Beginning January 1, 2025, the City of St. Paul, Minnesota’s Wage Theft Ordinance went into effect. The Ordinance largely incorporates the State of Minnesota’s existing wage theft legislation. However, similar to the Minneapolis Wage Theft Prevention Ordinance, effective in 2020, the City of St. Paul’s new Ordinance contains additional employer obligations for employers with employees working within the geographic boundaries of the City of St. Paul.

Employee Notice Information Required

Minnesota state law requires employers to provide detailed information, in writing, to Minnesota employees at the start of their employment and provide written notice of related changes to employees during employment. As of January 1, 2025, pursuant to Ordinance the notice for covered St. Paul employees must contain the following additional information:

  • The date on which employment is to begin;
  • A notice of the City of St. Paul’s minimum wage rates and an employee’s entitlement to such rates;
  • If applicable to the employee, a statement that the sharing of gratuity is voluntary; and
  • The overtime policy applicable to the employee’s position, if any, including when overtime must be paid and at what rate[s].

Under the Ordinance, employers may provide the information in the notice by reference to an employee handbook, collective bargaining agreement, or similar document, provided the employee is directed to the specific sections in which such information is contained.

In addition to providing the notice to all new hires, employers must provide the notice to all current, covered employees starting January 1, 2025, if the employer has not already provided the information contained in the notice to the employee. Similar to the state notice, the St. Paul notice must be signed by the employee and any change must be provided to the employee in writing before the change takes effect. Per the Ordinance, however, employers must additionally retain a copy of the initial notice as well as any written changes and records of when the employee received the notice(s).

Employers must provide employees with the notice in the language previously used for communication, or in a different language if the employer is aware the employee prefers it, as long as the Department has published notices in that language.

New Notice Poster Requirements

Annually, employers are required to notify employees of their right under the Ordinance. Employers are also required to post a notice of employees’ rights at the workplace/jobsite, in English and any language spoken by employees at the workplace/jobsite. Where the notice cannot be placed at the workplace/jobsite, employers may satisfy their obligations under the Ordinance by providing physical or electronic copies to each employee or posting the notice of rights on a web or app-based platform.

Additionally, employers must include a notice of employee rights in any handbook provided to employees.

Employers should assess their compliance obligations under the Ordinance and revise any existing handbooks and notices accordingly. Jackson Lewis attorneys are ready to assist with any compliance questions.

The Trump Administration has asked the U.S. Court of Appeals for the Fifth Circuit to postpone oral argument in a lawsuit challenging President Joe Biden’s 2024 independent contractor rule.

The U.S. Department of Justice filed a motion to pause oral argument in a legal challenge brought by trucking companies in order to give the incoming leadership at the U.S. Department of Labor (DOL) a chance to review the case and determine its next steps in the litigation. The appeals court granted the motion, tabling oral argument which had been scheduled for Feb. 5, 2025. (Frisard’s Transp., LLC v. United States DOL, No. 24-30223, Jan. 24, 2025).

The 2024 independent contractor rule, issued in January 2024, revised the DOL standard for determining whether a worker is an employee or independent contractor under the FLSA. The rule, which took effect March 11, 2024, formally adopted the six-factor “economic realities” test to determine whether a worker is an employee or independent contractor. The 2024 rule also formally rescinded a 2021 independent contractor rule issued during the waning days of the first Trump Administration, which was generally considered to be more favorable to businesses seeking to utilize an independent contractor model. (See Labor Department Releases Independent Contractor Final Rule, Revising Standard.)

The case now on hold at the Fifth Circuit is one of five lawsuits challenging the 2024 independent contractor rule. (See Independent Contractor Rule Takes Effect, But Legal Challenges Mount.) So far, the DOL has been successful in defending its rule, whether based on arguments that the plaintiffs lacked standing to sue or on the merits.

In the Frisard’s case, currently on interlocutory appeal, and the leading case, a federal court in Louisiana refused to issue a temporary restraining order or preliminary injunction barring the DOL from enforcing the rule while the court considered the merits of the legal challenge. The federal court in New Mexico recently upheld the 2024 rule on the merits in another case, finding it was not arbitrary or capricious under the Administrative Procedures Act. Colt & Joe Trucking v. United States DOL, D.N.M., 2025 U.S. Dist. LEXIS 4657, Jan. 9, 2025.

In two other suits, freelance writers and editors have filed complaints contending the 2024 rule jeopardizes their preferred legal status as independent contractors. A federal court in one case held the independent contractors lack standing to challenge the rule because they are not a party subject to the regulation. Warren v. United States DOL, N.D. Ga., No. 2:24-cv-7, Oct. 7, 2024. An appeal of that dismissal is pending in the Eleventh Circuit. In the other suit, a federal magistrate recommended dismissal for the same reason. The plaintiffs in that case have filed an objection to the magistrate judge’s recommendation. Littman v. United States DOL, M.D. Tenn., No. 3:24-cv-00194, Nov. 13, 2024.

Litigation is ongoing in a Texas federal court in a case brought by business groups. Coalition for Workforce Innovation v. Walsh, E.D. Tex., No. 1:21-cv-130. That lawsuit began as a challenge to President Biden’s decision to withdraw the 2021 independent contractor rule. The plaintiffs are now challenging the 2024 independent contractor rule as well. A motion to dismiss is pending.

The Fifth Circuit has asked the parties in the Frisard’s case to report on the status of the litigation by March 25, or earlier, if possible. The Eleventh Circuit in Warren has granted the DOL’s informal request to extend the deadline to respond to the freelancers’ appeal.

It is unlikely the DOL will continue to defend the underlying merits of the rule. The new administration will likely seek a stay of any further litigation in anticipation of further rulemaking rescinding the 2024 rule. The Trump Administration may then undertake new rulemaking to restore the 2021 rule or simply allow the courts to address the issue without agency regulations

Please reach out to your Jackson Lewis attorney if you have questions about the status of the current independent contractor rule and its implications for your business.

The Supreme Court on Monday, Jan. 13, 2025, declined to take up a decision addressing the president’s authority under the Procurement Act to issue a minimum wage mandate for employees working on federal government contracts. The denial of the petition for certiorari keeps a circuit split intact, and leaves federal contractors to navigate the wage mandate’s uncertain legal status while complying with the latest minimum wage hike to $17.75 per hour, which took effect Jan. 1.

President Biden issued Executive Order (EO) 14026 in 2021, which increased from $10.95 to $15 the minimum hourly wage for employees working on federal government contracts, and provided for annual increases to the minimum wage. In 2022, the U.S. Department of Labor (DOL) issued regulations implementing the EO.

In the case rejected by the Supreme Court, a Colorado federal court refused to grant a preliminary injunction barring enforcement of the wage mandate. The U.S. Court of Appeals for the Tenth Circuit affirmed. Bradford v. United States DOL, 2024 U.S. App. LEXIS 10382 (D. Colo. Apr. 30, 2024). The appeals court held the plaintiffs were not likely to show that the DOL lacked statutory authority to issue the DOL rule implementing EO 14026. The appeals court did not issue a final decision on the merits, however. The plaintiffs’ petition for certiorari asked the justices to address whether the wage mandate exceeds the president’s authority under the Procurement Act and, if not, whether the statute improperly gives lawmaking authority to the president. Their petition was denied, leaving these critical questions unresolved.

