The nation may soon be watching what unfolds in a small courthouse in Sherman, Texas. A little over 2 months before the new overtime regulations go into effect, on September 20, the Attorney General or Governor of 21 states sued the U.S. Department of Labor, alleging that the new Fair Labor Standards Act (FLSA) overtime regulations are unlawful and contrary to the Constitution in State of Nevada et. al v. U.S. DOL (E.D. Tex.). The same day, the U.S. Chamber of Commerce also spearheaded and filed a separate lawsuit joined by 55 plaintiffs (mostly large nationwide business associations such as the National Association of Manufacturers and Associated Builders and Contractors), in Plano Chamber of Commerce et. al v. U.S. DOL (E.D. Tex). The States and Business groups present great arguments, but only time will tell if this quiet town of about 38,000 and one judge will shake up the nation. One thing is for sure – all eyes will be on Judge Amos Louis III Mazzant in the upcoming months.
The States’ Case
The plaintiff States have asked the Court to declare the new overtime regulations unlawful as they: violate the 10th Amendment, exceed Congressional authorization; were imposed without observance of procedures required by law; are arbitrary and capricious; and, in the alternative, improperly delegate Congressional legislative power. The States ask the Court to enter a temporary or preliminary injunction, stopping the regulations from taking effect.
The States’ basic argument is that the DOL has put salary levels as the primary indicator of exempt status over the actual duties test, which is not what Congress intended. Further, they argue that the automatic indexing of the salary level every three years does not account for actual economic conditions. Finally, they argue that the rule exceeds Constitutional authorization as the Federal government is mandating that States pay State employees overtime even if their duties are exempt. In support, the States note that despite President Obama’s instruction to “address the changing nature of the workplace”, the DOL didn’t in fact change the duties test, because it was more difficult than just changing the salary threshold (which doesn’t do anything to change the nature of the workplace). Notably, the $913 revised salary threshold was, as the States point out, based off of 2015 Q4 data from the “South”, nearly doubling the previous $455 per week threshold.
The U.S. Chamber of Commerce Case
The plaintiff business groups, on the other hand, argue that the new regulations violate the Administrative Procedure Act as the new minimum salary and escalator provisions exceed DOL’s statutory authority under the FLSA; and is arbitrary, capricious and otherwise contrary to law. The business groups argue that even the DOL has acknowledged that it does not have the authority to set wages or salaries for exempt employees. They further argue that historically, the DOL has declared the sole purpose of the salary level threshold is to screen out “obviously nonexempt employees”. Accordingly, in the past, the salary threshold has been set at the bottom 10 or 20% – not 40% as it will be. Interestingly, the “South” wages that were utilized include Maryland, the District of Columbia, and Virginia – which are 3 of the top 10 median income states. Slightly misleading (note the sarcasm), and kudos to whomever actually figured that out! At the end of the day, the business groups also make a great argument that basically, the DOL took an easy way out to force more employers to pay overtime to more individuals, many of whom are performing exempt duties and don’t need the FLSA’s protections.
While we can always hope, it is unlikely to change anything before December 1, 2016. Accordingly, employers should continue your wage and hour audit, and prepare for the imminent revisions to take place. Hope for the best and prepare for the worst!