A recent Supreme Court decision will have a significant impact on small businesses

A new overtime rule went into effect Monday, requiring businesses of all sizes to pay overtime wages to their employees making less than $43,888 per year, up from a previous wage limit of $35,568.

The Department of Labor rule covers any employee who meets other requirements such as job titles, supervisory roles, and work responsibilities. Beginning Jan. 1, 2025, the wage limit will rise again to $58,656.

Or maybe not.

That’s because last week the Supreme Court overturned a 40-year-old ruling known as the Chevron Doctrine, which gave authority for interpreting congressional legislation to federal agencies. This new decision now instructs the courts, rather than the agencies, to interpret how these laws should be implemented, particularly when there are ambiguities.

Supporters of the Chevron Doctrine say that government agencies are better positioned and more experienced to interpret laws and resolve ambiguities. Opponents have argued that regulatory agencies have become politicized and have had too much power because they’re merely carrying out the orders of whoever is sitting in the White House. The Supreme Court, in overturning the 1984 law, agrees and now says that the courts, and not government agencies, are better qualified to make these decisions.

“Agencies have no special competence in resolving statutory ambiguities,” Supreme Court Chief Justice John Roberts wrote in the court’s decision. “Courts do.”

Claude Schoenberg, a Bala Cynwyd-based labor attorney, agrees.

“Under Chevron, federal agencies like the Department of Labor have had the latitude to plausibly exercise authority to define the scope, then redefine the scope, and then re-redefine the scope of exemptions again — all motivated by who is the president,” he said.

Overtime pay, for example, is part of the Fair Labor Standards Act, a law passed in 1938 that mandated a national minimum wage, ended child labor, and set out regulations for overtime pay. However, there were ambiguities as to how much overtime pay is required under the law and who should be entitled to this compensation. The Department of Labor has historically issued regulations to further clarify things like job descriptions and who is exempt and nonexempt under the law, as well as periodically increasing the amount of overtime wages that employers should be paying.

Using the new overtime rule as an example, Schoenberg said that if the president wants to narrow the scope of exemptions, such as changing certain tests that help determine who may be exempt from the rule, the Labor Department will then carry out his orders.

“The Chevron Doctrine allowed agencies to make and implement and enforce those changes, and courts would approve of those changes so long as the Department of Labor’s approach is based upon a permissible construction of the Fair Labor Standards Act,” he said. “But as administrations change, businesses that are subject to this law have been forced to pivot back and forth again and again to try to avoid the wrath of investigators and prosecutors.”

Immediately after the Supreme Court decision, a Texas judge ruled to block the Department of Labor’s new overtime rule from going into effect because of concerns regarding its definition of exemptions, the constitutionality of the rule, and whether it was another form of “regulatory overreach,” which has been the position of the state’s attorney general. The case in Texas only impacts Texas businesses — for now — but is sure to be appealed.

So what should employers in the Delaware Valley be doing?

“We’re still telling our clients to continue to prepare their pay practices for compliance to the new rule,” said Alex Nemiroff, an attorney at Gordon Rees Scully Mansukhani in Philadelphia. “You still have to go under the assumption that the regulation is moving forward.”

Over the past few years, businesses have been subjected to a number of new and updated regulations from federal agencies. The Department of Labor has changed the rules for classifying workers, the Equal Employment Opportunity Commission has expanded the definitions of harassment and discrimination in the workplace, the National Labor Relations Board has relaxed many restrictions on union activities, and the Occupational Safety and Health Authority has added more safety requirements (and fines). With the overturning of Chevron, these regulations — and many others — will be easier to challenge.

The decision will surely open up the field for more litigation, particularly from business groups like the National Federation of Businesses and the U.S. Chamber of Commerce, which has already stated its intention “to continue to urge courts to faithfully interpret statutes that govern federal agencies and to ensure federal agencies act in a reasonable and lawful manner.”

“I think there are going to be many challenges to these rules,” said Nemiroff.

Some say that overturning the Chevron case will create more uncertainty for businesses, and that’s probably true. But others feel that it will bring more clarity and consistency.

“The pendulum of government agencies interpreting laws this way and that to satisfy ideological agendas will swing less and less wildly in the post-Chevron era,” Schoenberg said. “I believe there will ultimately be less litigation because rules — like wage laws — will be clearer for all to follow.”