HR Management & Compliance

States, business groups file suits to halt DOL’s overtime regs

by Kate McGovern Tornone

Twenty-one states and several employer interest groups filed lawsuits against the U.S. Department of Labor (DOL) on September 20 alleging the agency’s new overtime regulations exceed its authority. The suits, however, are not expected to have any success in the near future, and employers would be well served to be in compliance by the December 1, 2016, deadline, according to one expert.

Background

Earlier this year, the DOL issued new regulations more than doubling the salary threshold for employees to be exempt from overtime. As of December 1, employees earning less than $913 per week ($47,476 annually) must be classified as nonexempt from the Fair Labor Standards Act’s (FLSA) overtime requirements, regardless of whether they meet any of the law’s duties tests. The lawsuits (States of Nevada, et al. v. U.S. Department of Labor, No. 1:16-cv-00407 (E.D. Texas) and Plano Chamber of Commerce v. Thomas E. Perez, No. 4:16-cv-00732 (E.D. Texas)) allege that the DOL went too far in several respects.

First, the complaints allege that the DOL’s use of the salary threshold as the main test for overtime eligibility ignores the importance the FLSA places on an employee’s duties. The emphasis on salary “defies the statutory text, . . . Congressional intent, and common sense,” one complaint says.

Moreover, the rules’ automatic increase provision—which will raise the threshold to $51,000 by 2020—runs afoul of federal law, which requires that regulations go through notice-and-comment procedures, the lawsuits claim. Both lawsuits point to the DOL’s position in its 2004 rules updating the salary threshold that indexing is prohibited absent specific Congressional authorization. “Invalid action does not become valid through the passage of time,” one suit said.

The states, making the arguments as employers themselves, also allege that the regulations violate the U.S. Constitution. Enforcing the rules against states “infringes upon state sovereignty and federalism by dictating the wages that States must pay to those whom they employ in order to carry out their governmental functions, what hours those persons will work, and what compensation will be provided whe[n] these employees [are] called upon to work overtime,” they say.

Some states offered estimates of how the rules would affect them. Arkansas, for example, noted that 3,995 state employees will be newly eligible for overtime, creating overtime costs that would “far exceed” $1 million. Arizona estimated that if it raised the salaries of its 1,437 affected employees, it would cost the state $10 million. “Left unchecked, [the] DOL’s salary basis test and compensation levels will wreck State budgets,” one lawsuit said.

In response to the lawsuits, the DOL said it is confident in the legality of the rules. Secretary of Labor Thomas E. Perez said in a statement that the “partisan lawsuits” are obstructionist tactics aimed at preventing the DOL from ensuring that middle class workers receive fair pay.

Is your organization in compliance with the new overtime classification rules from the Labor Department, effective December 1, 2016? For a plain-English review of employer obligations—and how to meet them—download BLR’s new comprehensive report, New Overtime Regulations: Classifying Exempt and Nonexempt Employees Under the FLSA. In just over 50 clear and concise pages, you’ll find answers to your FLSA compliance questions, plus detailed guidance to help you manage requirements, keep your costs under control during this transition, and communicate with your affected employees about their new nonexempt status. For more information, click here.

A chance for change?

While the plaintiffs probably chose to file the suits in the U.S. District Court for the Eastern District of Texas because it is known as a “rocket docket” in which complaints proceed to trial quickly, that’s not indicative of a potential victory, according to William E. Hammel, a contributor to Texas Employment Law Letter and a partner in the Dallas office of Constangy, Brooks, Smith & Prophete, LLP.

The states’ argument that there is no basis for a salary threshold at all has little chance of success, Hammel said. “The automatic increase [claim] may result in a few interesting appellate issues,” he said. However, even a delay of the provision wouldn’t affect the changes coming on December 1. Ultimately, the overtime rules aren’t going away, he said.

The National Federation of Independent Business (NFIB), one of the plaintiffs in the second lawsuit, is also pursuing other avenues, including recently requesting that the DOL delay the rules’ effective date for small businesses. “We’re working with Congress on a bipartisan solution. We are challenging the regulation in court. We are also trying to prevail on the [DOL] for a more realistic timeframe,” said NFIB president and CEO Juanita Duggan in a statement.  “We’re fighting on every front to minimize the damage.”Lawmakers have made several attempts to curtail the rules through legislation, but experts say President Barack Obama would veto any bills that make it through Congress.

Still need help with the looming overtime regs? Check out these BLR live webinars:  DOL Overtime Exemption Rule Is Final: Key Compliance Deadlines and Immediate Action Items, hosted by Washington insiders, attorney Burton Fishman and economist Nathan Woods, who will tell you the exact action plan you need to set into motion now to ensure that you’re in compliance by the effective date of the DOL’s final rule; New Overtime Rule’s Impact on Payroll: Strategies for Ensuring Proper Calculation of Wages Ahead of December 1, 2016 Effective Date, hosted by employment tax specialist Mark Schwartz who will help you ensure that your payroll system is equipped to manage the proper recording and calculation of wages; and Communicating the Impact of DOL’s Final Overtime Rule: How to Effectively Inform Employees of Exemption Status Changes, which features an interactive Q&A with BLR editors Cathy Gray and Nancy McDermott.

Employer takeaway

Hammel said the states are probably right in their predictions: Employers’ payrolls will be substantially affected, and implementation of the rules may result in significant layoffs, especially for government employees.

But that doesn’t mean the lawsuits will succeed in delaying or stopping the rules. Employers should not delay compliance, Hammel said. “Expect these rules to go into effect,” he said. There is a cottage industry of plaintiffs’ attorneys who seek out wage and hour claims, and according to Hammel, “they have their lawsuits planned out.”

Kate McGovern Tornone is an editor at BLR. She has almost 10 years’ experience covering a variety of employment law topics. Before coming to BLR, she served as editor of Thompson Information Services’ ADA and FLSA publications, coauthored the Guide to the ADA Amendments Act, and published several special reports. She graduated from The Catholic University of America in Washington, D.C., with a bachelor of arts in media studies. Kate can be reached at ktornone@blr.com.