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Season 3, Episode 2: Fair Labor Standards Act
From Lawyer to Employer: A Shipman Podcast
Join host Dan Schwartz and Sarah Westby, partners at Shipman & Goodwin, as they delve into the latest wage and hour regulations under the Fair Labor Standards Act (FLSA). This episode explores the implications of a federal court ruling that struck down recent DOL salary threshold increases, what it means for employers, and how businesses can navigate compliance amidst evolving rules. Discover practical insights and strategies to manage workforce morale, stay aligned with state and federal laws, and anticipate future regulatory changes.
Speaker: Welcome to From Lawyer to Employer, a Shipman podcast, bringing you the latest developments in labor and employment law, offering you practical considerations for your organization. You can subscribe to this podcast on Spotify, Apple podcasts, Google podcasts. Or wherever you listen. Thank you for joining us and we hope you enjoyed today's episode.
Dan Schwartz: Welcome back to season three of From Lawyer to Employer, a Shipman & Goodwin podcast. I'm your host, Dan Schwartz, a partner in the Labor, Employment and Education Group at Shipman and Goodwin. As you know, if you've been a longtime listener, we have been covering developments and other things that employers should know.
And so, last month, a federal judge in Texas issued a decision barring the implementation of a revised wage and hour rule that went into effect earlier this year. That nationwide injunction will have far reaching implications. So today, I thought we'd bring in my partner, Sarah Westby, and to talk about it and break it all down.
Sarah, welcome to the podcast.
Sarah Westby: Hi, Dan. Thanks for having me on.
Dan Schwartz: All right, so let's take a step back for a second. What did the Department of Labor (DOL) and we're talking about the United States Department of Labor, what did it propose?
Sarah Westby: Sure. So back in April, the DOL issued what's called a final rule and it proposed significantly increasing the minimum salary requirement for employees who meet the so-called white collar, overtime exemptions under the Fair Labor Standards Act.
And those exemptions sometimes are referred to the EAP or the Executive Administrative and Professional Exemptions. And what that essentially means is that if you meet the duties prescribed by the FLSA to fall into one of these types of categories - so, executives, professionals, doctors, lawyers, administrative professionals, as those are defined, employers don't need to pay those employees overtime if they work more than 40 hours a week, they're paid on a salary basis. So, they earn the same amount every week based on their, their job duties and not based on the hours that they work. And there are minimums set by the government that employers have to pay those employees on a weekly or biweekly basis in order to qualify for that exemption. And so, prior to this rule being announced, the minimum salary for exempt employees was $684 a week, and that was set to increase to $844 a week, which would equate to an annual salary of roughly $43,888. And that was set to go into effect and actually did go into effect on July 1st of this year.
But the rule also proposed a second increase to go into effect on January 1 of 2025, and that would have brought the salary minimum up to $1,128 a week, or roughly $58,656 a year. The rule also proposed increases on a three-year schedule. So, every three years, these minimums would be reviewed and increased based on prevailing salary thresholds.
So, the increase proposed was significant. If you look at the full year scope, the July 1 increase and the increase proposed for January 1, it was about a 60 percent increase over the course of a year, which is very significant.
Dan Schwartz: Yeah, and so, just to be clear, this rule didn't require employers to raise the salaries, right?
Sarah Westby: So, it required employers to ensure that employees who were in these exempt roles were making at least that minimum per week.
Dan Schwartz: To continue in those roles. I got it. And so, if someone had been an administrative person like an office manager, for example, and They met all the duties tests, but their salary was only, say, $700 a week.
If the employer wanted to continue using that exemption, they had to increase it effective July 1st of this year, right?
Sarah Westby: That's right.
Dan Schwartz: Okay. And a bigger change was going to happen in January. So, we've heard and you can confirm, you know, a bunch of employers had already started making some of these changes, right?
Sarah Westby: Right. And, and several had also planned to implement the next step as of January 1, which was actually the bigger increase. And we've heard from a lot of employers, particularly small businesses and nonprofits about their planning for these changes. They're concerned about the scale of the increases and really watching very closely what happened with this DOL rule.
Dan Schwartz: Got it. So, let's discuss this case in Texas. So, what was it all about?
Sarah Westby: So, the state of Texas and some business organizations brought a challenge to the DOL rule, arguing that the DOL had exceeded its administrative authority, meaning that it went beyond the scope of what it was allowed to do. And we know this is a really hot button issue in employment law these days, particularly after the Loper decision came out a few months ago, which effectively did away with Chevron deference, which applies to administrative agencies like the Department of Labor.