Meanwhile, two other challenges to the federal contractor wage mandate are pending.

In November, the U.S. Court of Appeals for the Ninth Circuit held that the president lacked authority under the Procurement Act to issue EO 14026. State of Nebraska v. Su, 2024 U.S. App. LEXIS 28010 (9th Cir Nov. 5, 2024). The appeals court also held the DOL regulation implementing the EO was arbitrary and capricious because the DOL failed to consider alternatives to the $15 rate, such as a lower wage rate or phasing in the $15 rate over several years.

Again, however, the Ninth Circuit also did not address the merits. Instead of invalidating EO 14026 and the implementing regulation, the Ninth Circuit sent the case back to the federal district court in Arizona, which had upheld the wage mandate in a legal challenge brought by several states. On remand, the district court is expected to issue a preliminary injunction barring application of the wage mandate, although it is not clear whether the injunction will apply to just the plaintiff states (to the extent of their relationships with the federal government as federal contractors) or as a complete ban to enforcement within the states. On Dec. 20, 2024, the DOL filed a petition for en banc rehearing of the divided Ninth Circuit panel decision.

The wage mandate is also facing an ongoing challenge in the U.S. Court of Appeals for the Fifth Circuit. The appeals court will consider the Biden Administration’s appeal of a 2023 decision invalidating EO 14026 in a case brought by the states of Louisiana, Mississippi, and Texas. The Texas district court had narrowly enjoined the wage mandate only as applied to the plaintiff state governments, refusing to issue a nationwide injunction because it did not want to “encroach” upon other federal courts that had upheld the executive order. State of Texas v. Biden, 2023 U.S. Dist. LEXIS 171265 (S.D. Tex. Sept. 26, 2023). The appeals court heard oral argument last August. The Fifth Circuit could reverse the Texas court and uphold EO 14026, setting up a split with the Ninth Circuit. This outcome is unlikely, however.

For now, the minimum wage mandate is in effect. But a broader reprieve (through a variety of avenues) may be forthcoming. The Trump Administration may opt to abandon the Fifth Circuit appeal and the bid to rehear the Ninth Circuit panel’s holding. President-Elect Trump also may opt to rescind President Biden’s executive order and decline to defend the wage mandate.

Contact your Jackson Lewis attorney if you have questions about the status of the federal contractor minimum wage mandate and its effect on your business.

The U.S. Department of Labor (DOL) has issued a proposed rule to end the practice of paying subminimum wages to certain workers with disabilities.

The proposed rule, announced December 3, 2024, marks the first rulemaking related to the subminimum wage in 35 years, although the regulation had been included in the DOL’s long-term regulatory agenda “for many years,” the DOL notes. The subminimum wage regulation saw its last substantive update in 1989.

If enacted, the rule would mostly impact community-based rehabilitation and training programs.

Subminimum Wage

The Fair Labor Standards Act (FLSA) allows employers to pay productivity-based wages of less than the federal minimum hourly rate (currently $7.25) to certain workers with disabilities. FLSA, Section 14(c), allows the Secretary of Labor to issue certificates to employers permitting them to pay a subminimum wage “when necessary to prevent curtailment of opportunities for employment.”

There is no single wage rate for employees working under section 14(c) certificates. Hourly pay varies based on each individual employee’s productivity in the job they perform. Data from May 2024 show median average earnings of $3.46 per hour for employees paid under section 14(c). Data from 14(c) certificates that were valid October 2023 through March 2024 show that approximately 49% of individuals earned $3.50 per hour or less.

Under the proposed rule, the DOL would stop issuing new certificates immediately once the final rule took effect. Employers with existing certificates would have a three-year phase-out period to cease paying the subminimum wage to workers with disabilities.

Declining Numbers

Use of the subminimum wage program has waned in recent years, and the number of certificate holders has declined sharply. Currently there are 801 certificate holders, operating in 38 states, according to recent data. The overwhelming majority (93 percent) are community rehabilitation programs, nonprofit agencies that provide rehabilitation services and jobs for individuals with disabilities, typically in facility-based sheltered settings.

Only 30 private-sector, for-profit businesses hold 14(c) certificates, representing 4 percent of total certificate holders. Hospitals or residential care facilities that employ patients and “school work experience programs” comprise the remainder of certificate holders.

The number of employees paid subminimum wages has fallen by about 90 percent since 2001, according to Government Accountability Office (GAO) data. As of May 1, 2024, only about 40,579 workers with disabilities were being paid subminimum wages. Ninety percent of 14(c ) workers are individuals with intellectual and developmental disabilities; however, many individuals with intellectual and developmental disabilities in the workforce are not 14(c) workers and are paid full wages. DOL’s preliminary assessment found that the total number of working individuals with intellectual and developmental disabilities is at least twice the total number of individuals working under section 14(c) certificates.

No Longer Needed?

The DOL launched a comprehensive review of the Section 14(c) program in 2023 and obtained input from certificate holders, workers with disabilities, and other stakeholders. The DOL issued the proposed rule after “preliminarily” concluding that that subminimum wage program is no longer necessary to boost work opportunities for individuals with disabilities. Acting Secretary of Labor Julie Su cited the “significant legal and policy developments that have dramatically expanded employment opportunities and rights for individuals with disabilities” since the FLSA was enacted in 1938.

It remains to be seen whether the incoming administration will finalize the proposed rule. The idea of eliminating the subminimum wage, however, has gained some bipartisan support in Congress. The Transformation to Competitive Integrated Employment Act would phase out the use of subminimum wage certificates over five years. The bipartisan measure would provide grants to assist subminimum wage employers in transitioning out of the use of 14(c) waivers. (The Raise the Wage Act, a Democratic bill to increase the standard federal hourly minimum wage, also would eliminate the subminimum wage for individuals with disabilities.) Opposition remains, however. Virginia Foxx, Republican Chair of the House Education and Workforce Committee, called the proposed rule “misguided and irresponsible” and urged the DOL to withdraw it.

More than a dozen states already have barred private employers from paying subminimum wages to workers with disabilities, or have prohibited subminimum wages in state contracts. Most recently, on November 21, 2024, Illinois passed the Dignity in Pay Act, which gradually phases out the subminimum wage by 2029.

Impact on 14(c) Participants

The DOL anticipates when a final rule is enacted, workers currently paid subminimum wages under Section 14(c) will transition into positions that pay the full wage. The rule would not require current subminimum wage workers to leave their current jobs, where they typically benefit from rehabilitation and training services for a portion of their day. Section 14(c)certificate holders could continue to provide these services and maintain the current work setting, and would only be required to pay the full federal minimum wage for those hours in the day in which the individual is engaged in productive work.

