coburn said.

A challenge to the new rule, if there is one, “might very well make it all the way to the Supreme Court,” he said. The makeup of the Supreme Court now has a solid conservative majority, Coburn noted.

“Beyond the shift in the makeup of the Supreme Court, the conservative justices have indicated a willingness to heavily scrutinize administrative rulemaking,” he said.

Justice Brett Kavanaugh’s dissent in Helix Energy Solutions v. Hewitt signaled his interest in questioning whether there is any basis for a salary requirement under the Fair Labor Standards Act, Coburn said.