Dan Schwartz: Got it. So, they brought the challenge, there was obviously a hearing and can you just discuss what the judge's decision was?
Sarah Westby: Sure. So, the decision was made by a lower court federal judge in Texas. And that judge found that the DOL rule violated the DOL's administrative authority and struck down that rule, issuing a nationwide injunction barring that rule from going into effect and effectively reversing the increase in that already went into effect on July one and reverting back to the old salary threshold and the reasons the judge gave were somewhat interesting here.
The judge's main concern seemed to be the scope of the increases rather than the DOL's ability to make the increases and the judge seemed concerned that the increases would seem to swallow the duties test and effectively make salary the only basis for whether employees met this exemption and the inquiry into what they're actually doing in these roles largely irrelevant.
Now, I'm not sure I follow that logic and why simply increasing the salary minimum would undercut the duties test since employees in these positions need to meet both tests, but that seemed to be what the court was concerned about.
Dan Schwartz: And so, I mean, the DOL has been doing these types of changes for years, right?
Sarah Westby: Right. It did an increase in 2019 in fact.
Dan Schwartz: So yeah, it's been part of the rule making for years which is probably why some people have been scratching their heads a little bit at the decision. I think you touched on part of the decision, though, seems to be at least reliance either directly or indirectly on this Loper Bright decision that was decided by the Supreme Court rule. Maybe, can you just touch on briefly how would that decision impact the court's review here?
Sarah Westby: So, the rule before, the kind of the law of the land and the rule that, the courts lived by before the Loper Bright decision was based on the Chevron case from which we get the doctrine of Chevron deference, which means that courts will defer to the agency's rulemaking abilities and the substance of their rules. And the assumption is going to be that the agencies know what they're doing. They have experienced professionals who've operated in the industry, and they know best what rules are necessary and in line with current business practices and economic conditions. That deference was completely overturned in the Loper Bright case, and the court said, no, we're not going to defer to agencies anymore. We are going to look to the statute and the statutory intent. And it really puts a lot of the onus on the courts to determine whether a rule promulgated by an agency is in line with the statute and the statute's intent, or whether it goes too far. And so, I think the court here felt emboldened with Chevron deference being essentially eviscerated to say that this rule exceeded the scope of the DOL's authority to make rules pursuant to the Fair Labor Standards Act.
Dan Schwartz: Yeah, and I guess this is probably a good time to note that the district in Texas and really the appellate court, the Fifth Circuit Court of Appeals, have been coming out with these types of decisions for years, issuing some injunctions. We had the COVID vaccine ban that was struck down by court. So, I guess the fact that it's coming out here isn't that surprising, right?
Sarah Westby: It's not, we've seen a lot of litigation going after agency rulemaking since the Loper Bright decision. But interestingly, there was a case from the Fifth Circuit just a few months ago that addressed this very issue, the DOL's authority to make salary increases under the FLSA. And the Fifth Circuit did find that the DOL in fact did have that authority.
I think what is interesting here is that court in Texas, which is within the fifth circuit didn't attack the Fifth Circuit's reasoning that the DOL had this authority, but rather said that it went too far, and that authority was not unbounded, and the increases here were just too much in essence.
Dan Schwartz: So, what happens now? Would the Department of Labor appeal this decision?
Sarah Westby: They could and they might, but it also may be the case that because we've had an election and that election has consequences, particularly for the various administrative agencies, that the agency may determine that it's not worthwhile to pursue, particularly in light of the Loper Bright decision.
And so, I think we're just going to have to wait and see, but for now, employers do not need to implement the increases that were going to be mandatory as of January 1st.
Dan Schwartz: Yeah. And if this feels like a flashback, it's probably because the Obama administration had tried to do some similar changes in late 2016 and ultimately those changes didn't go into effect because again, we had a change in in the administration. So, I think you're probably right. This rule might fade a little bit into the sunset. Interestingly, I was at a conference last month, and one of the topics that came up, though, is the interesting dynamic between the Trump administration's focus on trying to ensure that employees and workers are treated fairly by their employers, but also the, the interests of bigger business in keeping costs down and such. So, it will be interesting to see the way this plays out in a new administration. You touched on a little bit of what an employer should do, but it's not like employers can roll back salary increases that they already started to put into effect. Can they?