Rulemaking

The DOL has asked for comments on the proposed rule, particularly on whether the three-year phase-in period should be shorter or longer, and whether one-time extensions should be granted to current certificate holders for good cause.

The public comment period closes on Jan. 17, 2025. Comments can be submitted here: https://www.federalregister.gov/public-inspection/2024-27880/employment-of-workers-with-disabilities-under-section-14c-of-the-fair-labor-standards-act.

The U.S. Department of Labor (DOL) has released an opinion letter addressing whether per diem expense payments for tools and equipment may be excluded from the hourly rate when calculating overtime pay under the Fair Labor Standards Act (FLSA). (FLSA 2024-01, Nov. 8, 2024).

While the opinion letter doesn’t break new ground, it’s an important reminder for employers about when such reimbursements must be factored into the regular rate. Per diem expense reimbursements are widely used by employers, but their treatment under the FLSA is tricky, and it is easy to get it wrong.

Expense Reimbursement and Regular Rate

The FLSA requires “all remuneration” to be included in the regular rate when computing overtime pay. There are certain exceptions to this requirement, however, including reimbursement for expenses incurred by an employee on the employer’s behalf. The FLSA regulations state that only the “actual or reasonably approximate amount of the expense is excludable.”

Factual Scenario

A company that services oil and gas industry clients employs pipeline inspectors who work at remote jobsites. The company pays inspectors $25 per day for the use of their personal mobile phone, camera, computer, and “ancillaries” for their work in the field. The company is considering increasing this amount to $150-$200 per day and wants to exclude a portion of those payments from the inspectors’ regular rate of pay. It requested an opinion from the Wage and Hour Division on whether this approach is allowed under the FLSA.

Wage and Hour Division Administrator Jessica Looman advised that the employer’s proposed $150-$200 payments are not likely to be excludable from the regular rate. The proposed payments are six to eight times greater than the current $25 per day that the company pays. Therefore, they do not appear to be a reasonable approximation of the expenses employees incurred. Also, the employer presented no documentation that the inspectors actually incurred these ongoing expenses.

Determining Reasonable Expenses

If an employer reimburses employees at a higher rate than the actual cost of expenses, it still may exclude the actual or reasonably approximate amount of an employee’s expenses from the regular rate. The opinion letter does not, however, offer guidance on how to determine whether the reimbursement amount is reasonable. It merely states that the method “will depend on the circumstances in each case.” The letter also states, unhelpfully: “If a method reasonably approximates actual business expenses incurred by employees on behalf of their employer, it will comply with the FLSA. If a method fails to reasonably approximate such expenses, it will not.”

Takeaway

When an employer reimburses employees at an inflated rate, the payment is not a legitimate expense reimbursement. The opinion letter cautions that such payments cannot be used “to artificially reduce employees’ regular rates of pay, in an attempt to reduce the amount an employer must pay its employees for overtime work.” This is the rationale for including excess employee reimbursements in the regular rate.

To be excludable, a reimbursement must reflect expenses actually incurred. Employers must keep detailed records of expenses reimbursed to show they are legitimate costs incurred by employees in performing their work. FLSA recordkeeping provisions require that employers document “the amount and nature of each payment” to be excluded from the regular rate calculation.

Please contact your Jackson Lewis attorney if you have questions about whether employee reimbursements for per diem expenses must be factored into the regular rate for overtime purposes.

The U.S. Supreme Court heard oral arguments on Tuesday, November 5, on the standard of proof that employers must meet to show an employee is exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).

There are two competing choices: preponderance of the evidence or “clear and convincing” evidence. Every circuit court to address the issue, except the Fourth Circuit, has held a preponderance of the evidence standard applies. The Supreme Court appeared ready to agree, and reverse the Fourth Circuit’s decision imposing a higher standard.

Fourth Circuit Case

The case before the Court is E.M.D. Sales, Inc. v. Carrera, a suit filed by sales reps for a food distribution company who claim they were not paid for overtime hours worked. The employer argued that the employees were not entitled to overtime because the FLSA’s “outside sales” exemption applied. A federal court in Maryland rejected this affirmative defense, finding the employer could not meet its burden to show that the exemption applied — an exemption the employer was required to prove applied by “clear and convincing” evidence, as established by Fourth Circuit authority.

The U.S. Court of Appeals for the Fourth Circuit affirmed the court’s decision, and doubled down on requiring employers to establish an exemption applies by “clear and convincing” evidence. (The Fourth Circuit covers federal courts in Maryland, North Carolina, South Carolina, Virginia, and West Virginia.)

Is the FLSA Special?

Preponderance of the evidence is the default standard of proof in civil cases, and “[n]othing in the text suggests that Congress intended a clear and convincing evidence standard to apply to the 34 exemptions under the … Fair Labor Standards Act,” said Lisa Blatt, arguing for petitioner E.M.D. Sales, Inc.

The federal government appeared as amicus in support of the petitioner, urging the Court to adopt the preponderance of the evidence standard. Aimee W. Brown, Assistant to the Solicitor General, noted that the policies promoted by the FLSA are materially similar to workplace protections like those in Title VII and the standard of proof is a preponderance of the evidence.

“So why should FLSA be treated more advantageously than the discrimination cases?,” asked Justice Clarence Thomas.

Lauren E. Bateman, arguing on behalf of the respondent employees, argued that the preponderance of the evidence standard is insufficient to satisfy the remedial purposes of the FLSA “because it allocates the risk of factual error equally between employers and workers.” She contended that “employers are likely to possess and control evidence relevant to these kinds of factual determinations. And employers can and sometimes do manipulate evidence in their favor, such as job descriptions or titles.” Bateman also argued the FLSA is unique among workplace statutes, as reflected, for one, by the FLSA’s collective action mechanism.

The Justices had relatively few questions of the petitioner. Several mentioned other contexts in which, like the FLSA, important rights are at stake but are resolved under the standard burden of proof. They appeared doubtful that the FLSA would stand apart.

Potential Impact

The eventual decision in this case will have important implications for employers. The Fourth Circuit’s higher evidentiary burden makes it more likely that a factfinder will conclude an employee does not meet the asserted exemption — in this case, the outside sales exemption, but the reasoning applies to any of the FLSA’s exemptions, increasing the risk of liability under the FLSA. Currently, establishing an exemption is more difficult in some locations than in others. By resolving the circuit conflict, the decision will ensure that employers will face a uniform national standard.

Contact a Jackson Lewis attorney if you have questions about the EMD Sales case pending at the Supreme Court or the current standard for establishing application of an FLSA exemption.

A Fifth Circuit panel heard oral argument on Wednesday, August 7, on whether Department of Labor (DOL) regulations imposing a salary requirement to satisfy the executive, administrative and professional exemptions is valid.

The case on appeal, Mayfield v U.S. Department of Labor, does not address the minimum salary level increase that took effect July 1, 2024. Rather, the appeals court is considering an ongoing challenge to the DOL’s previous regulation implemented during the Trump administration that increased the salary level to $35,568. The lawsuit challenges the DOL’s authority to require any salary level.

