A pending federal lawsuit seeks to challenge the authority of the U.S. Department of Labor (DOL) to issue white-collar exemption regulations under the Fair Labor Standards Act (FLSA). More specifically, the lawsuit aims to invalidate the DOL’s minimum salary threshold requirement for overtime pay.
The Overtime Rule
Employers must pay nonexempt workers 1.5 times the hourly rate for any hours they work above 40 hours a week. However, employees are exempt from this overtime rule if they earn at least $35,568 per year in salary or $684 per week and perform executive, administrative, or professional work. The DOL expects to issue proposed revisions to the overtime rule in May 2023.
Each white-collar exemption under the overtime rule has separate job duties tests, as follows:
- Executive Exemption – The employee must be responsible for managing the business or one of its departments or units. As a result, the employee must regularly direct the work of at least two employees. In addition, the employee must have the authority to hire and fire employees or be able to greatly influence the decision of whether to hire or fire employees.
- Administrative Exemption – The employee must have the primary duty of performing office or clerical work that is directly related to the operations or customers of the business. In particular, the employee’s duties must include the ability to exercise discretion and independent judgment concerning matters of significance.
- Professional Exemption – The employee must have a primary duty that requires advanced knowledge in a field that they customarily must acquire through prolonged, specialized, intellectual instruction.
Interestingly, the U.S. Supreme Court issued a 6-3 decision earlier this year in Helix Energy Solutions Group v. Hewitt that even highly paid employees can be eligible for overtime pay under FLSA if they are paid hourly or daily. In his dissent, Justice Brent Kavanaugh opined that the focus of the executive exemption in FLSA is on the duties performed, not on how much compensation an employee earns. Therefore, this lawsuit could be of great interest to the U.S. Supreme Court if one or both of the parties appeals in the future.
The Mayfield v. DOL Case
Robert Mayfield, the owner of R.U.M. Enterprises, an Austin, TX-based company that owns several fast-food restaurants, sued the DOL in August 2022, claiming that the federal agency overstepped its authority when it raised its threshold salary requirements for overtime exemptions to their current levels in 2019 during the Trump administration. Furthermore, Mayfield argues that the U.S. Constitution does not give the DOL the legal authority to set a minimum salary level for exempt employees. According to Mayfield, the DOL regulations prevent him from implementing his preferred compensation structure, thereby reducing his company profits and management bonuses.
In response, DOL argues that Congress gave it the power to set a salary requirement in defining exempt workers who work in executive, administrative, and professional positions. According to legal precedent, the DOL also maintains that the salary test is lawful.
Both parties have filed motions for summary judgment in the case, which is pending in the U.S. District Court for the Western District of Texas. The judge has yet to rule on either motion.
Recommendations for Employers
Despite the pending case, all components of the overtime rule under FLSA remain intact, including the salary requirements. Therefore, employers should continue to follow the current DOL regulations.
In particular, employers should be wary of common mistakes in determining whether employees are exempt. One such mistake includes misclassifying employees based on inaccurate job descriptions. Another common mistake is to allow improper deductions from an employee’s salary so that salary requirements are not satisfied.
Under FLSA, employers can face up to $1,000 in civil fines for each violation if they willfully and repeatedly misclassify workers as exempt from overtime pay. In addition, they may have to repay all overtime pay owed to the affected employee(s) dating back to three years before the date of the claim, as well as liquidated damages.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
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