Department of Labor Salary Thresholds and New Lawsuit Filed in Texas to Stop Those Increases
To quote Yogi Berra, “It’s like déjà vu all over again!” If you are a long-time client of the Sensenig Law Firm, you probably remember us sounding the alarm back in 2016 about the Department of Labor (“DOL”) raising the minimum annual salary threshold required to exempt employees from the overtime-rate requirements of the Fair Labor Standards Act. We beat that drum for the better part of a year, only to watch the Eastern District Court of Texas dash the DOL’s years of work in the span of an afternoon. It was a total defeat for the DOL, who slunk back to D.C. with an “Gosh darn it!” and a promise that the DOL would “Keep up the good fight.”
Well, eight years later, after much work and public comments, the DOL has made good on that promise; today the DOL stands ready, willing, and able to relive its public humiliation at the hands of the very same Eastern District Court of Texas, by attempting to issue an even more ambitious increase to the minimum salary basis threshold for exempt employees. The DOL has proposed raising the current threshold salary of $684 per week/$35,568 per year to a $1,059 salary per week/$55,069 per year. From there, the DOL’s new rule would impose regularly scheduled increases to keep up with inflation, with the first such increase scheduled for July of this year.
You are probably asking “What changed between 2016 and today that made the DOL believe this would end any differently than the last time?”……. Well, we are wondering the same thing! Because if anything, the federal courts, up to and including the US Supreme Court, are even more hostile to administrative “overreach” in 2024 than they were in 2016. So why on earth is the DOL picking this very same fight, with the very same court, which is likely to end the very same way, just eight years later?
This Firm does not always see eye-to-eye with the DOL, but we will give the DOL credit for this notion: the DOL takes its mission seriously to ensure that American workers get a fair shake and makes every effort to accomplish this mission in good-faith, with extremely limited resources, against Sisyphean odds. The DOL’s attempt to raise the salary basis threshold may be doomed to failure, but any reasonable person must agree that something must be done to keep America’s rapidly vanishing middle class afloat. We can absolutely disagree about what the appropriate solution is, but the facts are indisputable: a salary of $35,568 per year is poverty wages in the State of Florida per the most recent census figures.
Let’s back up a bit. The Fair Labor Standards Act from 1938, “FLSA”, was the federal government’s response to the Great Depression. It was also designed to ensure that American workers working forty hours per week would be guaranteed to be able to afford the bare minimum of shelter, food, and transportation. Under the FLSA non-exempt employees are entitled to overtime pay in the amount of 1.5 times their regular hourly wage for every hour worked after 40 in any given week. Under specific circumstances, an employee can be deemed as exempt from the FLSA’s overtime requirement; by way of shorthand, we just call such employees “exempt.” The FLSA classifies all employees as “non-exempt” by default, meaning that – absent specific grounds to classify an employee as exempt – all employees are entitled to overtime pay. Succinctly, an exempt employee is not entitled to overtime pay, a non-exempt employee is entitled to overtime pay, and all employees are considered non-exempt by default.
To classify an employee as exempt, an employer must be able to prove, to the satisfaction of a judge or DOL auditor, that the employee qualifies for one of the limited exemptions to the FLSA. The exemptions to overtime are nowhere near as simple as they appear at first glance. Were you to try to Google this issue (and please don’t!), you might come away believing that all you need to do to avoid paying overtime is to call all of your employees “assistant managers.” HR folks, don’t roll your eyes here: we’ve seen countless extremely savvy, sophisticated business owners making every effort to act in good-faith compliance with the law fall into this trap. FLSA exemptions are just one of those issues that, if you don’t work in the employment arena, it is truly difficult to ensure proper classification of employees on your own.