Sarah Westby: Well, I suppose they could, but I wouldn't recommend it. I think that could have detrimental effects on the morale and the retention of the workforce. But employers that we're looking very closely at those January 1st increases and hadn't actually implemented them or hadn't announced that they were going to implement them are in a much more comfortable position in deciding that they don't have to implement those increases. They certainly still could, but they don't need to. Technically, the rule does revert back to the $684 per week minimum, but for employers who did put those July increases into effect, you know, rolling them back could have some pretty significant detrimental effects on the workforce.
Dan Schwartz: Got it. And I think, uh, something else you and I had talked about before this podcast is the fact that this is only on the U. S. Department of Labor rules. There are still state wage and hour rules that are still into effect and those are not really impacted by this decision, right?
Sarah Westby: Right, right. So, employers still need to look to both the federal and the state minimums and ensure that they're complying with the higher of the two.
Dan Schwartz: Got it. And so, you know, I know there are some states that have like a daily overtime rule. That's not going to be impacted by this decision. We're really just talking about the federal white-collar exemptions to the extent that they applied. So that that's a great point on it. Anything else you think employers should know before we wrap up?
Sarah Westby: I think just looking ahead, it's something we need to watch very closely. What the DOL may do is they may go back to the drawing board and come back with some smaller increases and see if that's more palatable. The court in Texas also took issue with the mandatory three-year increases, and so that may be something that the DOL scraps going forward, and perhaps they come back with just one increase that's a little bit more modest than what they had proposed, but it's really hard to say.
There's a lot going on in Washington right now.
Dan Schwartz: Yeah, and a lot to think about. And as employers prepare for the holidays and prepare for the new year, there's a lot on the plate. And I suppose in the short term, some employers, maybe this is a positive one less thing to worry about. But having a come out after some employers have already proposed and implemented some of these increases really creates a whole new round of headaches that were probably unexpected to some. So, interesting times, interesting decisions. Sarah, thanks so much for joining us.
Sarah Westby: Thanks, Dan.
Dan Schwartz: And with that, we will wrap up another episode of From Lawyer to Employer. We're going to take a week or two off for the holidays. I hope everyone enjoys the holidays and is able to take some time off as well. And we will be back to you in the new year. I hope we're going to talk about things like artificial intelligence in the workplace, some of the new legislative priorities in the Connecticut General Assembly, and ultimately a look ahead through 2025 and 2026 as to what might be happening with the Trump administration now in power. So, look forward to having you feel free to subscribe to this podcast, wherever you get the podcasts. And of course, rate or comment on the podcast as well. It gives us information as to know what you want to hear from. And if you want to email me at dschwartz@goodwin.com. Love to hear your feedback on these podcasts. Give us an idea of what you'd like to hear in an upcoming podcast. We will see you again after the new year.
Take care.
Speaker: Thank you for joining us on this episode of From Lawyer to Employer, a Shipman podcast. This podcast is produced and copyrighted by Shipman & Goodwin, LLP. All rights reserved. The contents of this communication are intended for informational purposes only and are not intended or should not be construed as legal advice.
This may be deemed advertising under certain state laws. Subscribe to our podcast on Spotify, Apple Podcasts, Google Podcasts, or wherever you listen. We hope you will join us again.
Sarah Westby: Sure. So back in April, the DOL issued what's called a final rule and it proposed significantly increasing the minimum salary requirement for employees who meet the so-called white collar, overtime exemptions under the Fair Labor Standards Act.
And those exemptions sometimes are referred to the EAP or the Executive Administrative and Professional Exemptions. And what that essentially means is that if you meet the duties prescribed by the FLSA to fall into one of these types of categories - so, executives, professionals, doctors, lawyers, administrative professionals, as those are defined, employers don't need to pay those employees overtime if they work more than 40 hours a week, they're paid on a salary basis. So, they earn the same amount every week based on their, their job duties and not based on the hours that they work. And there are minimums set by the government that employers have to pay those employees on a weekly or biweekly basis in order to qualify for that exemption. And so, prior to this rule being announced, the minimum salary for exempt employees was $684 a week, and that was set to increase to $844 a week, which would equate to an annual salary of roughly $43,888. And that was set to go into effect and actually did go into effect on July 1st of this year.
But the rule also proposed a second increase to go into effect on January 1 of 2025, and that would have brought the salary minimum up to $1,128 a week, or roughly $58,656 a year. The rule also proposed increases on a three-year schedule. So, every three years, these minimums would be reviewed and increased based on prevailing salary thresholds.
So, the increase proposed was significant. If you look at the full year scope, the July 1 increase and the increase proposed for January 1, it was about a 60 percent increase over the course of a year, which is very significant.