The plaintiff argues the statute, the Fair Labor Standards Act (FLSA), does not impose a salary requirement for the executive, administrative, and professional (EAP) exemptions, and that the DOL regulation imposing such a requirement is inconsistent with the statute. A federal district court in Texas previously upheld the Trump DOL rule. (See Federal Court Upholds DOL’s Authority to Set Minimum-Salary Test for White-Collar Exemption.)

The appellate court’s decision in Mayfield may resolve the issue as to pending challenges to the recently enacted DOL rule, which further increased the minimum salary level, with one increase effective July 1, 2024, and the next increase scheduled for January 1, 2025. If the Fifth Circuit holds the DOL has no authority to impose any salary requirement, the most recent DOL rule will also be invalid.

The FLSA says nothing about a salary requirement—it only requires employees to be employed in a “bona fide executive, administrative, or professional capacity.” But the FLSA gives the DOL the authority for “defining and delimiting” the EAP exemptions. One question the court is wrestling with, therefore, is whether the terms “bona fide” and “capacity” are broad enough to permit the DOL to impose a salary requirement as a way of “defining” and “delimiting” the exemption. Luke Wake (Pacific Legal Foundation), arguing for the employer, stated:

The text and structure of FLSA make clear that any employee who performs exempt duties meets the exemption. The Department can’t add to the text to impose conditions that it might find desirable.

Wake also argued that the appeals court is not bound by prior appellate decisions affirming the DOL’s authority to impose the minimum salary rule in light of the U.S. Supreme Court’s June 28, 2024, opinion in Loper Bright Enterprises, Inc. v. Raimondo, which overturned Chevron deference to agency rules. (See Go Fish! U.S. Supreme Court Overturns ‘Chevron Deference’ to Federal Agencies: What It Means for Employers.)

One member of the three-judge panel (all Republican-appointed judges) noted that while Chevron was overruled, Skidmore (or “persuasive” deference) is not. And under Skidmore, the court can take into account that the rule has been in place for 80 years, undisturbed by any Congressional attempts to reject it in the ensuing decades, despite other amendments to the FLSA.

“It is not a rule from last year…. It’s been around quite some time,” he noted. Another judge on the panel noted, however, “The fact that something has been done a long time is not dispositive.”

The text of the statute is what matters, Wake emphasized. “That congress has arguably acquiesced over the years does not speak to the text of the statute.”

Courtney Dixon, arguing for the Department of Labor, focused on the “bona fide” language in the FLSA, arguing that the minimum salary rule helps to identify whether employees are “genuinely working in an EAP capacity.” She suggested that employees earning less than a particular salary may not be “bona fide” executive, administrative, or professional employees.

Wake rejected “the notion that we have to look at compensation to understand if individuals are employed in an EAP capacity.” He also looked to the structure of the FLSA itself and observed that when Congress wanted to impose a compensation requirement, or to delegate authority to DOL to set minimum compensation rules, it did so explicitly. The statute “exempts teachers, with no caveat about salaries. If a teacher is exempt because she teaches, likewise a manager is exempt because she works in an executive capacity.”

Two judges appeared troubled by the DOL’s seeming unlimited ability to increase the salary level, with no limiting principles to guide it. They also focused on the “non-delegation” doctrine, which prohibits Congress from delegating authority to federal agencies without some intelligible principle to guide them.

According to Wake, “if you accept a blank-check interpretation of ‘define and delimit’ you run square into the nondelegation problem,” particularly in the absence of clear parameters for the agency. “Congress has delegated authority to the agency to work out the details. But work out the details how?,” he asked, stating that the DOL has not pointed to any guiding principles. “There is no direction as to how minimum salary is set.”

The panel suggested that it might remand the case to the district court to reconsider the rulemaking under Loper Bright, which the district court did not consider, and instead applied Chevron, but both parties opposed that approach.

Dixon emphasized that the salary minimum test has been upheld by every court of appeals that has considered the issue. Wake conceded that if the Fifth Circuit rules against the DOL it would create a circuit split, to which one judge noted, “you are putting us in a precarious position.”

We likely will see a decision before January 1, 2025, when the second phase of the current minimum salary rule is scheduled to take effect. A finding from the appeals court that the DOL lacks authority to impose any minimum salary rule would  set up a circuit split, as the panel noted. That would tee-up the issue for the U.S. Supreme Court to resolve — where at least one Justice has questioned the DOL’s authority to impose the salary minimum.

In a strongly worded opinion, a federal judge in Texas held the U.S. Department of Labor (DOL) likely exceeded its authority in implementing its Final Rule raising the minimum salary level requirements for executive, administrative, and professional (EAP) exemptions to the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA). State of Texas v. U.S. Dep’t of Labor, E.D. Tex., June 28, 2024.  

“An examination of the ordinary meaning of the EAP Exemption’s undefined terms shows that the Exemption turns on an employee’s functions and duties, requiring only that they fit one of the three listed, i.e., ‘executive,’ ‘administrative,’ or ‘professional capacity.’ The exemption does not turn on compensation,” the court held.  Quoting none other than Yogi Berra, the Court noted the case is “déjà vu all over again,” referencing a Texas district court decision that had enjoined the DOL’s attempt to increase the salary level in 2016. 

The standard EAP salary threshold rises from the current floor of $684 per week ($35,568 annually) to $844 per week ($43,888 annually) — the the first phase in what could be an overall 65 percent increase to the standard minimum salary requirements. The simplified exemption test for highly compensated employees will increase to $132,964.

On January 1, 2025, the salary threshold is scheduled to increase even more sharply, to $1,128 per week ($58,656 annually). The highly compensated employee floor will rise to $151,164. The Final Rule also provides for automatic increases to the salary thresholds every three years, based on then-existing wage data, without first allowing an opportunity for public comment. (See “DOL Releases Final White-Collar Exemption Rule, Sets Minimum Salary to Increase in Phases Beginning July 1, 2024.”)

“The application of a salary threshold for the EAP Exemption only comports with the Department’s authority under the FLSA, if at all, to the extent such threshold serves as a plausible proxy for the categories of employees otherwise exempted by the duties test,” the court held, explaining that a salary requirement would only withstand scrutiny if the employee otherwise satisfied the duties requirement.  “A Department-invented test, untethered to the text of the FLSA, that systematically deprives employees of the EAP Exemption when they otherwise meet the FLSA’s duties test, is necessarily unlawful.”

The decision, however, only applies to the State of Texas. The court enjoined the DOL from enforcing the increase as to Texas government employees only as the State of Texas is the only Plaintiff; it declined to issue a nationwide injunction. It noted, however, that a similar challenge on behalf of various Texas businesses is pending, and this decision may foreshadow a similar result in that case, as well as in a case pending in the Fifth Circuit that challenges the DOL’s authority to issue any salary requirement.