For the past several years, the salary basis threshold has been $35,568 per year. The notion behind the salary basis threshold requirement was that an employee earning at least this amount per year was sufficiently well-compensated as to not require overtime to earn a comfortable living. And when this $35,568 per year threshold was established, that may have been true. But years later, the notion that an American – let alone a Floridian – earning $35,568/year is so financially stable as to not require any additional wages for working an unlimited number of hours for their employer per week is unrealistic, setting aside personal feelings on America’s collective work ethic. Per the 2021 census data, the Bureau of Economic Analysis has calculated the average cost of existing in the State of Florida as $50,689 per year, and that’s a per person, state-wide average that includes places like Ocala and Polk County; that number gets even bigger when you factor in expenses like child and elder care, or when you just calculate costs from population centers like Bradenton and Sarasota. Suffice to say: $35,568 per year is mathematically poverty wages in the State of Florida in 2024, and indeed, across much of the United States. Hence, the DOL has declared that, beginning on July 1, 2024, employees must earn a minimum of $58,656 per year to qualify for the executive, administrative, or professional FLSA exemptions. Since these are by far the most common exemptions, odds are very good that if you have any exempt employees at all, this new rule will impact you directly.
You can tell the DOL has triple-checked their numbers on this just by comparing the newly proposed salary basis threshold to the average annual cost of living in Florida: $58,656 to $50,689. This is simply not a matter of opinions or politics; the math shows that $58,656 is in fact a minimally sufficient annual salary to allow a person to pay their living expenses in the State of Florida – and that $35,568 per year is insufficient. The Sensenig Law Firm absolutely sympathizes with employers arguing that an additional $23,088 per exempt employee will damage their business - and might even result in layoffs. The DOL is asserting with its new threshold that an individual working 40+ hours per week should be able to supply themselves with food, shelter, and transportation, but using the current $35,568 salary threshold, such is not possible in most states, and especially so in Florida. Housing expenses are at an all-time high in Florida – and we are all painfully aware of the insurance crisis with 3000% increases in insurance premiums being a weekly occurrence.
A lawsuit against the DOL was filed last week – in the Eastern District of Texas (no shock about the choice of filing in that jurisdiction). The lawsuit was joined by no less than a dozen others; their arguments appear to be nearly same ones asserted in the prior DOL lawsuit. But is the status quo of a $35,568 yearly salary for working 50+ hours or more per week appropriate? Did the DOL overreach their Agency authority? Are the DOL’s conclusions as to the proposed increased salaries based on appropriate data? Or is everyone involved working backwards from their desired conclusion?
The voice of business/the Plaintiff(s) assert that the DOL’s currently proposed minimum salary basis threshold for exemptions to overtime “repeats the errors of the 2016 Rule and fails to address the flaws previously identified by this Court”; the Plaintiff(s) assert that the FLSA does not allow for any minimum salary basis threshold whatsoever.” From there, the Plaintiff(s) argue that “The Department’s new EAP salary thresholds far exceed the limits of the statutory authority recognized by this Court,” and “Finally, like the unlawful 2016 Rule, the 2024 Rule includes an unlawful automatic indexing provision that will further increase the EAP minimum salary threshold without the notice-and-comment rulemaking required by the APA.”
The Eastern District Court of Texas previously declared that the DOL did not have the authority to raise the minimum salary basis threshold for exemption without Congressional approval, and that subsequent automatic increases to the salary basis threshold would violate the notice-and-comment rulemaking required by the APA. These arguments have already been accepted by the Eastern District Court of Texas once before under nearly identical circumstances, so why should this time be any different? The Eastern District Court of Texas said “No” last time, and nothing has meaningfully changed since then, so the Eastern District Court of Texas will likely say “no” this time as well.
Even the Eastern District of Texas is unlikely to go so far as to decree that “All salary basis thresholds are unconstitutional”, but the Court’s agreement to the other points is highly likely as the Eastern District of Texas will have its own opinion from eight years ago to rely upon.
The curious thing about the filing of the pending lawsuit in Texas is how long it took the Plaintiff(s) to file the suit. With the Court’s need to review the facts and review arguments, including hearing oral arguments, it may not be feasible for the Eastern District of Texas to issue a stay or to stop the first increases from happening on scheduled effective date of July 1, 2024. But then again, the Eastern District of Texas may not need much time to dust off its prior opinion. As always, the Sensenig Law Firm will keep you informed of any developments.