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Proposed change in overtime threshold likely to face challenges

overtime pay

The U.S. Department of Labor is proposing increasing the threshold below which employers must pay their salaried workers overtime, but its implementation is unlikely to proceed smoothly, experts say.

A 2016 Obama administration proposal was blocked by a federal judge and never implemented, and many anticipate a similar scenario may unfold this time around.

Overtime is a litigious issue. There was a 10.1% increase in federal cases filed in 2022 under the Fair Labor Standards Act, which governs overtime cases, to 5,973, according to a study by law firm Seyfarth Shaw LLP.

Under the Biden administration proposal issued Aug. 30, employees who earn less than $1,059 a week, or about $55,000 per year, would be eligible for overtime. The DOL estimates the change will impact 3.6 million workers.

That compares with the $684 per week, or $35,568 per year, standard that took effect in January 2020 during the Trump administration.

The proposal also calls for automatically updating the salary threshold every three years to reflect current earnings data.

It does not address the complex duties requirement under the FLSA, which, for instance, exempts employees who may be required to supervise others.

Its absence may reflect “a desire to have a change that is more straightforward and simpler than adjusting duties,” said Daniel G. Prokott, a partner with Faegre Drinker Biddle & Reath LLP in Minneapolis.

There is a 60-day comment period for the new proposal, after which the DOL will consider suggestions before issuing a final proposal.

The Obama administration had proposed overtime be paid to workers earning less than $913 a week, or $47,476, in 2016. That revision would have more than doubled the previous salary level. 

But Judge Amos L. Mazzant III of the U.S. District Court in Sherman, Texas, issued a preliminary injunction in 2016 halting the rule’s implementation, then struck it down in 2017, holding that overtime should be determined on the basis of duties rather than salary.

The 5th U.S. Circuit of Court of Appeals in New Orleans later said an appeal on the issue should be held in abeyance pending further rulemaking. The Trump Administration later raised the limit to its current level.

In its latest proposal, the DOL’s cutoff is based on salary data from the south, the lowest-wage census region. Observers say that while states including New York and California already have higher cutoff points, the proposal may cause employers hardship elsewhere. 

“What seems to make sense in New York and even Miami may not make sense in some rural parts of the country,” said Robert A. Boonin, a member of law firm Dykema Gossett PLLC in Ann Arbor, Michigan.

Experts predict the current proposal may have a similarly bumpy road as the Obama administration’s.

“We can anticipate there will be challenges when the rule is finalized,” said Jonathan A. Segal, a partner with Duane Morris, LLP in Philadelphia.

The same argument “that doomed the Obama proposal may doom the Biden proposal, that the salary minimum is so high that in effect it deters exemptions and renders almost meaningless the duties test,” he said.

“If the proposal were not so large of an increase,” there might be less opposition, said James M. Coleman, a partner with Constangy, Brooks, Smith & Prophete LLP in Washington.

Some observers say the provision requiring an automatic escalation may pose more of an obstacle for the proposal’s implementation than the salary cutoff.

Experts point to last year’s ruling by the U.S. Supreme Court in West Virginia v. Environmental Protection Agency, in which the majority opinion said that under the “major questions doctrine” the agency went too far in its attempt to regulate without Congress’ explicit permission.

The argument against the automatic escalation gives a “little bit more teeth” to the proposal’s opponents, said Edwin Cruz, a partner with Kaufman Dolowich in Fort Lauderdale, Florida.

“A lot depends on which court it ends up in,” as well as the outcome of the 2024 federal elections, said Paul DeCamp, a member of Epstein Becker & Green in Washington. If the president is re-elected, “it gives the department a lot more time to proceed.

If not, and the regulation is not first finalized and enforced, “one then would expect to see the next administration pull back” and possibly repeal it, he said.

“Prepare as though the rule will be implemented, but don’t anticipate there will not be significant litigation” to challenge it, said Marty Heller, a partner with Fisher & Phillips LLP in Atlanta.

This is a good time to conduct a wage and hour audit, in preparation for the rule’s implementation, said Eric B. Meyer, a partner with FisherBroyles LLP in Philadelphia.