Lawsuits on Overtime Rule Filed

October 20, 2016

AA017956At the end of September, officials from 21 U.S. states filed a lawsuit claiming an Obama Administration rule to extend mandatory overtime pay to more than four million workers will place a heavy burden on state budgets. Hours after the states announced their lawsuit, a coalition of several business groups filed a separate challenge to the rule in the same federal court in Sherman, Texas.

At the time, the business group’s lawsuit alleged that the salary threshold was too high and that the rule “exceeds Department of Labor’s (DOL’s) regulatory authority under the Fair Labor Standards Act (FLSA) by establishing an unprecedented ‘escalator’ provision that will dramatically increase the minimum salary over time.”

Most recently, the business groups filed a motion for expedited summary judgement, in effect asking a federal judge in Texas to vacate immediately the DOL’s overtime rule. This request for expedited summary judgement came two days after the 21 state attorneys general similarly requested an emergency preliminary injunction. Both cases have been assigned to the Obama-appointed Judge Amos Louis Mazzant, III.

The regulation, set to take effect on December 1, will double from the current threshold of $455 per week ($23,660 per year) to $913 per week ($47,476 per year) the salary threshold under which virtually all workers are guaranteed time-and-a-half pay whenever they work more than 40 hours in a given week. The rule also dictates that every three years the salary level will be automatically adjusted based on existing salary ranges at the time (“the escalator provision”).

The two lawsuits argue that the salary threshold is now so high that it is no longer plausible to satisfy the minimum salary cutoff for many individuals who are otherwise bona fide executive, administrative, or professional (EAP) employees. According to the lawsuits, this high salary cutoff effectively cuts off the exemption for large categories of workers. Second, both lawsuits argue that the DOL was “arbitrary and capricious” in adopting the new threshold — i.e., that the DOL ignored evidence in the record and failed to sufficiently explain the basis for its new rule. Third, both complaints argue that the escalator provision — with its automatic salary increases every three years — violates the Department’s duty under the Administrative Procedure Act to engage in “notice-and-comment” rulemaking every time it alters FLSA guidelines.

In their lawsuit, the 21 states also bring two additional claims. First, they argue that under the Constitution, Congress does not have the power to dictate to state governments how to pay or structure their government employees. Second, they argue that Congress, through the FLSA, has unconstitutionally delegated too much legislative power to the DOL. Both of these claims face an uphill battle, however, as there is contrary Supreme Court precedent on both points.

The announcement of the rule has been met with strong objections and an array of concerns from employers across the spectrum —large for-profit companies, small businesses—including NSBA, nonprofit organizations, and local government employers. These employers fear that the implementation deadline is too rushed and that the large increase will impose significant costs, administrative burdens, and diminishment of opportunities for workers. However, unless and until a court issues such an injunction, employers need to begin evaluating their wage practices and policies, and contact their employment counsel for assistance complying with the DOL’s final rule.

NSBA is a member of the Partnership to Protect Workplace Opportunity, a coalition that is working to change the new overtime rule. When first proposed, NSBA submitted comments and among the key issues raised by NSBA’s comments included: the cost of compliance for small businesses will be much greater than the DOL estimate; changes to the duties test are likely to miss the fact that there is no bright line between “exempt” and “non-exempt” in the typical small business workplace; the creation of new hourly reporting and tracking requirements are likely to be a disproportionate burden on smaller firms; the rule could force struggling small firms to reduce employee hours; and employee morale will take a significant hit where employees must be  “downgraded” from exempt managers to non-exempt workers. Please click here to download NSBA’s comment letter.