States file suit over new overtime regulations

Wednesday, 21 September 2016

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Yesterday, Alabama joined 20 other states in filing suit against the federal government for promulgating new overtime regulations, which are set to go into effect later this year.

History

On March 13, 2014, President Obama ordered the U.S. Department of Labor (DOL) to revise the overtime exemption for executive, administrative, or professional employees (sometimes called EAP employees or white collar employees). The President’s rationale was that a revision was necessary to keep up with changes in the nation’s economy. Indeed, the last change in the trigger amount for the EAP exemption occurred in 2004, when it was increased from $250 to the current $455 a week.

On July 6, 2015, DOL published a proposed rule. On May 18, 2016, after receiving a flood of comments from the public, DOL published the final rule. On December 1, 2016, the new rules are set to go into effect. Among other changes, the new rules increase the trigger amount for the EAP exemption to $913 a week.

As we have previously observed, this is a significant change in labor law. In fact, the DOL estimates that approximately 22.5 million employees may begin getting paid overtime on December 1, 2016 as a result of the new rules.

In an effort to block the new rules, a group of states (including Alabama) filed a lawsuit on September 20, 2016 in the U.S. District Court for the Eastern District of Texas.

Why the states object

In their complaint, the states maintain that the Fair Labor Standards Act (FLSA) requires the exemption to be based on the duties of the employees exempted, not on their level of pay. The complaint filed in the lawsuit states—

[U]nder the premise of updating regulations related to the FLSA, DOL has disregarded the actual requirements of the statute and imposed a much-increased minimum salary threshold that applies without regard to whether an employee is actually performing “bona fide executive, administrative, or professional” duties.

The complaint further states that the salary test used by the DOL is contrary to the statutory text of 29 U.S.C. 213(a)(1) and Congressional intent.

The complaint also attacks the indexing feature of the new rule, which requires an adjustment to the trigger amount every 3 years. The states maintain this indexing feature is contrary to previous DOL pronouncements, made in 2004, that indexing is not justified by legislative or regulatory history.

Finally, the complaint raises a federalism argument. This argument asserts that a single branch of the federal government cannot direct state governments to pay more overtime and thereby force states to adopt or acquiesce to federal policies. In the words of the complaint—

[T]here is no question that the new rule, by forcing many State and local governments to shift resources from other important priorities to increased payroll for certain employees, will effectively impose the Federal Executive’s policy wishes on State and local governments. The Constitution is designed to prohibit the Federal Executive’s ability to dragoon and, ultimately, reduce the States to mere vassals of federal prerogative.

What does this mean for employers?

Expect the federal court to first determine whether or not to issue a temporary restraining order (TRO).

If a TRO is not issued, the litigation will remain at the district court level and probably continue long past the effective date of December 1, 2016.
If a TRO is issued, expect it to be immediately appealed to the U.S. Fifth Circuit Court of Appeals. If the decision is appealed, the appellate court will likely make a decision quickly. However, litigation before the appellate court could continue past the effective date of December 1, 2016.

In either case, the legal issues raised in this lawsuit are unlikely to resolve before the date the new rules go into effect. Employers should therefore be prepared to implement the new rules. For assistance in developing strategies to adjust to the new rules, employers and businesses may very well save time, money, and stress by consulting an experienced labor and employment attorney. You may also find good general advice in this presentation.

“Stay tuned” to the Third-Shift Employment Law Blog for the latest developments as we continue to monitor this lawsuit.

See these earlier posts for more information about the new overtime rules:

Items on this web page are general in nature. They cannot—and should not—replace consultation with a competent legal professional. Nothing on this web page should be considered rendering legal advice.