Biden’s DOL Bets on Two-Step Overtime Plan to Survive Lawsuits

Biden’s DOL Bets on Two-Step Overtime Plan to Survive Lawsuits

June 10, 2024 | Symphona

The following article was reposted from Bloomberg Law with approval from the Symphona executive team. 

Take a deep dive into Biden’s new overtime pay ruling with Rebecca Rainey, a Senior Reporter with Bloomberg Law. 

Biden’s DOL Bets on Two-Step Overtime Plan to Survive Lawsuits

The US Labor Department’s use of Trump-era wage calculations for the first phase of its expansion of federal overtime pay protections creates a potential legal shield for at least part of a policy change destined for court attacks.

The Biden administration’s newly released rule will first increase the salary threshold for overtime eligibility to $43,888 on July 1, up from its current $35,568. That number is scheduled to jump to $58,656 on Jan. 1, meaning workers making less than that amount are automatically owed time-and-a-half wages.

Labor officials said the gradual increase responds to complaints from business groups that an immediate change would be too drastic for companies to absorb. Some employment attorneys say it may also be a strategy for the agency to extend some overtime rights to new workers while defending the rulemaking, which is expected to face legal challenges from industry groups.

That’s because the first July increase will use the methodology from the Trump administration’s 2019 overtime regulation, which sets the salary threshold at a much lower calculation compared to the new process outlined in the Biden rule.

“Anybody that didn’t sue over the methodology in 2019 is gonna look pretty foolish trying to sue over it now,” said Judy Conti, director of government affairs at the National Employment Law Project, which supports the new overtime update. “The business community rallied around the Trump regulation, so I would imagine they will have no choice but to accept the first tranche of the update.”

The Associated Builders and Contractors said it’s weighing a potential legal challenge against the new overtime rule.

While it “appreciates that the DOL recognized the value in retaining the methodology used by the prior administration” for the first increase, the second bump will make “huge numbers” of its members’ employees newly eligible for overtime, according to Ben Brubeck, the group’s vice president of regulatory, labor, and state affairs.

“This will disrupt the entire construction industry, specifically harming small businesses, as the rule will greatly restrict employee workplace flexibility in setting schedules and hours, hurting career advancement opportunities,” Brubeck warned.

Trump Methodology

Under the Fair Labor Standards Act, there are multiple carveouts to overtime pay requirements for certain industries and occupations.

For “executiveadministrativeprofessional and outside sales” employees, the DOL uses a three-part test that requires an employee to be salaried, make more than a certain amount per year, and have certain job duties in order to be exempt from time-and-a-half pay requirements.

In 2019, the Trump administration finalized a rule that raised the salary piece of that test to $35,568, a figure based off the 20th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region, which is currently the South.

The Biden rule would update the salary level by tying it to the 35th percentile of earnings in the poorest Census region, which would encompass more workers and likely produce a higher salary threshold. That formula will apply to the DOL’s second pay threshold bump set for Jan. 1, 2025, and then to triannual updates thereafter.

Attorneys and worker advocates say that because the Trump-Bush methodology hasn’t been successfully challenged in court, the DOL may view it as a more secure avenue than the new formula sought in the new overtime rule.

“What they’re trying to do is not be put back to zero, so to speak, if the rule gets struck down and to give a judge optionality to say, ‘All right, well, I’m gonna enforce the first step up, but I don’t believe I can enforce the second,’” said Brett Coburn, a management-side attorney at Alston & Bird LLP. “So I think it’s probably their effort to get some raise in the minimum salary threshold, even if they ultimately can’t get it where they want it.”

Part of the legal vulnerability surrounding the rule is a 2017 court decision vacating an Obama-era regulation that would have raised the earnings threshold to roughly $47,476 and update it every three years.

The 2016 Obama rule would have tied its salary threshold automatic updates to what the bottom 40% of the lowest wage earners were earning, which is slightly more than the new rule’s 35% level.

But just before it was set to go into effect, the rule was invalidated by a federal judge in Texas, who said the DOL set the salary threshold so high it made the duties piece of the FLSA exemption test irrelevant.

That ruling will likely be used as a roadmap in the challenges against the new Biden overtime rule.

Not An ‘Obstacle’

Not every attorney agrees that the strategy will work, given the size of the increase to just under $44,000 scheduled for July 1.

“I don’t think the intermediate step is going to be an obstacle to companies challenging this rule, particularly when you look at where it ends up in January of ’25,” said Jane Jacobs, a partner at Tarter Krinsky & Drogin LLP.

“That’s still a substantial increase,” she said. “And so, I’m not sure that this device, if you want to call it that, of a two-step increase helps them in a legal challenge, but of course we’ll wait and see.”

The Trump-era overtime rule may also be on uncertain legal ground.

While most large business groups didn’t challenge the Trump rule when it was issued in 2019, a fast-food chain operator based in Texas filed a lawsuit in 2022 seeking to invalidate the rule on the grounds that it went beyond the DOL’s authority.

A federal district court sided with the DOL, and upheld the rule last September. But the company appealed, and the challenge is currently pending in the US Court of Appeals for the Fifth Circuit.

Please do not hesistate to reach out to your Symphona representative today to review the new regulations on overtime pay. 

Biden’s DOL Bets on Two-Step Overtime Plan to Survive Lawsuits

 

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