Because the injunction only applies to the employees of the State of Texas, for all other FLSA-covered employers, the rule will take effect as scheduled on Monday, July 1, though other decisions will be forthcoming.

The district court’s decision is the first to apply the U.S. Supreme Court’s June 28, 2024, decision in Loper Bright Enters. v. Raimondo, which overruled the “Chevron doctrine” of deference to federal agencies, to find a federal rule is unlawful.

The U.S. Department of Labor’s Final Rule raising the minimum salary level requirements for application of the Fair Labor Standards Act (FLSA) “white collar” exemptions is scheduled to take effect July 1, 2024. Lawsuits, however, have been filed seeking to invalidate and set aside the Final Rule and to block the increased salary thresholds from taking effect.

The Final Rule, released on April 23, increases the minimum salary requirements for the executive, administrative, and professional (EAP) exemptions from the FLSA’s minimum wage and overtime requirements in two stages. On July 1, the standard EAP salary threshold will rise from the current floor of $684 per week ($35,568 annually) to $844 per week ($43,888 annually). On January 1, 2025, the salary threshold would increase even more sharply, to $1,128 per week ($58,656 annually). The simplified exemption test for highly compensated employees will increase from $107,432 to $132,964 on July 1, and to $151,164 on January 1, 2025. The Final Rule also provides for automatic increases to the salary thresholds every three years, based on then-existing wage data, without first allowing an opportunity for public comment. (See “DOL Releases Final White-Collar Exemption Rule, Sets Minimum Salary to Increase in Phases Beginning July 1, 2024.”)

On May 22, 2024, a coalition of business groups filed suit challenging the Final Rule in the federal court for the Eastern District of Texas, a jurisdiction known to closely scrutinize federal agency rulemaking for potential over-reach. The case is Plano Chamber of Commerce v. U.S. Department of Labor. On June 3, the state of Texas sued in the same court. (State of Texas v. United States Department of Labor). The plaintiffs have asked the court to consolidate the cases, and the court has set a June 24 hearing on the plaintiffs’ motion for injunctive relief preventing the DOL from implementing the rule.

Also on June 3, a public interest law firm that focuses on challenging “unlawful administrative power” brought a complaint in another Texas district court. The suit was brought on behalf of a small business whose employees are currently overtime-exempt but will lose the exemption when the new salary floor takes effect. In that case, the court directed the plaintiff to file any motion for preliminary injunctive relief by June 12.

In each of the complaints, the plaintiffs argue that the DOL does not have statutory authority to raise the minimum salary level for the exemptions to apply, or to impose the automatic updates. They assert that the FLSA defines the EAP exemptions based solely on the duties that an employee “customarily and regularly” performs. Also, even if the DOL was granted such authority by Congress, they argue the agency exceeded its authority when it issued the Final Rule because the high salary level imposed in the rule — a 65 percent increase to the standard salary minimum — “categorically excludes” vast numbers of employees who perform exempt duties (and therefore should be classified as exempt under the FLSA). In addition, the plaintiffs contend that if Congress had granted such authority to the DOL, it was an unconstitutional delegation of power.

Jackson Lewis is tracking the developments in these cases. In the meantime, employers should continue to prepare for July 1 compliance with the expectation that the rule will take effect as scheduled.

In its recent opinion in Huerta v. CSI Electrical Contractors, the California Supreme Court addressed three inquiries posed by the U.S. Court of Appeals for the Ninth Circuit addressing “hours worked” within the context of the California Labor Code and several state wage orders:

  • Is time spent on an employer’s premises in a personal vehicle and waiting to scan an identification badge, have a security guard peer into the vehicle, and then exit the security gate compensable as “hours worked”?
  • Is time spent on the employer’s premises in a personal vehicle, driving between the security gate and the employee parking lots subject to certain rules from the employer “hours worked”?
  • Is time spent on the employer’s premises, when workers are prohibited from leaving but not required to engage in employer-mandated activities, hours worked when it is designated as an unpaid meal period under a qualifying collective bargaining agreement?

Shannon Bettis Nakabayashi, a principal in Jackson Lewis’ San Francisco office, discusses the California Supreme Court’s answer to these questions in our California Workplace Law Blog,

The U.S. Department of Labor (DOL) final rule revising the standard for determining whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA) took effect March 11, 2024. The fate of the rule is uncertain, however, as it faces several legal challenges that could disrupt its implementation.

Independent contractor final rule

The final rule, published in the Federal Register on Jan. 10, 2024, formally rescinds the regulation issued by the DOL in 2021 and adopts instead a six-factor “economic realities” test long applied by courts. (See Labor Department Releases Independent Contractor Final Rule, Revising Standard.) Under the new rule, none of the enumerated factors is given weight over the others, and the factors are not exclusive, Rather, independent contractor status is to be determined based on the “totality of the circumstances.”

Lawsuits

The 2021 rule, issued in the waning days of the Trump Administration, was the first-ever formal regulation defining independent contractor status under the FLSA. However, the Biden DOL withdrew the rule in May 2021, and a coalition of industry groups filed suit challenging the withdrawal. In a 2022 decision, a federal court in Texas held that the DOL unlawfully delayed and withdrew the 2021 rule. (See DOL Withdrawal of Trump-Era Independent Contractor Final Rule Unlawful, Court Rules.) The government appealed, and the appeal was held in abeyance pending completion of new rulemaking. With the January publication of the 2024 final rule, the business groups on Feb. 19 asked the appeals court to lift the stay, vacate as moot the district court’s 2022 decision, and remand the case to the district court to allow the plaintiffs to file an amended complaint. The amended complaint was filed on March 5. Coalition for Workforce Innovation v. Su (E.D. Tex., Mar. 5, 2024, No. 1:21-CV-130).

A separate action, Frisard’s Transportation, LLC v. U.S. Department of Labor (E.D. La., Feb. 8, 2024, No. 2:24-cv-00347) was filed by the Liberty Justice Center and Pelican Institute for Public Policy on behalf of a family-owned trucking company that employs 30 independent owner-operator drivers in the state.

Professionals hoping to ensure their ongoing status as independent contractors also have filed legal challenges. In Warren v. U.S. Department of Labor (N.D. Ga., Jan. 16, 2024, No. 2:24-cv-00007),four freelance writer-editors have sued claiming the rule amounts to a “concerted effort to force them into employment relationships they neither want nor need.” The plaintiffs assert, based on recent conversations with clients and on past experience, that they will lose business due to uncertainty about their status and clients’ fear of liability under the new rule.

Similarly, in Littman v. U.S. Department of Labor (M.D. Tenn., Feb. 21, 2024, No. 3:24-cv-194), two freelance writer-editors allege the new rule will hinder their ability to continue working independently and deter potential clients from hiring them. One plaintiff asserts that a client already has restricted the number of hours she can work, another has required her to indemnify the company if it is found to have misclassified her, and several others have begun requiring her to document the precise tasks she performs, an additional chore which she contends takes her several unpaid hours to complete.

