Multiple States and Business Groups Challenge Overtime Rule

Allen Smith, J.D. By Allen Smith, J.D. September 21, 2016
Multiple States and Business Groups Challenge Overtime Rule

[Editor's note: A federal district court has granted a preliminary injunction blocking the overtime rule from taking effect Dec. 1.]

​Led by Texas, 21 states filed a lawsuit Sept. 20 challenging the Department of Labor's (DOL's) overtime rule revisions. Also filed on the same day, the U.S. Chamber of Commerce, National Federation of Independent Business, National Retail Federation and other business groups brought their own separate legal challenge of the overtime rule.

FLSA Overtime Rule Compliance

For more overtime compliance news, tips and tools, check out the SHRM resources provided below:

· FLSA Overtime Rule Resources Guide
· Compliance Checklist · Infographic

But businesses should continue to prepare for the overtime rule as though there were no legal challenges. The rule as of now is still set to take effect Dec. 1.

Moreover, some experts think that the legal challenges of the rule are far from certain to succeed.

"It would be reckless for employers to assume that the new rule will be enjoined before Dec. 1," said Robert Boonin, an attorney with Dykema in Detroit and Ann Arbor, Mich. "While we can hope for such an outcome, until that actually happens, they should continue on the course of complying with the new rule."

States' Lawsuit

The states' lawsuit, brought mainly by Republican governors, maintains that the DOL:

  • Disregarded the actual requirements of the Fair Labor Standards Act (FLSA) by doubling the minimum salary threshold (rising from $23,660 to $47,476) that applies, they maintained, regardless of whether an employee actually performs white-collar duties. "One would think—as the statute indicates—that actually performing white-collar duties … would be the best indicator of white-collar exempt status," the complaint states. "Instead, DOL relegates the type of work actually performed to a secondary consideration while dangerously using the 'salary basis test,' unencumbered by limiting principles, as the exclusive test for determining overtime eligibility for EAP [executive, administrative or professional] employees."

Executive, administrative and professional are the most commonly used white-collar exemptions. However, the DOL stated in its final rule that to be considered exempt, employees "must meet certain minimum requirements related to their primary job duties" in addition to meeting the salary threshold.

  • Unlawfully planned to ratchet up the salary level every three years through an automatic indexing mechanism. The automatic increase will be based on the 40th percentile of the weekly earnings of full-time salaried workers in the lowest-wage Census region, the Southern United States. "Indexing not only evades the statutory command to delimit the exception from 'time to time,' as well as the notice and comment requirements of the Administrative Procedure Act, it also ignores DOL's prior admissions [in President George W. Bush's administration] that 'nothing in the legislative or regulatory history … would support indexing or automatic increases,'" the complaint states.

  • Unconstitutionally requires states to pay overtime to state employees that are performing white-collar functions if the state employees earn a salary less than an amount to be determined by the executive branch of the federal government.

"Once again, President Obama is trying to unilaterally rewrite the law," said Republican Texas Attorney General Ken Paxton. "And this time, it may lead to disastrous consequences for our economy."

"The lawsuit is very interesting and bold," said Paul DeCamp, an attorney with Jackson Lewis in Reston, Va., and former administrator of the DOL's Wage and Hour Division, referring to the states' complaint. "Among other things, it asks the judiciary to overturn the Supreme Court's landmark 1985 ruling in Garcia v. San Antonio Metropolitan Transit Authority, which concluded that the 10th Amendment does not bar Congress from applying the FLSA to the states. Only the Supreme Court can overturn the constitutional holding in Garcia, so this complaint signals that the states are willing to take this fight all the way if necessary."

Business Groups Speak Out

Like the states' lawsuit, the business groups' complaint challenged the automatic triennial increase in the salary threshold. The business groups also filed suit in the U.S. District Court for the Eastern District of Texas, which Jeff Ruzal, an attorney with Epstein Becker Green in New York City, described as a "rocket docket"—one that will issue a decision quickly.

Lawsuits Might Fail

Some experts predicted the overtime rule would be challenged in the courts as soon as it was issued. But not everyone agrees that the DOL exceeded its authority in enacting the regulations.

"The DOL fulfilled all of their obligations during the rulemaking proceeding," said Lawrence Mishel, Ph.D., economist and the president of the Economic Policy Institute, a nonpartisan, Washington, D.C., think tank. "They crossed every t and dotted every i. The final overtime pay rule update should be implemented as planned starting Dec. 1."

While U.S. Rep. Kurt Schrader is seeking to do away with the automatic triennial increases in a blue-dog Democrat bill with growing bipartisan support, Mishel said, "Indexing is the most important part of the rule update because it is the lack of indexing that caused overtime pay to be eroded." He cited an Economic Policy Institute report that stated, "Failure to adequately update the salary threshold over 1975-2015 caused the share of the salaried workforce that was guaranteed overtime pay to fall from 49.6 percent to just 9.5 percent in 2015."

Jim Swartz, an attorney with Polsinelli in Atlanta, noted that in the states' lawsuit, "The court is likely to view with skepticism the plaintiff's argument that the agency's regulatory modifications—upwardly adjusting the amount of the salary—is beyond the agency's congressionally authorized authority or an arbitrary and capricious interpretation of the law."

However, DeCamp said, "The argument against automatic increases seems quite strong. A change in the minimum salary required for exempt status is a substantive change to the exemption, and generally under the Administrative Procedure Act substantive changes to regulations must go through full notice-and-comment rulemaking."

Alfred Robinson Jr., an attorney at Ogletree Deakins in Washington, D.C., and former acting administrator of the Wage and Hour Division, agreed. "The FLSA does not say that these definitions can be put on automatic pilot without regard to articulating some reason or basis for revising the definitions," he stated.



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