DOL's Proposal to Increase Salaries for Overtime Exemption May Backfire on the Agency

But antiquated wage/hour laws will remain a big problem for employers

The U.S. Department of Labor is in the early stages of proposing a major increase to the minimum salary required for eligibility for the "white collar" overtime exemptions found in the Fair Labor Standards Act (executive, administrative, professional, computer, and outside sales workers). The Jackson Lewis law firm has published a good overview here. If enacted, the new regulations would increase the minimum salary threshold from $35,568 per year to $55,068 per year.

The DOL will likely succeed in pushing through this change regardless of opposition from the business community, which has little say in regulatory matters these days. But the more interesting question is whether the Agency even has the right to use compensation, salary or otherwise, as a basis for this exemption.  This is true even though the agency's "salary test" has been in force for decades.

There is a case pending in Texas that argues that the DOL lacks statutory authority to impose any salary level because the text of the Fair Labor Standards Act itself does not include a salary threshold. Combine this with the current Supreme Court's tendency to limit regulatory powers, and a salary increase of this magnitude will certainly add to the chances of a challenge reaching the Supreme Court. And there, at least one justice has already questioned the legitimacy of the salary test. In a recent dissent in an unrelated overtime case, Helix Energy Solutions Group, inc. v. Hewitt, Justice Kavanaugh stated:

Although the Court holds that Hewitt is entitled to overtime pay under the regulations, the regulations themselves may be inconsistent with the Fair Labor Standards Act.... Recall that the Act provides that employees who work in a “bona fide executive . . . capacity” are not entitled to overtime pay. 29 U. S. C. §213(a)(1). The Act focuses on whether the employee performs executive duties, not how much an employee is paid or how an employee is paid. So it is questionable whether the Department’s regulations—which look not only at an employee’s duties but also at how much an employee is paid and how an employee is paid—will survive if and when the regulations are challenged as inconsistent with the Act.... [This] statutory question remains open for future resolution in the lower courts and perhaps ultimately in this Court (emphasis added).

This is a clear invitation for someone to litigate the legitimacy of the salary test all the way to his Court, and it is a good bet that there will be one or more takers, especially if the DOL succeeds in raising the salary threshold.

Unfortunately, the real problem with the overtime exemptions is the antiquated duties tests in the statute. Is there really such a thing as "outside sales" anymore? A HubSpot article by sales consultant Gabe Larson, Inside Sales vs. Outside Sales: How to Structure a Sales Team (hubspot.com), highlighted a strong shift from outside to inside (remote) sales between 2017 and 2021. And of course, the COVID-19 pandemic accelerated the already accelerating shift. The consequences of this are significant. There is not a broad inside sales overtime exemption under Federal law. To remain compliant under wage/hour law, and avoid paying overtime, most employers must make sure that their sales personnel also perform a reasonable number of administrative tasks as their primary duty. This can be difficult to accomplish, and in any event is likely to be inefficient.

CONTACT BILL JOSEY: wjosey@staffinglaw.com