Legal claims

According to the complaints, the DOL rulemaking was arbitrary and capricious, was an abuse of discretion, and exceeded the agency’s statutory authority because Congress did not empower DOL to issue legislative rules defining the employment relationship under the FLSA. Like most recent challenges to federal agency rulemaking, claimants also contend that if Congress did authorize the DOL to promulgate an independent contractor rule, Congress violated the Constitution’s nondelegation doctrine. Plaintiffs in the Warren case also claim that the independent contractor rule is unconstitutional because it fails to provide sufficient guidance about who is covered under the FLSA despite that violations of the statute can incur serious (even criminal) penalties.

The lawsuits uniformly seek a preliminary and permanent injunction barring DOL from enforcing the 2024 rule and an order invalidating the rule. The industry plaintiffs also want the court to declare unlawful and set aside the DOL’s rescission of the 2021 rule and a declaration that the 2021 rule remains in effect.

On March 7, the Frisard’s Transportation plaintiffs filed an emergency motion for a nationwide temporary restraining order (TRO) and motion for a preliminary injunction blocking the rule. Those motions were denied on March 8. Plaintiffs in the Littman case have filed a motion for preliminary injunction to halt enforcement of the Rule pending a final judgment on the merits.

Congressional Review Act challenge

In addition to the lawsuits, Congressional Republicans are seeking to erect a legislative roadblock. On March 6, U.S. Senator Bill Cassidy, ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, introduced a Congressional Review Act (CRA) resolution to overturn the independent contractor rule. A companion resolution (H.J. Res.116) was introduced in the House. The CRA allows Congress to overturn agency action through passage of a joint resolution of disapproval, under which to consider legislation to overturn rules. The rule at issue cannot go into effect (or continue to be enforced) if both houses of Congress approve (and the President signs) a CRA joint resolution of disapproval—or if Congress overrides a presidential veto.

Jackson Lewis is tracking these legal challenges and will keep you posted on developments. For now, though, the DOL’s final independent contractor rule is in effect. Reach out to your Jackson Lewis attorney for assistance complying with the changing legal requirements of working with independent contractors.

The Senate Committee on Health, Education, Labor, and Pensions (HELP) on Tuesday, February 27, 2024, narrowly advanced the nomination of Acting Secretary of Labor Julie Su to serve as permanent Secretary of Labor. The Committee voted 11-10 to advance her nomination to the full Senate floor, according to media reports.

The HELP Committee held a markup on Su’s renomination in a closed-door meeting Tuesday. Sen. Bernie Sanders (I-Vt.), HELP Committee Chair, issued a statement of support. “She has been an excellent Deputy Secretary of Labor, an excellent Acting Secretary of Labor, and I believe that she will make an excellent Secretary of Labor. Her strong pro-worker track record and tireless dedication to working families across this country shows beyond a shadow of a doubt that she is the right person for the job. I urge my colleagues to support her nomination.”

The Senate HELP Committee previously voted to advance Su’s nomination to Labor Secretary in April of 2023 but it has stalled since.

President Joe Biden first nominated Su last spring to replace former DOL Secretary Marty Walsh, who departed in February 2023. Her nomination was returned to the White House last December after failing to garner sufficient support to clear a path to confirmation by the full Senate. In January 2024, President Biden promptly renominated Su for the post. She continues to face staunch opposition, however, and her nomination is not expected to be approved by the full Senate.

Su has served as Acting Secretary of Labor since March 2023. During this time, the DOL has engaged in significant rulemaking, including releasing a final independent contractor rule, a sweeping revamp of the Davis-Bacon regulations, and a proposed rule revising the minimum salary requirements for application of the DOL’s “white-collar” exemptions. Prior to that, she served as Deputy Labor Secretary, a post for which she was confirmed by the full Senate to in July of 2021.

Also this week, business groups registered their continuing opposition to Su’s nomination.

In a letter Tuesday to HELP Committee members, Jeff Brabant, National Federation of Independent Business (NFIB) Vice President of Federal Government Relations, wrote, “As Acting Secretary, Julie Su’s Department of Labor has consistently demonstrated a lack of interest in complying with the Regulatory Flexibility Act, which requires the Department to consider the impacts its regulations will have on small businesses.”

“No matter how many times she’s renominated, Julie Su’s record remains a huge red flag for our industry and any senator concerned about radical policies from California becoming federal law,” American Trucking Association President and CEO Chris Spear said Tuesday.”

President Joe Biden on Monday, January 8, 2024, sent to the Senate the nomination of Acting Secretary of Labor Julie Su to serve as permanent DOL Secretary. President Biden previously had signaled his intent to send the nomination back to the Senate after it failed in the last session.

Biden first nominated Su last spring to replace former DOL Secretary Marty Walsh, who departed in February 2023. However, her nomination was returned to the White House in December after her nomination failed to garner sufficient support to clear a path to confirmation by the full Senate.

Su has been confirmed to serve as DOL’s Deputy Labor Secretary, but her nomination to the agency’s top post has faced stiff resistance by Senate Republicans, who had urged the President not to renominate the embattled Su and to put forward a different nominee.

The nomination of Acting Secretary of Labor Julie Su to serve as permanent DOL Secretary has been returned to the White House after failing to garner sufficient support to clear a path to confirmation by the full Senate, according to media reports.

President Biden nominated Su last spring to replace former DOL Secretary Marty Walsh, who left the agency in February 2023. Republican members of the Senate Committee on Health, Education, Labor, and Pensions (HELP) have opposed the nomination from the start, in part due to her tenure as head of California’s Labor & Workforce Development Agency (LWDA) and, prior to that, as California Labor Commissioner. In that role, Su implemented use of the controversial “ABC” test for determining whether a worker is an employee or independent contractor.

Republicans on the HELP Committee had sought assurances that Su would not attempt to implement the ABC test at the federal level, and also that the DOL would not undertake rulemaking on a joint employer test. In its last semiannual agenda, the DOL offered no indication that a joint employer rule was in the works. An independent contractor proposed rule, issued in 2022, would return to the multi-factor analysis used by the DOL for decades and which, in some variation or another, has been used by the federal courts throughout that time. The rule has yet to be finalized. An independent contractor final rule was slated for an October 2023 release date, but it is currently pending review at the White House. Under Su, the DOL also issued a proposed rule that would sharply increase the minimum salary floor to satisfy the white-collar exemptions from the Fair Labor Standards Act’s overtime and minimum-wage requirements. The DOL has targeted an April 2024 release of the final rule.

President Joe Biden reportedly plans to renominate the embattled Su for the post.

The U.S. Department of Labor (DOL) unveiled its semi-annual regulatory agenda on December 6, 2023, which sets an April 2024 date for release of the agency’s anticipated final rule amending the regulations defining the “white collar” exemptions from the overtime and minimum wage requirements of the Fair Labor Standards Act (FLSA).

