Overtime Expansion ‘Daring’ Businesses to Sue Over Pay Threshold

A highly anticipated US Labor Department proposal to expand overtime protections to more workers already faces the threat of litigation as it navigates a similar gauntlet over salary thresholds that ultimately struck down an Obama-era rule.

Acting Labor Secretary Julie Su announced Wednesday that the proposed rule would give “millions more salaried workers the right to overtime protections if they earn less than $55,000 a year.”

But a lengthy footnote in the text of the rulemaking indicates that the salary figure under which workers will automatically be owed time-and-a-half pay could be as high as $60,209 in the final version of the rule, aggravating some members of the regulated community.

Even a seemingly small change in the pay threshold for overtime could mean that a larger number of workers would qualify for overtime protections under the final regulation, and in turn, would mean that employers could see a corresponding increase in payroll costs.

Management-side attorneys said going even higher than the $55,000 proposal puts a rulemaking already vulnerable to legal challenges on shakier ground. Industry groups were already primed to sue over the rule change given the precedent set by a 2017 decision that killed a DOL effort to update the threshold during the Obama administration.

“It’s important not to lose sight of this preview of where the Department seems to intend to go with the Final Rule. They are basically daring the business community to sue,” said Paul DeCamp, a former Wage and Hour administrator turned management-side attorney with Epstein Becker & Green P.C.

Michael Lotito of Littler Mendelson P.C. noted that it’s difficult for the public to weigh in on potential changes to the regulation if they don’t know what the actual salary threshold will be. “It’s quite stunning they decided to tell us in a footnote,” he said.

Biden Proposal

Under the Fair Labor Standards Act, employees must be salaried, make more than a certain amount of money per year, and work in a “bona fide executive, administrative, or professional capacity” to be deemed exempt from time-and-a-half pay requirements.

The Biden administration said its new proposal would increase the salary piece of the test to ensure workers making less than about $55,000 annually are automatically owed overtime pay, a bump from the current level of $35,568.

But the text of the rulemaking indicates it may be higher in its final form. In a footnote, the agency explains that the threshold will be based on Bureau of Labor Statistics salary data from the poorest Census region.

“In the final rule, the Department will use the most recent data available, which will change the dollar figures,” the footnote reads. The agency said that if the rule is finalized in the fourth quarter of 2023, it “projects that the salary threshold could be $1,140 per week or $59,285 for a full-year worker.”

“As an additional example,” the footnote says, “in the first quarter of 2024, the Department projects that the salary threshold could be $1,158 per week or $60,209 for a full-year worker.”

In its economic analysis, the DOL said its estimates of how many workers the rule change would impact and the cost to employers are likely “lower than the corresponding levels would be at the time a final rule is published.”

“However, the economic impacts estimated here are an appropriate proxy for the effects likely to occur at the time of implementation if the proposal is finalized,” according to the proposal.

The DOL didn’t respond to a request for comment about the footnote.

‘Not a Static Number’

One proponent of the proposal said the census wage data that the DOL is relying on to set the threshold isn’t available yet for this year, which would explain the shifting figures.

Judy Conti, government affairs director for the National Employment Law Project, argued that the footnote could actually help protect the agency from a legal challenge because it’s being transparent by “laying out for the employer community what it should expect.”

By relying on BLS salary data, Conti said the agency is actually supporting its economic analysis by acknowledging that “this is not a static number.”

The DOL is saying “we don’t know exactly what the threshold will be at the time of implementation, but this is the best guess that we can make right now,” Conti said. “When it comes time for implementation it will be different and employers are on notice that it’ll be different.”

Past Legal Trouble

The concerns over the latest proposal come as the DOL was already treading carefully around two legal rulings that suggest courts may have an appetite to strike down salary-based changes to overtime exemptions.

In 2017, a Texas-based US district court struck down an attempt by the Obama administration to raise the salary threshold to $47,476.

By focusing too heavily on the amount of money workers make instead of their job duties, the Obama DOL expanded overtime protections to workers Congress sought to exclude, Judge Amos Mazzant said in that ruling.

Even absent the confusion around which salary threshold the Biden DOL is proposing, the proposal’s jump from the current test’s salary level of $35,568 already could be difficult to justify in court given Mazzant’ past ruling, said Brett Coburn, a partner in Alston & Bird LLP’s Labor & Employment Group.

“I was expecting a more modest increase in an effort to make this more defensible in court,” Coburn said.

Ultimately, the Biden rule could face a similar fate as the Obama standard, attorneys said. Mazzant—an Obama appointee backed by Texas’ Republican senators—is still a sitting judge in the Eastern District of Texas. Opponents of the Biden rule could attempt to get any legal challenges under his jurisdiction.

Beyond Texas, attorneys also cited a dissent penned by US Supreme Court Justice Brett Kavanaugh that could inform a future ruling on the DOL’s proposal. In the high court’s February ruling in a case involving overtime compensation for an offshore rig worker, Kavanaugh suggested that overtime laws shouldn’t consider pay at all.

“The Act focuses on whether the employee performs executive duties, not how much an employee is paid or how an employee is paid,” Kavanaugh wrote. “So it is questionable whether the Department’s regulations—which look not only at an employee’s duties but also at how much an employee is paid and how an employee is paid—will survive if and when the regulations are challenged as inconsistent with the Act.”