With less than 75 days before the U.S. Department of Labor’s (DOL) New Overtime Rules are scheduled to go into full effect (click here for a summary), two separate federal court lawsuits were recently filed challenging the legality of DOL’s proposed changes. On September 21, 2016, a group of 21 states (lead by Texas and Nevada) sued the DOL, seeking to enjoin and ultimatelystrike the New Overtime Rule. On the same day, several nationwide business groups and trade organizations filed a second lawsuit against the DOL concerning the controversial New Overtime Rule, which is slated to take effect on December 1, 2016.
In the first lawsuit (Nevada et al. v. U.S. Department of Labor et al., No. 1:16-cv-407, Eastern District of Texas), the 21 states argue that the New Overtime Rule—which raised the minimum salary threshold required to qualify for the Fair Labor Standards Act’s (FLSA) “white collar” overtime exemption to $47,476 per year—is unconstitutional on numerous grounds. Specifically, the States argue that DOL overstepped its authority by imposing a salary requirement as the primary basis for determining exemption eligibility, instead of focusing on the bona fide job duties of an employee. Similarly, the States claim that the FLSA’s statutory language does not permit the inclusion of the New Rule’s “automatic increase” provision. Additionally, the States argue that by forcing them to comply with the New Rule, the Obama administration would unilaterally deplete individual states of their financial resources, in violation of the Tenth Amendment.
Joining Texas and Nevada in the lawsuit are Alabama, Arizona, Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, New Mexico, Ohio, Oklahoma, South Carolina, Utah and Wisconsin. The States’ lawsuit seeks both declaratory and injunctive relief—meaning that the states are asking the Court to enter a temporary order blocking the New Rule’s scheduled enforcement on December 1st, as well as a permanent judgment declaring the New Overtime Rule illegal.
In the second lawsuit (Plano Chamber of Commerce, et al. v. U.S. Department of Labor, et. al., No. 4:16-cv-00732, Eastern District of Texas), the U.S. Chamber of Commerce, along with over 50 other national business organizations, claims that the DOL exceeded its statutory authority under federal law in enacting key provisions of the New Overtime Rule, including the minimum salary threshold and the automatic increase provision. Like the States, the Chamber of Commerce’s lawsuit seeks both declaratory and injunctive relief.
Both suits contend that, if implemented, the New Overtime Rule would require state governments, local municipalities, and private businesses alike to substantially increase their employment costs to the point that employers may ultimately be forced to either reduce services or lay off workers. “Once again, President Obama is trying to unilaterally rewrite the law,” Texas Attorney General Ken Paxton said in a statement. “And this time, it may lead to disastrous consequences for our economy. The numerous crippling federal regulations that the Obama administration has imposed on businesses in this country have been bad enough. But to pass a rule like this, all in service of a radical leftist political agenda, is inexcusable.”
“The DOL went too far in the new overtime regulation,” said Randy Johnson, senior vice president of Labor, Immigration, and Employee Benefits for the U.S. Chamber. “We have heard from our members, small businesses, nonprofits, and other employers that the salary threshold is going to result in significant new labor costs and cause many disruptions in how work gets done. Furthermore, the automatic escalator provision means that employers will have to go through their reclassification analysis every three years. In combination, the new overtime rule will result in salaried professional employees being converted to hourly wages, and it will reduce workplace flexibility, remote electronic access to work, and opportunities for career advancement.”
The DOL did not immediately comment on the lawsuit, though it previously expressed confidence in the legality of the New Rule.
Experts predicted that the New Overtime Rule would face some type of legal challenge before its implementation at the end of this year. However, not everyone agrees that the DOL exceeded its authority in enacting the regulations. Many feel these challenges to the legality of New Overtime Rule are long-shots at best—with most feeling that the challenges to the automatic increase provision have the greatest likelihood of success.
While it is possible the federal court could enter an order staying the implementation of the New Overtime Rule, at this time, employers are best served to continue preparing as if the New Rule will go into effect on December 1st.