The DOL released its proposed rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional Outside Sales and Computer Employees on September 8, 2023. As proposed, the rule sharply increases the minimum salary requirements for the executive, administrative, and professional (EAP) exemptions to apply. The salary threshold would increase from the current $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year)—a 55% increase from the current level. The minimum salary for application of the highly compensated employee (HCE) exemption would jump by 34%, from $107,432 per year to $143,988 per year. However, the DOL has indicated the actual salary threshold will be based on earnings data as of the date the final rule takes effect — which means the salary floor may be even higher than the projected $55,068. That could lift the operative threshold to more than $60,000 annually. (For more on the proposed rule, see DOL Releases Proposed White-Collar Exemption Rule, Sets Minimum Salary at $55,068.)

Whether the DOL will meet its April 2024 target date remains to be seen. The agency will have to review more than 33,000 comments received in response to its notice of proposed rulemaking, and to address substantive comments in the final rulemaking. It’s also uncertain how closely the final rule will conform to the rule as proposed, and when the final rule, once published, will take effect. The DOL’s proposed rule did state the rule would become effective 60 days after publication of a final rule (the minimum timeframe mandated for “major” rules under the Congressional Review Act). The DOL specifically sought comments on the proposed effective date and on whether to apply different effective dates to different provisions of the proposed rule. (Past rulemaking is not a useful predictor: the DOL’s Obama-era white-collar rule revision took effect more than 6 months after the final rule was issued; the Trump DOL’s final rule took effect 3 months after publication.)

Complicating matters further for employers as they seek to evaluate their options for compliance with the rule change is the possibility of a legal challenge (and possible injunctive relief barring enforcement pending the challenge).

Independent Contractor Rule

The other significant rulemaking in the formal agenda by the DOL’s Wage and Hour Division is the “Employee or Independent Contractor Classification Under the Fair Labor Standards Act,” which is in the final rule stage. The DOL had indicated that its independent contractor final rule would be published in October 2023 (five months later than it had previously asserted), but the agency failed to meet this deadline. On September 28, 2023, the final rule was sent to the White House Office of Information and Regulatory Affairs (OIRA), the final stage of the rule review process.

A notice of proposed rulemaking for the new Independent Contractor rule was issued in October 2022. The proposed rule would formally adopt the “economic realities” test for determining whether a worker is an employee or independent contractor under the FLSA. (For a full discussion of the NPRM and the history of the independent contractor analysis under the FLSA, see our article, What’s Old is New Again: Labor Department Flip-Flops on Independent Contractor Analysis.)

Joint Employer Rule

Absent from the DOL’s semi-annual agenda is reference to a joint employer rule. Talk of whether the DOL would engage in such rulemaking has resurfaced, particularly in light of the final rule issued by the National Labor Relations Board in October 2023 (and now set to take effect February 26, 2024). However, DOL leadership has indicated such a rule is not currently in the works, and the latest rulemaking agenda confirms there is no agency action at this time.

House Republicans are seeking assurances, however. In a December 7 letter, Rep. Virginia Foxx, House Education and the Workforce Committee Chair, asked Acting Secretary of Labor Julie A. Su to commit that the DOL will not issue a joint employer rule during Su’s tenure at the agency. Foxx was troubled by Su’s failure to expressly rule out a joint employer rule when she spoke at a Congressional hearing last June.

DOL joint employer rulemaking has been in limbo since July 2021, when the agency rescinded an employer-friendly final rule on “Joint Employer Status Under the Fair Labor Standards Act” issued during the final year of the Trump administration. In its formal rule rescinding the Trump-era joint employer rule, the agency did not propose a replacement rule, instead stating that “the Department will continue to consider legal and policy issues relating to FLSA joint employment before determining whether alternative regulatory or subregulatory guidance is appropriate.”

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Please contact a Jackson Lewis attorney if you have questions about the status of DOL rulemaking.

County firefighters and law enforcement officers who opt out of employer- or union-provided health insurance coverage receive a monetary credit each pay period, minus an “opt-out fee” that goes toward the costs of maintaining the insurance plans. Although the final credit received in their pay is part of their regular rate of pay for purposes of calculating overtime compensation under the Fair Labor Standards Act (FLSA), the employer did not include in the regular rate of pay the amount withheld as an opt-out fee. The Ninth Circuit held this was proper as the opt-out fees were correctly excluded under a statutory exception for health plan contributions. Sanders v. County of Ventura, No. 22-55663, 2023 U.S. App. LEXIS 31641 (Nov. 30, 2023).

“When an employer, as here, decides to allow employees to retain some portion of an unused health insurance credit, it can permissibly structure the program to prop up the employee health plans without treating the full amount of the health credit as part of the FLSA regular rate of pay,” the appeals court wrote and affirmed a district court’s grant of summary judgment in favor of the county employer in an FLSA overtime collective action.

The Ninth Circuit has jurisdiction over federal courts in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington state.

Opt-Out Fees

Ventura County firefighters and law enforcement officers receive a flexible benefit allowance every pay period, which they can use toward premiums for the county-sponsored health plan or union-sponsored plan. Those who opt out of coverage are also entitled to this monetary “flex credit” each pay period; however, a portion of this credit is deducted as a fee that the employer uses to fund the health plans.

The flex credit appears on employees’ pay stubs as “earnings,” and the opt-out fee appears as a “before tax deduction.” After the county subtracts the opt-out fee from the flex credit, it pays the balance to employees in cash. The opt-out fee (and, thus, the residual cash payment to employees who opt out) varies from year to year. The county treated the net cash payment to opt-out employees as part of their regular rate of pay when calculating their overtime compensation; however, the county did not include the value of the opt-out fee in the regular rate calculation.

A federal court in California held that the opt-out fee was excluded correctly under 29 U.S.C. § 207(e)(4), which excludes from the regular rate “contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing health insurance.” The Ninth Circuit agreed.

Not a Cash-in-Lieu Payment

The plaintiffs cited Flores v. City of San Gabriel, 824 F.3d 890 (9th Cir. 2016) for the contention that the regular rate should include the opt-out fee. However, Flores distinguished between cash-in-lieu payments (which were to be included in the regular rate) and contributions to employees’ benefits (which may be included in the regular rate, depending on whether the program in question is a “bona fide plan” under Section 207(e)(4)). The plaintiffs argued that the opt-out fee is equivalent to a cash-in-lieu payment, but the appeals court said this reflects a misunderstanding of the nature of the opt-out fee. The opt-out fee does not function like the cash payment in Flores; instead, it is allocated to fund the health plans. The net cash payment does function like the cash payment in Flores, and the county treats it as such.

Paystub Description is Irrelevant

The plaintiffs pointed to the fact that the flex credits are displayed as “earnings” subject to a “before-tax deduction” (the opt-out fee). This was of no consequence, said the appeals court, because the paystubs reflect the requirements of the Internal Revenue Code, not the FLSA—and not the practical reality of the transactions. When determining the nature of the payment in question, what matters is what actually happens under the operative contract. Here, employees who opt out receive in cash only the amount left after the opt-out fee is subtracted.

