Cases & Developments

The Department of Labor announced a proposed rule which would rescind the Department’s 2024 final rule addressing the classification of independent contractors and replace it with an analysis for employee classification similar to one adopted by the Department in 2021. If implemented, the rule would apply an “economic reality” test to determine whether a worker is in business as an independent contractor or as an employee economically dependent on an employer for work. Comments on the proposed rule are due April 28, 2026.  

Recission of several General Counsel Memoranda by the Acting General Counsel of the National Labor Relations Board (NLRB). Memorandum GC 25-05, which was issued on February 14, rescinds more than thirty previously issued NLRB Memoranda. Fifteen Memoranda on various issues are rescinded outright; 13 Memoranda are rescinded pending further guidance; GC 22-04 “The Right to Refrain from Captive Audience and other Mandatory Meetings” is rescinded based upon the decision in Amazon.com Services LLC, 373 NLRB No. 136 (2024); GC 23-03 “Delegation to Regional Directors of Section 102.118 Authorization Regarding Record Requests from Federal, State, and Local Worker and Consumer Protection Agencies” is rescinded in favor of restoration of GC 18-01; and GC 21-01 “Guidance on Propriety of Mail Ballot Elections, pursuant to Aspirus Keweenaw, 370 NLRB No. 45 (2020)” is rescinded congruent with the Acting General Counsel’s view that “COVID-19 is no longer a Federal Public Health Emergency.” 

Opinion and Order Reversing the judgment of the Court of Appeals and Remanding. Sales representatives of petitioner, a distributor of food products, sued the company alleging it failed to pay them overtime in violation of the Fair Labor Standards Act (FLSA). The District Court applied a heightened “clear and convincing evidence” standard to the company’s argument that the sales representatives fell within the FLSA’s outside-salesman exemption. On appeal, the company argued the District Court should have applied the less stringent “preponderance-of-the-evidence standard.” The Fourth Circuit disagreed and affirmed judgment in favor of the sales representatives. The U.S. Supreme Court granted certiorari to consider which standard applies when an employer seeks to demonstrate that “an employee is exempt from the minimum-wage and overtime-pay provisions of the FLSA.” In concluding that the preponderance-of-the-evidence standard applies, the Court reasoned that a heightened standard is only required in civil cases when either the U.S. Constitution or a statute establishes the requirement, or in rare “uncommon” cases when the government undertakes “unusual coercive action” such as removal of an individual’s citizenship. The Court found that (1) the FLSA is silent as to a standard of proof for exemptions, (2) the Fourth Circuit is alone in requiring employers to prove the applicability of FLSA exemptions by the clear and convincing standard, and (3) it previously applied a preponderance standard in Title VII employment-discrimination cases. Therefore, the Court held that “the default preponderance standard governs when an employer seeks to prove that an employee is exempt under the Fair Labor Standards Act.”  

Memorandum and Order granting Summary Judgment and Vacating Final Rule. Plaintiffs, the State of Texas and a coalition of trade associations and employers, contend the 2024 Rule changes to salary level for Employee Assistance Program (EAP) Exemption set by the U.S. Department of Labor (DOL or the Department) exceed the Department’s authority under the FLSA. In granting summary judgment, the court found that “the 2024 Rule exceeds the Department’s authority and is unlawful,” and also ruled the DOL’s “salary only” test reflected a return to the 2016 Rule which was found to be in tension with the FLSA and was overruled. The court reasoned that the Rule’s proposed salary increase from $43,888 to $58,656 annually beginning January 1, 2025, departed from the established metric, and would result in an additional three million workers becoming nonexempt. The court was also persuaded by plaintiffs’ claim that the 2024 rule was an unlawful exercise of agency power under the Administrative Procedures Act (APA), and thus, concluded that the Rule exceeded permissible construction of 213(a)(1), “effectively eliminat[ing] consideration of whether an employee performs bona fide executive, administrative, or professional capacity duties in favor of what amounts to a salary-only test.” The court further found that the Department exceeded its scope regarding the proposed automatic indexing mechanism, writing “nothing in the EAP Exemption authorizes the Department to set its rulemaking on autopilot and evade the procedural requirements of the APA,” and that “automatically increasing the minimum salary thresholds every three years also violates the notice-and-comment rulemaking requirements.” Keep an eye on your in-box for upcoming NACUA programming on this developing issue!   

American Council on Education (ACE) Issue Brief on the Department of Labor’s Final Rule on Overtime Exemptions under the Fair Labor Standards Act (FLSA). The Issue Brief summarizes the Final Rule and its application in the higher education context, outlines strategies for optimizing compliance, and considers multiple questions regarding situations occurring frequently at institutions of higher education.  

Frequently Asked Questions from the College and University Professional Association for Human Resources (CUPA-HR) on the Department of Labor’s Final Rule on Overtime Exemptions under the Fair Labor Standards Act (FLSA). The FAQs address application of the Final Rule to situations that may occur within institutions of higher education, including the teacher exemption, student or graduate student employment, part-time workers, and partial-year employment.