Although it may be a last ditch effort for states and employers, twenty-one states, led by Nevada and Texas, filed an emergency motion on October 12, 2016 to temporarily halt the new overtime rule issued by the DOL earlier this year. The bill will not be heard until November 17, 2016; therefore, employers should proceed with preparations to comply with the new overtime rule December 1, 2016. SHRM, Allen Smith, J.D., outlines the details.
If legislation challenging the overtime rule fails, this could be a last-ditch effort to block it.
Twenty-one states, led by Nevada and Texas, on Oct. 12 filed an emergency motion to temporarily bar the overtime rule—judicial action that Robert Boonin, an attorney with Dykema in Detroit, called “the last hope for the employer community” to block the rule.
Some legal experts think the motion is, like the legislative proposals to delay or phase in implementation of the rule, a long shot.
But not Mark Terman, an attorney with Drinker Biddle & Reath in Los Angeles. “The chances that the motion will be granted are relatively good in my view,” he said. “Trial courts tend to rule on the side of preserving the status quo.”
He cautioned, however, that “employers should still prepare to comply with the rule in case the injunction is not granted.”
“Time is running out and if an injunction is not issued before Dec. 1, the new rules will go into effect and employers will have to conform to them,” Boonin said. Many employers are implementing their new pay structures a week before Dec. 1, he noted, so they will be harmed if an injunction is not issued by mid-November.
Salary-Level Test, Indexing Challenged
In the states’ motion, filed in their challenge of the overtime rule, they argued that the Fair Labor Standards Act (FLSA) does not authorize either the salary-level test or the rule’s triennial automatic increase of the salary threshold.
The overtime rule raised the salary threshold for exempt employees from $23,660 to $47,476 and provided for a triennial automatic increase in the threshold to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region (historically, the South).
While the salary test has been used for decades, it always has been a Department of Labor (DOL) invention and hasn’t been challenged because it used to be set so low, the states’ motion said.
Simply put, the FLSA requires an overtime exemption for employees working in an executive, administrative or professional capacity with no reference to a minimum salary. But the DOL’s new rule disallows any overtime exemption for such employees, unless they make more than $47,476 a year, the states said.
As for the automatic increase every three years, “The DOL itself took the position in 2004 that it did not have the statutory authority to impose automatic indexing,” said Jesse Panuccio, an attorney with Foley & Lardner in Miami. Prior to this year’s overtime rule, the agency last updated the FLSA regulations in 2004. “The agency will need to justify its about-face, which is difficult to do,” he noted.
“The salary threshold test has been in place for many years, so the states are fighting an uphill battle against a longstanding practice,” Panuccio said. He added, “The indexing is not set to occur until a few years out, so there may be no need for a preliminary injunction on that particular aspect of the challenge.”
Boonin thought there was merit to both arguments but agreed that securing a preliminary injunction would be an uphill battle. That said, if the overtime rule isn’t temporarily blocked now, the damage will be done. If the rule is temporarily barred now, no harm will be done if the injunction is subsequently abandoned. Boonin said he expected that the U.S. Chamber of Commerce and local chambers soon would file a similar motion in their separate lawsuit challenging the overtime rule.
“The challenge will be for the states or the chambers to convince the court of the likelihood of success on the salary-level issue,” he said.
“I do think that the salary-level test should have been challenged decades ago for various reasons though, not the least of which is for the reason that Congress has declared that executive, administrative and professional employees are exempt from both the statute’s minimum wage and overtime requirements. … What right does the DOL have to say that some will not be exempt merely due to their salary level?” Boonin asked.
However, Wendy Stryker, an attorney with Frankfurt Kurnit Klein & Selz in New York City, said, “While some experts think that the automatic indexing may be subject to challenge, most agree that the raise in the minimum salary threshold is well within the DOL’s authority.”
Infringement on States’ Sovereignty
The states also argued that the overtime rule invaded their sovereignty, which the 10th Amendment preserves, in the rule’s application to state employees. The payment of employee compensation is part of the states’ power to appropriate the use of their own public funds, the states argued.
“I do not anticipate that the motion to delay the new salary level will be successful, other than perhaps in a manner specific to the state-plaintiffs,” said Tim Garrett, an attorney with Bass, Berry & Sims in Nashville, Tenn.
States maintained that keeping certain employees exempt under the new overtime rule would cost each fiscal year:
- $10 million in Arizona.
- $1 million in Arkansas.
- $20 million in Indiana.
- $19.1 million in Iowa, including $9.9 million at its public universities.
- $3.1 million in Kansas.
- $29.6 million in Oklahoma.
- $2.9 million in South Carolina.
- $4.3 million in Wisconsin.
“The DOL grossly underestimates the financial impact on the states,” the states asserted in their motion. “It predicts that the first year cost to state and local governments totals only $115.1 million. The DOL also anticipates that state and local governments will suffer an additional $85.4 million after each automatic update. While these figures certainly amount to constitutional and irreparable budgetary harm, they are far less than the actual shock that the states are bracing for.”
But Stryker said that the late filings of challenges of the overtime rule—”one from a group of states with largely Republican governors and one from a group of businesses—indicate that not everyone agrees that the DOL exceeded its authority in enacting the regulations.”