A pending lawsuit in a Texas federal court is challenging whether the U.S. Department of Labor (DOL) can apply a salary requirement for workers who are exempt from overtime pay. Under the Fair Labor Standards Act (FLSA), employers must pay 1.5 times the hourly rate for any hours worked above forty hours in a week for nonexempt employees. Employers can face both civil and criminal penalties if they willfully and repeatedly misclassify workers as exempt. Violating employers can also be required to pay unpaid overtime owed and additional monetary damages to affected employees. The FLSA does not list a specific salary requirement to meet this exemption, and the lawsuit hinges on whether the Secretary of Labor has the authority to set such a salary requirement.
The lawsuit was brought by Robert Mayfield, who owns and operates multiple fast-food restaurants in Texas. Mr. Mayfield alleges that the salary requirement constrains his ability to fairly compensate his employees. The lawsuit further claims that the DOL overstepped its authority when it raised the salary requirement, and that the DOL lacks the legal authority under the United States Constitution to set a minimum salary level for exempt employees. The DOL counters that Congress gave it the power to set a salary requirement to help determine what workers are not entitled to overtime pay, and that the salary requirement helps prevent the misclassification of employees, particularly lower-paid employees.
Currently, employees are exempt from overtime if they earn at least $35,568 per year (or at least $684 per week) and perform executive, administrative, or professional work. For the executive exemption, the employee’s primary duty must be managing a business, or a department or subdivision of a business. This includes regularly directing the work of at least two employees and the authority to hire or fire workers, or the employee’s suggestions and recommendations related to the hiring, firing, or any other change of status of other employees must be given particular weight. For the administrative exemption, the employee’s primary duty must be performing office or nonmanual work that is directly related to the employer’s business operations or customers. This must include exercising discretion and independent judgment. For the professional exemption, the employee’s primary duty must be performing work requiring advanced knowledge in a field that is customarily acquired by prolonged, specialized, and intellectual instruction.
For now, employers should continue to comply with the FLSA’s salary requirement and other related regulations. The DOL is expected to release additional proposed changes to the overtime rule soon, possibly in May. Even if there are changes made under federal law, either by the DOL itself or because of the pending litigation, employers will still need to comply with state law. Many states have their own overtime laws that employers must also follow.
We are closely following this litigation and its effect on employer’s obligations under the FLSA. Should you have any questions about these developments, please feel free to contact any of our Employment and Labor Attorneys.