Dan Schwartz: Yeah, and so, just to be clear, this rule didn't require employers to raise the salaries, right?
Sarah Westby: So, it required employers to ensure that employees who were in these exempt roles were making at least that minimum per week.
Dan Schwartz: To continue in those roles. I got it. And so, if someone had been an administrative person like an office manager, for example, and They met all the duties tests, but their salary was only, say, $700 a week.
If the employer wanted to continue using that exemption, they had to increase it effective July 1st of this year, right?
Sarah Westby: That's right.
Dan Schwartz: Okay. And a bigger change was going to happen in January. So, we've heard and you can confirm, you know, a bunch of employers had already started making some of these changes, right?
Sarah Westby: Right. And, and several had also planned to implement the next step as of January 1, which was actually the bigger increase. And we've heard from a lot of employers, particularly small businesses and nonprofits about their planning for these changes. They're concerned about the scale of the increases and really watching very closely what happened with this DOL rule.
Dan Schwartz: Got it. So, let's discuss this case in Texas. So, what was it all about?
Sarah Westby: So, the state of Texas and some business organizations brought a challenge to the DOL rule, arguing that the DOL had exceeded its administrative authority, meaning that it went beyond the scope of what it was allowed to do. And we know this is a really hot button issue in employment law these days, particularly after the Loper decision came out a few months ago, which effectively did away with Chevron deference, which applies to administrative agencies like the Department of Labor.
Dan Schwartz: Got it. So, they brought the challenge, there was obviously a hearing and can you just discuss what the judge's decision was?
Sarah Westby: Sure. So, the decision was made by a lower court federal judge in Texas. And that judge found that the DOL rule violated the DOL's administrative authority and struck down that rule, issuing a nationwide injunction barring that rule from going into effect and effectively reversing the increase in that already went into effect on July one and reverting back to the old salary threshold and the reasons the judge gave were somewhat interesting here.
The judge's main concern seemed to be the scope of the increases rather than the DOL's ability to make the increases and the judge seemed concerned that the increases would seem to swallow the duties test and effectively make salary the only basis for whether employees met this exemption and the inquiry into what they're actually doing in these roles largely irrelevant.
Now, I'm not sure I follow that logic and why simply increasing the salary minimum would undercut the duties test since employees in these positions need to meet both tests, but that seemed to be what the court was concerned about.
Dan Schwartz: And so, I mean, the DOL has been doing these types of changes for years, right?
Sarah Westby: Right. It did an increase in 2019 in fact.
Dan Schwartz: So yeah, it's been part of the rule making for years which is probably why some people have been scratching their heads a little bit at the decision. I think you touched on part of the decision, though, seems to be at least reliance either directly or indirectly on this Loper Bright decision that was decided by the Supreme Court rule. Maybe, can you just touch on briefly how would that decision impact the court's review here?
Sarah Westby: So, the rule before, the kind of the law of the land and the rule that, the courts lived by before the Loper Bright decision was based on the Chevron case from which we get the doctrine of Chevron deference, which means that courts will defer to the agency's rulemaking abilities and the substance of their rules. And the assumption is going to be that the agencies know what they're doing. They have experienced professionals who've operated in the industry, and they know best what rules are necessary and in line with current business practices and economic conditions. That deference was completely overturned in the Loper Bright case, and the court said, no, we're not going to defer to agencies anymore. We are going to look to the statute and the statutory intent. And it really puts a lot of the onus on the courts to determine whether a rule promulgated by an agency is in line with the statute and the statute's intent, or whether it goes too far. And so, I think the court here felt emboldened with Chevron deference being essentially eviscerated to say that this rule exceeded the scope of the DOL's authority to make rules pursuant to the Fair Labor Standards Act.
Dan Schwartz: Yeah, and I guess this is probably a good time to note that the district in Texas and really the appellate court, the Fifth Circuit Court of Appeals, have been coming out with these types of decisions for years, issuing some injunctions. We had the COVID vaccine ban that was struck down by court. So, I guess the fact that it's coming out here isn't that surprising, right?
Sarah Westby: It's not, we've seen a lot of litigation going after agency rulemaking since the Loper Bright decision. But interestingly, there was a case from the Fifth Circuit just a few months ago that addressed this very issue, the DOL's authority to make salary increases under the FLSA. And the Fifth Circuit did find that the DOL in fact did have that authority.
