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Watch out! A New Lawsuit Could Upend FLSA Exemption Requirements

August 17, 2022

By Anthony Kaylin, courtesy of SBAM Approved Partner ASE

A new case has been filed in the Northern District of Texas which could upend the Fair Labor Standards Act law (FLSA).  The new case attacks the two-prong approach of the U.S. Department of Labor of establishing exempt employee thresholds using a salary hurdle test and then the duties test. 

According to the lawsuit filed by R.U.M. Enterprises, which owns over a dozen fast-food restaurants, Congress empowered the DOL only to define the duties of Fair Labor Standards Act-exempt employees, not to set minimum pay rates for those exempt workers.

The FLSA was passed in 1938, setting up a minimum wage, a new concept at the time.  It also redefined workers between exempt or nonexempt.  Employees who fell under the executive, administrative, and professional exemption duties were exempt employees.  Those who did not meet those duties were entitled to 1.5 salary for time worked over 40 hours.

In 1947 “long” and “short” tests were implemented. The long test concerned more heightened duties and a lower salary threshold to qualify for an exemption. If an employee performed the duties in the long test list and spent less than 20% of their time on non-exempt work, they were considered exempt employees even if they made a lower salary.  The short test focused less on how much time they spent on exempt duties, but they had to meet a higher salary level to be exempt.  Employees with executive duties needed to make at least a $30 weekly salary while administrative and professional required at least $50 in salary per week.

In 2004 a single standard for employees performing executive, administrative, and professional exempt duties was established. The salary threshold was set at a standard $455 per week until the Trump Administration established the current $684 per week. 

However, the lawsuit could not come into being except for the recent U.S. Supreme Court decision West Virginia v. Environmental Protection Agency, 597 U.S. ___ (2022) (EPA case).  In a 6–3 ruling, the Supreme Court ruled unless a law specifically gives a legislative basis for regulation, any regulation promulgated beyond what is in the law is not valid.  The decision has broad implications impacting the power of all administrative agencies to implement regulations with wide-reaching social and economic effects. 

Although the salary basis test is in the regulations, it is not in the FLSA, except by minimum wage per hour or for certain categories of jobs.  Therefore, the increasing of the weekly wage beyond what the law establishes may fall under proscriptions of the EPA case.  Specifically, the lawsuit alleges that although “the Secretary of Labor claims broad, discretionary lawmaking power to  impose and freely modify salary-level requirements for executive (i.e., management) employees who are expressly exempt from the Fair Labor Standards Act’s general rule that employees must be paid on an hourly basis,” the FLSA does not provide it and the agency is acting beyond the scope of its powers. 

In fact, the lawsuit points out that “DOL has, at times, acknowledged that the Department is imposing salary level requirements ‘without specific Congressional authorization.’”  Moreover, Congress could have delegated that authority as it did in certain cases, but it did not.

Assuming the lawsuit wins all the way through appeals (and it has a sympathetic Supreme Court), it will have broad implications for HR.  The short test may be eliminated. Thus, the long test will likely be reinstituted, and job analysis for exempt may be dependent on timing of exempt v nonexempt duties for each job.  It’s a nightmare waiting to happen for HR. 

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