Contributions Were “For Employees”

According to the plaintiffs, the exception outlined in § 207(e)(4) did not apply because they had opted out of the health insurance offerings — so the opt-out fee was not used to support their health care. The appeals court also rejected this argument, explaining that the statutory provision does not require that contributions be made for a particular employee’s benefits but “for employees” generally. And the opt-out fees, in this case, were used for employees who chose to participate in one of the available health plans.

No Deference Due on 20-Percent Cap

Finally, the plaintiffs asserted that the flexible benefits program was not a “bona fide” plan within the meaning of Sec 207(e)(4) because the flex credit exceeded 20 percent of the county’s total contributions for plan participants. In Flores, the appeals court had rejected a 20-percent ceiling requirement. In so doing, it declined to give deference to a U.S. Department of Labor (DOL) 2003 opinion letter supporting a 20-percent cap because the DOL had offered no rationale for adopting the ceiling.

In this case, the plaintiffs cited a (post-Flores) DOL 2019 Final Rule provision reaffirming the 20-percent cash contribution limit. The Ninth Circuit, however, found the Rule also was “undeserving of deference” as it was premised solely on the rejected 2003 opinion letter. Moreover, the decades-old opinion letter relied on the outdated, unduly narrow construction of FLSA exemptions that the U.S. Supreme Court expressly disapproved in its 2018 decision in Encino Motorcars, LLC v. Navarro.

At any rate, the appeals court found, the 20-percent cap applies to cash payments—not to the opt-out fees at issue here. The appeals court found that the net cash payments were under the 20% cap anyway.

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Please contact a Jackson Lewis attorney if you have questions about the types of payments that must be included within the regular rate of pay for purposes of calculating overtime pay due under the FLSA.

The U.S. Department of Labor (DOL) has issued its long-anticipated proposed rule to increase the minimum salary requirements for the “white collar” exemptions (executive, administrative, and professional) from minimum wage and overtime pay requirements under the Fair Labor Standards Act (FLSA).

Under the proposed rule, the salary level for the white-collar exemptions to apply will increase from the current $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year). That would be a 55% increase from the current level that became effective in January 2020 during the Trump Administration. The annual compensation level for highly compensated employees also will increase, by 34%, from the current $107,432 per year to $143,988 per year.

However, the DOL has indicated the actual salary threshold will be based on earnings data as of the date the final rule takes effect — which means that the salary floor may be even higher than the projected $55,068. That could lift the operative threshold to more than $60,000 annually.

For more on the proposed rule and anticipated legal challenges, click here.

A federal district court in Arizona held this week that courts are not required – or even authorized – to grant judicial approval of settlement agreements resolving individual claims brought under the Fair Labor Standards Act (FLSA), joining a growing number of courts calling into question the notion that private FLSA settlements require review and approval by either a court or the U.S. Department of Labor (DOL). Evans v. Centurion Managed Care of Ariz. LLC, 2023 U.S. Dist. LEXIS 139126 (D. Ariz. Aug. 9, 2023).

Background

Under Section 216(b) of the FLSA, an employee may bring a private lawsuit in an appropriate state or federal court, either on an individual or collective (class) basis, and may recover both actual and liquidated damages, as well as attorney’s fees and costs. Alternatively, under Section 216(c), “[t]he [DOL] is authorized to supervise the payment of the unpaid minimum wages or the unpaid overtime compensation owing to any employee or employees … and the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee of any right he may have under [Section 216(b)] of this section to such unpaid minimum wages or unpaid overtime compensation and an additional equal amount as liquidated damages.”

Following the holding of Lynn’s Food Stores, Inc. v. U.S., 679 F.2d 1350 (11th Cir. 1982), for more than 40 years the majority of federal courts, including some other courts of appeal, have concluded that FLSA claims may be settled only through approval by either the DOL or after a court of competent jurisdiction reviews and approves the settlement for fairness. See, e.g. Samake v. Thunder Lube, Inc., 24 F.4th 804 (2d Cir. 2022).

More recently, however, an increasing number of federal courts are questioning whether such judicial or DOL approval is required, or even allowed.

The Tide Appears To Be Turning

More recently, however, an increasing number of federal courts are questioning whether such judicial or DOL approval is required, or even allowed. The court in Martinez v. Bohls Bearing Equipment Co., 361 F. Supp. 2d 608 (W.D. Tex. 2005), was one of the first to hold that, because the case involved a bona fide dispute as to overtime pay due, court approval of the agreement was unnecessary. The Fifth Circuit subsequently adopted this rationale in Martin v. Spring Break ’83 Prods., LLC, 688 F.3d 247 (5th Cir. 2012), concluding that the private settlement agreement of an FLSA dispute was binding and enforceable without court approval, when “predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA substantive rights themselves.”

A significant number of district courts have since concurred that judicial or DOL approval is not required for bona fide disputes of individual FLSA claims. See, e.g. Walker v. Marathon Petroleum Corp., 2023 U.S. Dist. LEXIS 130671 (W.D. Pa. July 28, 2023); Jackson v. Dovenmuehle Mortg., Inc., 2023 U.S. Dist. LEXIS 113086 (E.D. Wisc. June 30, 2023); Martinez v. Back Bone Bullies Ltd., 2022 U.S. Dist. LEXIS 45870 (D. Col. Mar. 15, 2022); Alcantara v. Duran Landscaping, Inc., 2022 U.S. Dist. LEXIS 122552 (E.D. Pa. July 12, 2022); Saari v. Subzero Eng’g, 2021 U.S. Dist. LEXIS 179054 (D. Utah Sept. 17, 2021).

The Evans Decision

Evans is the most recent opinion to cast doubt on this judge-made requirement, explaining that “although the Court has previously engaged in the process of approving settlements in individual FLSA actions, it now joins the growing number of courts that have concluded that judicial approval is neither authorized nor necessary in this circumstance.” As the court observed, the text of the FLSA “strongly suggests” that Congress did not intend for a judicial approval requirement. Moreover, the court rejected policy reasons cited by some courts in favor of requiring settlement approval, finding, if anything, that policy considerations weigh against imposing a judicial hurdle to resolving an FLSA dispute. The requirement merely “slows the resolution of FLSA settlements and, by extension, the payment of wages to plaintiffs,” noted the court.

The Takeaway

Unless and until the U.S. Supreme Court weighs in, or the federal courts of appeal come to a consensus, judicial or DOL approval of individual FLSA settlements will remain a requirement in some jurisdictions. However, in some jurisdictions that is no longer the case and neither the parties nor the courts will have to undertake the time and expense of obtaining approval for settling such disputes. As the court in Evans noted, the case involved an individual settlement. The court did not hold that judicial approval was unauthorized with respect to class/collective action settlements, which still generally require court approval.

For a more in-depth look at the changing legal landscape of judicial approval of FLSA settlements, see our Special Report, Has Lynn’s Food Grown Stale? Courts Increasingly Question Obligation to Review FLSA Settlements.

If you have any questions about the Evans case, the settlement of FLSA disputes in general, or any other wage and hour question, please consult a Jackson Lewis attorney.