Proposed Overtime Rule Likely to Face Court Challenge, but Positions Should Be Audited Anyway

  • September 25, 2023


By Allen Smith, J.D. | September 5, 2023

Even though the proposed overtime rule is likely to be challenged in court after it is finalized, employers should start examining how it will affect their workplaces, legal experts say.

“I don’t think businesses should act now and make concrete changes,” said Jeff Ruzal, an attorney with Epstein Becker Green in New York City. “A preliminary injunction is likely” after the rule is finalized, he said, but employers “should study and audit the workplace” and prepare for the rule to possibly take effect. They should analyze who is exempt and nonexempt and plan for complying “without jeopardizing the business or payroll.”

Déjà Vu

Business leaders may think Here we go again in reaction to the proposed rule, Ruzal said. The new proposed rule recommends a large increase in the overtime salary-level threshold, just as changes proposed in 2016 did. That rule was blocked on Nov. 22 of that year.

“The proposed rule contains a very substantial increase in the minimum salary threshold for white-collar exemptions, moving the weekly amount from $684 to $1,059, or the annual amount from $35,568 to $55,068,” said Brett Coburn, an attorney with Alston & Bird in Atlanta. “While this jump is not quite as large as the increase that the Obama administration attempted in 2016—moving from $455 to $913 per week, or from $23,660 to $47,476 annually—it is still very significant.”

The amount of $1,059 per week represents the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage U.S. Census Bureau region—currently the South, said Natalie Bare, an attorney with Duane Morris in Philadelphia.

The Trump administration’s overtime rule, which was finalized in 2019 and took effect in 2020, raised the salary threshold to $35,568 per year, representing the 20th percentile, Bare explained. The Obama administration’s overtime rule in 2016 was, by contrast, set at the 40th percentile.

In a final ruling on the 2016 overtime rule on Aug. 31, 2017, a federal judge said the U.S. Department of Labor (DOL) didn’t have the authority to set a salary threshold so high that it effectively eliminates the duties tests. The new proposed rule “is not that far from the previously invalidated 40th percentile,” Bare said.

In addition, the court held that the 2016 overtime rule’s automatic updates to the overtime threshold were unlawful. The new proposed rule also recommends automatic updates. The Fair Labor Standards Act (FLSA) does not expressly provide for automatic updates.

“New challenges are likely to build on the challenge that was successful in 2016,” said Peter Hall, an attorney with Holland & Knight in Atlanta.

Coburn said there are additional factors that may make a challenge to the new rule likely to prevail.

The proposed rule’s commentary notes that the final rule’s threshold salary amount will be based on the most recent data available at the time the final rule is issued. The examples offered suggest the actual threshold could end up being higher than $55,068—possibly as high as $60,000.

Coburn added that some Supreme Court justices are willing to scrutinize administrative rulemaking. In a dissent to the court’s ruling earlier this year in Helix Energy Solutions Group Inc. v. Hewitt, Justice Brett Kavanaugh questioned if there is any basis for a salary requirement under the FLSA.

The rule could also be challenged under the major questions doctrine, said Robert Boonin, an attorney with Dykema in Ann Arbor, Mich.

In addition, the proposed rule was issued without a Senate-confirmed secretary of Labor, said Libby Henninger, an attorney with Littler in Washington, D.C. “It is anticipated that the DOL’s attempt to promulgate regulations in the absence of a secretary of Labor will be attacked,” she said. Moreover, Henninger noted the results of the presidential election next year may influence if and when changes take effect and in what form.

Start Preparing

Despite the likelihood that a final rule will be challenged in court once it is issued, and despite the successful challenge in 2016, employers should start preparing now for how to comply with the new rule, Coburn said. “But they should proceed with caution in terms of actual rollout or implementation, and they should prepare for uncertainty,” he added.

History could repeat itself in another way. “Just like in 2016, there is a real chance here that employers do not get court guidance on whether the rule will go into effect until very close to the effective date of the rule,” Coburn said.

Employers might review exempt employees whose salary falls between the current salary threshold ($35,568) and the proposed new threshold ($55,068, or perhaps up to $60,000 if the final rule goes higher), and for each of those employees, decide whether to increase their salary to keep them exempt or convert them to nonexempt, he said.

It’s “never a bad idea to conduct a review of employee job duties to make sure employees are properly classified as exempt,” said Lee Tankle, an attorney with Ogletree Deakins in Philadelphia.

Once employers complete their analysis, they will need to budget for increases in salary and overtime expenses, Coburn said. Employers will also need to plan how to roll out reclassification decisions. Any rollout will include training reclassified employees on timekeeping requirements and rules against off-the-clock work, as well as managing concerns that employees might raise if they are upset about losing their salaried status.

In addition, employers might want to take a fresh look at more broadly determining which employees are exempt from overtime protections.

“Employers cannot afford to wait until a court decision on the matter,” said Neal Shah, an attorney with Frost Brown Todd in Cincinnati. “While employers do not need to make decisions today, they will likely need to have a plan formalized prior to any court ruling on the matter.”

Lastly, employers should keep in mind that the proposed rule may be changed before the final rule is published, said Christopher Bouriat, an attorney with Reed Smith in Pittsburgh.

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