Seyfarth Synopsis: The first challenge to the Department of Labor’s overtime rule has landed, but what the U.S. District Court for the Eastern District of Texas will do with it and how any decision will affect businesses remains up in the air.  As this litigation develops, businesses must still prepare for the upcoming July 1, 2024 salary threshold increase.

What Does the Complaint Allege?

On Wednesday, May 21, 2024, several businesses and industry groups submitted a legal challenge to the Department of Labor’s (“DOL”) new overtime rule raising the salary threshold for professional exemptions.

The lawsuit was filed in the Eastern District of Texas – a familiar venue. In 2016, a similar – successful – suit was filed against the Obama-era overtime rule, which sought to raise the salary threshold for executive, administrative, and professional (“EAP”) exemptions to $47,476. In 2017, U.S. District Judge Amos Mazzant ruled that the Obama DOL’s rule was so lasered in on raising the salary threshold that it lost sight of the plot – the job duties which are the focus of the EAP exemptions.

Plaintiffs in the recently-filed complaint argue that the Biden Administration’s rule exceeds DOL’s authority under the Fair Labor Standards Act and violated the Administrative Procedure Act. The lawsuit argues that the rule ignores precedents and that “[j]ust 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.” Accordingly, “[t]he 2024 Overtime Rule thus contradicts the congressional requirement to exempt such individuals from the minimum wage and overtime requirements of the FLSA.” As we predicted, the lawsuit also challenges the DOL’s planned three-year automatic increase to the EAP salary threshold and its phased approach to increases in July 2024 and January 2025 as violating notice and comment requirements under the APA.

Notably, a separate legal challenge is pending in the US Court of Appeals for the Fifth Circuit against the Trump-era overtime rule, which argues that the DOL doesn’t have the authority to consider a worker’s earnings at all when determining whether they are exempt from overtime.  Justice Brett Kavanaugh alluded to this possibility in a dissent to the Supreme Court’s 2023 Helix decision.

The newly filed lawsuit acknowledges that if the Fifth Circuit were to find that the DOL can’t use salary levels as part of the overtime exemption test, then the rule should also be blocked.

What Should Business Do?

Businesses must operate strategically under the assumption that the new rule will go into effect July 1, 2024. The lawsuit requests that the District Court provide expedited consideration given the looming deadline, but businesses cannot assume the Court will quickly rule.

As of now, businesses have 5 weeks to comply and should take note of any salaried-exempt employees earning below $43,888 per year.  Seyfarth attorneys have invested considerable time into preparing its clients for reclassification, and are actively monitoring legal developments.  Reclassification requires legal analysis, strategic business decisions, and thoughtful communications, so please connect with competent counsel to explore your options.