I think what is interesting here is that court in Texas, which is within the fifth circuit didn't attack the Fifth Circuit's reasoning that the DOL had this authority, but rather said that it went too far, and that authority was not unbounded, and the increases here were just too much in essence.
Dan Schwartz: So, what happens now? Would the Department of Labor appeal this decision?
Sarah Westby: They could and they might, but it also may be the case that because we've had an election and that election has consequences, particularly for the various administrative agencies, that the agency may determine that it's not worthwhile to pursue, particularly in light of the Loper Bright decision.
And so, I think we're just going to have to wait and see, but for now, employers do not need to implement the increases that were going to be mandatory as of January 1st.
Dan Schwartz: Yeah. And if this feels like a flashback, it's probably because the Obama administration had tried to do some similar changes in late 2016 and ultimately those changes didn't go into effect because again, we had a change in in the administration. So, I think you're probably right. This rule might fade a little bit into the sunset. Interestingly, I was at a conference last month, and one of the topics that came up, though, is the interesting dynamic between the Trump administration's focus on trying to ensure that employees and workers are treated fairly by their employers, but also the, the interests of bigger business in keeping costs down and such. So, it will be interesting to see the way this plays out in a new administration. You touched on a little bit of what an employer should do, but it's not like employers can roll back salary increases that they already started to put into effect. Can they?
Sarah Westby: Well, I suppose they could, but I wouldn't recommend it. I think that could have detrimental effects on the morale and the retention of the workforce. But employers that we're looking very closely at those January 1st increases and hadn't actually implemented them or hadn't announced that they were going to implement them are in a much more comfortable position in deciding that they don't have to implement those increases. They certainly still could, but they don't need to. Technically, the rule does revert back to the $684 per week minimum, but for employers who did put those July increases into effect, you know, rolling them back could have some pretty significant detrimental effects on the workforce.
Dan Schwartz: Got it. And I think, uh, something else you and I had talked about before this podcast is the fact that this is only on the U. S. Department of Labor rules. There are still state wage and hour rules that are still into effect and those are not really impacted by this decision, right?
Sarah Westby: Right, right. So, employers still need to look to both the federal and the state minimums and ensure that they're complying with the higher of the two.
Dan Schwartz: Got it. And so, you know, I know there are some states that have like a daily overtime rule. That's not going to be impacted by this decision. We're really just talking about the federal white-collar exemptions to the extent that they applied. So that that's a great point on it. Anything else you think employers should know before we wrap up?
Sarah Westby: I think just looking ahead, it's something we need to watch very closely. What the DOL may do is they may go back to the drawing board and come back with some smaller increases and see if that's more palatable. The court in Texas also took issue with the mandatory three-year increases, and so that may be something that the DOL scraps going forward, and perhaps they come back with just one increase that's a little bit more modest than what they had proposed, but it's really hard to say.
There's a lot going on in Washington right now.
Dan Schwartz: Yeah, and a lot to think about. And as employers prepare for the holidays and prepare for the new year, there's a lot on the plate. And I suppose in the short term, some employers, maybe this is a positive one less thing to worry about. But having a come out after some employers have already proposed and implemented some of these increases really creates a whole new round of headaches that were probably unexpected to some. So, interesting times, interesting decisions. Sarah, thanks so much for joining us.
Sarah Westby: Thanks, Dan.
Dan Schwartz: And with that, we will wrap up another episode of From Lawyer to Employer. We're going to take a week or two off for the holidays. I hope everyone enjoys the holidays and is able to take some time off as well. And we will be back to you in the new year. I hope we're going to talk about things like artificial intelligence in the workplace, some of the new legislative priorities in the Connecticut General Assembly, and ultimately a look ahead through 2025 and 2026 as to what might be happening with the Trump administration now in power. So, look forward to having you feel free to subscribe to this podcast, wherever you get the podcasts. And of course, rate or comment on the podcast as well. It gives us information as to know what you want to hear from. And if you want to email me at dschwartz@goodwin.com. Love to hear your feedback on these podcasts. Give us an idea of what you'd like to hear in an upcoming podcast. We will see you again after the new year.
Take care.
Speaker: Thank you for joining us on this episode of From Lawyer to Employer, a Shipman podcast. This podcast is produced and copyrighted by Shipman & Goodwin, LLP. All rights reserved. The contents of this communication are intended for informational purposes only and are not intended or should not be construed as legal advice.
This may be deemed advertising under certain state laws. Subscribe to our podcast on Spotify, Apple Podcasts, Google Podcasts, or wherever you listen. We hope you will join us again.