Two Lawsuits Hope to Put the Brakes on Overtime Rule Changes

26 September 2016 Labor & Employment Law Perspectives Blog

With a December 1 deadline looming, millions of employers across the country are scrambling to implement new compensation and classification practices in response to the U.S. Department of Labor’s (DOL) new overtime rule, announced in May. This past Tuesday, a duo of federal lawsuits was filed in Texas as a response to strong objections from employers. The first suit is brought by a coalition of 21 states, and the second is brought by a coalition of business groups led by the U.S. Chamber of Commerce.

As a recap, the rule implements the Fair Labor Standards Act (FLSA), which requires overtime pay for employees unless they are “bona fide executive, administrative, or professional” (EAP) employees, also known as “white-collar workers.” The rule  doubles the minimum salary level cutoff for the white-collar exemptions from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). 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 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, 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.  Accordingly, many businesses hoped a lawsuit would be brought to stop enforcement of the rule.  This past Tuesday, they got their wish two times over, as two federal lawsuits were filed in Texas.  The first suit is brought by a coalition of 21 states, and the second by a coalition of business groups led by the U.S. Chamber of Commerce.

The two recently filed complaints advance several theories in common. First, they both 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 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 Department 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 theories. 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 Labor Department. Both of these claims face an uphill battle, however, as there is contrary Supreme Court precedent on both points.

One or both sets of plaintiffs may move for a preliminary injunction, asking the court to block enforcement of the rule before December 1. While such an outcome would be a boon to employers, such injunctions are generally not easy to obtain (although several Obama administration rules have been enjoined in recent months).

Therefore, unless and until a court issues such an injunction, employers should evaluate their wage practices and policies, and contact their employment counsel for assistance complying with the DOL’s final rule. In doing so, feel free to review our summary of “Q&A on the FLSA’s Changes to Overtime Exemptions.”

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