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Quick Hits
- A new legal challenge by more than a dozen business groups seeks to overturn and enjoin the enforcement of the DOL’s new rule raising the earnings thresholds for the FLSA’s white-collar overtime exemptions.
- As in a 2016 challenge to a prior attempt by the DOL to raise the thresholds, some of the same plaintiffs are again challenging the DOL’s authority making some of the same arguments in the same U.S. district court.
- The new lawsuit alleges that the DOL acted arbitrarily and capriciously in setting the new thresholds, ignoring concerns from the business community.
- The lawsuit seeks expedited consideration to stop the first threshold increase, which is set to take effect on July 1, 2024.
The lawsuit, Plano Chamber of Commerce v. U.S. Department of Labor, was filed in the U.S. District Court for the Eastern District of Texas and alleges that the DOL “acted arbitrarily, capriciously, and otherwise not in accordance with the law” in issuing the new rule, which was released on April 23, 2024.
The lawsuit, filed by groups representing a range of industries, is the first legal challenge to the DOL’s new rule raising the earnings thresholds for the executive, administrative, or professional (EAP) and highly-compensated employee (HCE) exemptions to the FLSA’s overtime requirements by as much as 50 and 40 percent respectively.
“[T]he Department has failed to adequately justify the dramatic change in policy embodied in the Rule, failed to take into account the strong reliance interests of the regulated community, and failed to meaningfully consider reasonable alternatives, all in violation of the Administrative Procedure Act,” the suit alleges.
The lawsuit seeks to overturn the DOL’s rule and have the court issue an injunction to block its enforcement. Under the rule, initial threshold increases are set to take effect on July 1, 2024, with the full increase on January 1, 2025.
2024 DOL Rule
The DOL’s final rule will raise the minimum weekly salary for the FLSA’s EAP exemption to $844 per week, equivalent to $43,888 per year, on July 1, 2024, and then increase again to $1,128 per week, the equivalent of a $58,656 annual salary, by January 1, 2025. The threshold is tied to the 35th percentile of salary in the lowest-wage census region (the South).
Also, the rule will raise the annual compensation for the HCE exemption to $132,964 per year on July 1, 2024, and then $151,164, equivalent to the 86th percentile of full-time salaried workers nationally, by January 1, 2025. The rule further requires that the DOL increase the earnings thresholds every three years based on up-to-date wage data.
According to the lawsuit, the new thresholds, which “far exceed the limits of the statutory authority,” will make more than four million employees who were exempt no longer exempt under the new thresholds.
“Countless employer members of the Plaintiff associations—across many industries, job categories, and geographic areas—will suffer irreparable harm from the loss of their employees’ previously exempt status under the 2024 Rule,” the lawsuit alleges.
The lawsuit also alleges that the DOL violated the Administrative Procedure Act because it “failed to adequately justify the dramatic change in policy embodied in the Rule, failed to take into account the strong reliance interests of the regulated community, and failed to consider reasonable alternatives meaningfully.”
The lawsuit further attacks the automatic triennial increases to the thresholds, alleging “[t]here is no basis to conclude that Congress authorized” the DOL to issue such a rule and that it is unprecedented.
Prior DOL Rule Challenges
The challenge to the DOL’s 2024 rule comes after the U.S. District Court for the Eastern District of Texas in 2017 permanently enjoined a 2016 DOL rule that had sought to raise the overtime exemptions. In that case, which featured some of the same challengers as in the instant lawsuit, the court reasoned that the “significant increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.”
“Just as in 2017, the Department’s new salary threshold is so high that it is no longer a plausible proxy for delimiting which jobs fall within the statutory terms ‘executive,’ ‘administrative,’ or ‘professional,’” the new lawsuit argues. “The 2024 Overtime Rule thus contradicts the congressional requirement to exempt such individuals from the minimum wage and overtime requirements of the FLSA.”
The DOL last raised the overtime exemption thresholds overtime rule increase in 2019. Like the 2016 rule, the 2019 rule faced a legal challenge. A federal judge for the U.S. District Court for the Western District of Texas upheld the rule, finding the DOL had authority to raise the overtime exemption earnings threshold. The challenger in that case appealed that ruling to the Fifth Circuit Court of Appeals. On May 22, 2024, the Fifth Circuit denied an unopposed motion to expedite the appeal filed following the issuance of the new rule.
Key Takeaway
Given its implications for the business community, legal challenges to the new DOL rule were expected. These challenges could delay the implementation of the new rule’s threshold increases. The new lawsuit seeks expedited consideration of the case as the initial threshold increase is set to take effect on July 1, 2024.
Ogletree Deakins’ Client Portal’s FLSA White-Collar Exemption Audit Tool can help employers evaluate positions under both the existing standard and the new standard. This tool is available to Advanced and Premium Client Portal subscribers. All Ogletree Deakins clients may access additional information about this rule and state laws around exemptions in the Client Portal under our Exempt and Non-Exempt and Overtime Rules Law Summaries. Clients can sign up for the Client Portal here.
Ogletree Deakins’ Wage and Hour Practice Group will continue to monitor developments and will provide updates on the Wage and Hour blog as additional information becomes available.
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