Business groups file lawsuit to block DOL’s new overtime rule

Over a dozen business associations have filed a federal lawsuit seeking to overturn the Department of Labor’s recently announced rule that would significantly raise the salary thresholds for classifying workers as exempt from overtime pay under the Fair Labor Standards Act (FLSA).

The new DOL rule, released in April, would increase the minimum annual salary threshold for executive, administrative, and professional exemptions from the current $35,568 to $43,888 on July 1, 2024, and then to $58,656 on January 1, 2025. It would also raise the exemption threshold for highly compensated employees from $107,432 to $151,164. After 2025, the thresholds would automatically increase every three years.

The lawsuit, filed in the U.S. District Court for the Eastern District of Texas by plaintiffs including the American Hotel and Lodging Association and the National Retail Federation, alleges that the DOL exceeded its authority under the FLSA in setting the new thresholds.

The business groups argue that the rule improperly makes salary level, rather than job duties, the key determinant of exempt status. In addition, they say the three-year automatic indexing provision violates the notice-and-comment rulemaking provisions required by the Administrative Procedure Act.

According to their complaint, the DOL failed to justify the “dramatic change in policy” and failed to consider reasonable alternatives. Plaintiffs are seeking expedited consideration from the court to block the rule before the initial July 1 effective date.

This is not the first time that business groups have challenged DOL efforts to update the FLSA overtime exemptions. In 2016, a federal court in Texas struck down an Obama-era rule that would have raised the threshold to $47,000, finding the DOL focused too heavily on salaries while ignoring duties.

“We are once again back before the court because the DOL, in direct defiance of this court’s previous ruling, decided to move forward with a new overtime rule that increases the minimum salary level threshold for exemption far beyond a level which the DOL is permitted to adopt,” said Ben Brubeck, vice president with Associated Builders and Contractors, one of the plaintiffs, in a statement.

Barring court intervention, employers will need to ensure any workers earning below $43,888 are reclassified as non-exempt and eligible for overtime before July 1.

Companies should audit exempt positions and decide whether to raise salaries to maintain the exemption or convert employees to non-exempt status. With further increases slated for January, employers will face difficult compensation decisions in the months ahead.