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U.S. DOL announces proposal to expand federal overtime rules for salaried workers

The U.S. Department of Labor yesterday proposed regulations to raise the “salary level test” minimum amount from $35,568 to $55,068, with indexing for inflation, for salaried workers. In its Aug. 30 Notice of Proposed Rulemaking, the DOL also proposed increasing the Highly Compensated Employee (HCE) annual compensation level to the 85th percentile of earnings for full-time salaried workers nationwide, or $143,988 per year.

Zan Blue

Under the Fair Labor Standards Act, all employees at all levels are presumed to be entitled to be paid overtime for all hours more than 40 worked in any workweek. There are a great many exemptions, but the most important are the executive, administrative and professional exemptions.

For each of these exemptions, the regulations have three tests – the duties test, the salary basis test and the salary level test. For more than 50 years, the regulations have included these tests with specifics that have changed little. Under current regulations, an employee cannot fit under the exemption unless the employer can show the employee meets all three tests.

  • We’ll pass over the duties test for now.

  • The salary basis test is relatively simple. The employee must be paid a fixed minimum amount every workweek if the employee works any hours in that week.

  • The salary level test is also simple. The employee must be paid the minimum amount.

In 2014, the Department of Labor promulgated a new “salary level” test, raising the minimum from $23,660 to $47,476. A gaggle of states and businesses challenged the new threshold in court. The cases were consolidated in the U.S. District Court for the Eastern District of Texas. The judge struck down the new rules in 2017, saying the Labor Department exceeded the authority given to it by Congress, and the Department backed off.

Now, the Department of Labor is trying again, and the new rules will be challenged again.

The key here is that the FLSA says nothing about a salary basis or a salary level. So, the legal challenges are based on the “major questions doctrine.” This doctrine says where an administrative agency tries to pass regulations with a major national impact, the authority given to it by Congress must be clear.

The pithy quote from the Supreme Court is “Congress does not hide elephants in mouseholes.” The Supreme Court has struck down several administrative attempts to regulate broad swaths of the economy in recent years, most prominently an OSHA rule that compelled private employers to require employees get COVID-19 vaccinations and an EPA rule that compelled power generation in particular ways. Many other challenges are pending.

Meantime, the National Labor Relations Board has been in a frenzy, issuing new very broad rules to make it easier for unions to organize. My firm issued a Client Bulletin during the most recent effort. One of my partners described it as “the most sweeping change in labor law in 50 years.” He’s not wrong. In short, the current Labor Board and its current general counsel are trying to re-write the law to give unions and their supporters what they have been unable to get passed in Congress, and they make no effort to disguise what they are doing. There will be legal challenges.

There is a widespread perception among business leaders that the administrative agencies arrogate to themselves powers not authorized by Congress. The agencies pass rules to further an agenda and basically dare employers to challenge them through expensive and time-consuming litigation while enforcing the rules until the courts strike them down. This is exactly what the Department of Labor and the NLRB are doing, in my opinion.

William A. "Zan" Blue, Jr. serves as principal executive to the Roundtable for member firm Constangy, Brooks, Smith & Prophete, LLP, where he is a Partner in the firm’s Nashville office. Zan was elected by our Roundtable membership to serve as our general counsel – a board director and member of the executive committee – for the 2023 board term.


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