STORY

The Biden Administration recently issued an Overtime Rule that would reclassify some 4.3 million salaried workers and make them eligible for overtime pay under the Fair Labor Standards Act (FLSA). This drastic change comes at great expense to those millions of workers, who may lose flexible work arrangements or their jobs. The Overtime Rule also harms many businesses and nonprofits, which must now pay unforeseen labor costs or eliminate positions altogether.

The plaintiff, Association of Christian Schools International (“ACSI”), is a non-profit organization whose mission is to “strengthen Christian schools and equip Christian educators worldwide as they prepare students academically and inspire them to become devoted followers of Jesus Christ.” ACSI promotes Christian education and provides training and resources to Christian schools and educators to ensure that they excel in academic, physical, and emotional growth. ACSI has 2,500 member schools in the United States, including 97 in Tennessee. ACSI is filing the lawsuit to protect its rights and the rights of its member schools, including those in Tennessee. One Tennessee school leader told us of ACSI, “Our school is so blessed to be part of the ACSI family. Private schools and our employees do not benefit from the same resources as public schools. ASCI fills that gap by providing teacher training, support when we are facing challenges, and—as in this case—protection when the government proposes rules that could harm us. We are proud to be one of the 97 Tennessee schools in the ACSI community. Our students are better for it.”

Most ACSI member schools are smaller schools with around 200 students. Those schools enter into contracts with staff each year based on annual revenue projections. That makes it harder for schools to comply with the Department of Labor’s (DOL) changes, which occur in the middle of the school year and force the schools to incur unexpected labor costs or reduce the number of hours that their staff may work.

One of the biggest challenges for smaller private schools and the reason many of them have to close their doors is finances. This new rule puts an even heavier financial burden on those schools. To pay for these unforeseen expenses, the schools will have to make budget cuts that could affect their ability to provide the best education for their students.

The Problem

Under the FLSA, “covered employees” are entitled to overtime pay at one and one-half times the employees’ regular rate of pay when they work more than 40 hours a week. But the FLSA exempts from overtime pay “any employee employed in a bona fide executive, administrative, or professional capacity.” Although the text of the FLSA calls for the employer to review an employee’s job duties to determine whether the employee is exempt, federal regulation has added an additional “salary level test.” Employees making less than the salary level set by Department of Labor fall outside the FLSA’s “white-collar” exemption even if they are employed in a bona fide executive, administrative, or professional capacity.

The salary level set by the DOL is roughly $35,000, but the Overtime Rule will increase that to around $58,000 on January 1, 2025. The DOL estimates that this drastic change in salary level will require businesses and nonprofits to re-classify over four million workers and give them overtime pay. The Overtime Rule also requires DOL to automatically increase the salary level every three years. This will lead to further costs and uncertainty for businesses and their employees.

The Overtime Rule will hurt workers and businesses. Many workers will lose flexibility and will be required to spend time clocking in and clocking out. Employers may prohibit some entry-level managers from working the hours they need to advance and may have to eliminate some positions altogether. The Overtime Rule is also bad for consumers, who could see prices soar even further from employers that compensate for higher labor costs by raising prices.

Legal Issues

We argue that the new Overtime Rule violates fundamental separation-of-powers principles.

First, the Overtime Rule’s increase and focus on salary levels as the basis for whether an individual is exempt under the “white-collar” exemption of the FLSA exceeds the statutory authority of the DOL. Congress was clear that the exemptions in the FLSA were based on the duties of the employee. The DOL has no legal authority to make salary the basis for whether FLSA overtime exemptions apply to certain workers.

Even if the DOL could use a base-level salary threshold to establish a minimum screening mechanism for the “white-collar” exemption, the DOL’s new salary increase all but eliminates the focus on the duties of the employee in violation of the clear text of the FLSA. The FLSA doesn’t provide any guidance to DOL on what the proper salary level should be.

Second, the Overtime Rule’s automatic increases of the salary level every three years violates the Administrative Procedure Act’s notice and comment requirement. When DOL has increased the salary level before, it had always provided the public with notice and the opportunity to object. No longer. The salary level will now increase every three years without any input from affected parties.

Why This Matters for Tennessee

The Overtime Rule will have an enormous impact on Tennessee, and affect the employment status of around 250,000 Tennesseans and their employers, many of which are small businesses or nonprofits. The Rule will cause some Tennesseans to lose the flexibility that they currently enjoy as exempt employees. The Rule will cost other Tennesseans their jobs by making it more expensive for employers to employ them. More specifically, our client has heard from many of its roughly 100 member schools in Tennessee that the Overtime Rule would impose unexpected costs and impede the ability of those schools to provide the best education for the children that they serve.

The Legal Team

Wen Fa is the Vice President of Legal Affairs at the Beacon Center.

Ben Stormes is an attorney at the Beacon Center.

Case Documents

Complaint

Plaintiff’s Motion for Summary Judgment

Plaintiff’s Response to Summary Judgment and reply in support of Summary Judgment