As most know by now, earlier this year the U.S. Department of Labor (DOL) published its final rule updating the regulations governing whether executive, administrative, and professional employees are entitled to overtime under the Fair Labor Standards Act (FLSA). Under the current regulations, an employee who is classified under one of these exemptions is exempt from overtime if the employee receives a salary of at least $455 per week ($23,660 annually) ($675 per week / $35,100 annually here in New York State) and otherwise meets additional criteria specific to each exemption. The DOL’s new rule more than doubles the current FLSA minimum salary threshold to $913 per week ($47,476 annually). This figure is based on the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers in the lowest wage earning Census Region, currently the South region. The revised regulations also increase the highly compensated employee exemption annual salary threshold from $100,000 annually to $134,004. Additionally, the revised regulations include an indexing mechanism to automatically update the salary threshold every three years, beginning January 1, 2020. The DOL estimates that the revised rule will cast a broad net making an additional 4.2 million workers eligible for overtime under the FLSA.
As most also know by now, the final rule is scheduled to go into effect in just over one month on December 1, 2016. Or will it?
Before adjourning for election season late last month, the United States House of Representatives passed a bill, H.R. 6094 (the bill is referred to as the “Regulatory Relief for Small Businesses, Schools and Nonprofits Act”), that would delay the effective date of the DOL’s new overtime rule by 6 months, from December 1, 2016 to June 1, 2017. However, the Senate adjourned the same night after passing a stopgap spending bill to avert a government shutdown, meaning the Senate will not vote on the overtime bill until after the November elections at the earliest. Thus, without further congressional action, the overtime rule will still take effect December 1st. And with Congress adjourned until November 14th so that lawmakers can campaign for reelection, there will be little time for the Senate to act before the rule becomes effective. Even if the bill survives the Senate, a Presidential veto is almost certain to follow. In fact, President Obama released a statement strongly opposing any delay in the rule’s effective date, and threatening to veto any such law. Additionally, Congress likely would not have enough votes to override any such veto.
In a similar last ditch effort to stall and challenge the rule change, twenty-one states recently banded together and filed a lawsuit in the United States District Court for the Eastern District of Texas. The group challenging the rule is led by Texas and Nevada, and includes the following states: Alabama, Arizona, Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, New Mexico, Ohio, Oklahoma, South Carolina, Utah, and Wisconsin. The lawsuit names as Defendants the DOL and its Wage and Hour Division, Secretary of Labor Thomas Perez, and Wage and Hour Administrator David Weil, and Assistant Administrator for Policy Mary Ziegler. In a separate suit just hours later, the U.S. Chamber of Commerce led an expansive alliance of national and Texas business groups and filed a similar suit to challenge the rule, arguing that the new rule drastically alters the DOL’s minimum salary requirements by imposing new overtime payment requirements on businesses of all sizes and millions of individuals who have historically been considered exempt.
Both suits maintain that the DOL exceeded its statutory authority under the FLSA in promulgating the new rule, and that the new rule is arbitrary and capricious. They ask the court to issue an injunction preventing its implementation, application and enforcement. The states also raise constitutional objections, arguing that the new federal rule violates the Tenth Amendment (which reserves to the states powers not expressly granted to the federal government) by mandating how they must pay employees and allocate their budgets. The states allege that by implementing this new rule, the federal executive branch will “wreck State budgets” and “commandeer, coerce, and subvert the States” by mandating the wages state employees are paid, what hours these employees will work, what compensation will be provided to employees working overtime, and the overall structure of payment at the State level. In addition, the states challenge the mechanism for automatic increases in the salary threshold every three years, asserting that it fails to acknowledge Congress’s intention that the “activities” in which employees engage be the distinguishing factor between exempt and non-exempt employees, not salary levels. The states further allege that Congress did not give the DOL indexing authority, and the DOL failed to follow the Administrative Procedure Act’s (APA) notice and-comment rulemaking process before seeking to impose indexing.
Like the states, the business groups argue that the DOL exceeded its statutory authority and violated the APA in issuing the final overtime rule. They argue that the rule’s excessively high salary threshold for determining who qualifies for a “white collar exemption” would disqualify large numbers of employees who perform exempt job duties from exempt status. The Business groups also take sharp aim at the automatic update or “escalator” provision that will increase the minimum salary threshold over time. Like the states, they argue the indexing mechanism was issued without a rulemaking or input from stakeholders in violation of the APA.
Just last week, the two lawsuits were consolidated and they will now be heard together. Moreover, the Federal Court granted an expedited timetable for the states’ Emergency Motion for Preliminary Injunction and the business groups’ own Motion for Expedited Summary Judgment, which are presently set for a hearing on November 16, 2016, just two weeks ahead of the rule’s December 1st effective date. It is certainly conceivable that these combined cases could offer employers some relief from the new regulations before the effective date, but they should not hold their breath. While employers might sensibly delay announcing any changes while these lawsuits play out, they should still be preparing for the change in the law as scheduled.
Scott Mooney is a partner with the law firm Boylan Code LLP concentrating his practice in the areas of labor & employment and litigation.