{"id":1196,"date":"2016-09-21T12:43:03","date_gmt":"2016-09-21T16:43:03","guid":{"rendered":"http:\/\/employerdefensereport.com\/?p=1196"},"modified":"2026-03-20T11:42:14","modified_gmt":"2026-03-20T15:42:14","slug":"states-and-businesses-seek-injunction-to-prevent-dol-overtime-rule-from-taking-effect-on-december-1","status":"publish","type":"post","link":"https:\/\/www.connmaciel.com\/employer-defense-report\/states-and-businesses-seek-injunction-to-prevent-dol-overtime-rule-from-taking-effect-on-december-1\/","title":{"rendered":"States and Businesses Seek Injunction to Prevent DOL Overtime Rule From Taking Effect on December 1"},"content":{"rendered":"

\"gavel\"By: \u00a0Kara M. Maciel<\/a> and Dan Deacon<\/a><\/p>\n

On September 20, 2016, business groups and states filed two lawsuits in the U.S. District Court for the Eastern District of Texas challenging President Obama’s new overtime rule that is set to take effect December 1, 2016 . \u00a0 Twenty-one states banded together to challenge the U.S. Department of Labor\u2019s (\u201cDOL\u201d) new overtime exemption rule in States of Nevada et al. v. United States Department of Labor et al<\/em>, Case No. 1:16-cv-004070., and the\u00a0U.S. Chamber of Commerce, leading a coalition of\u00a050 national and Texas business groups, filed a similar lawsuit in\u00a0<\/em>Plano Chamber of Commerce et al. v. Thomas Perez et al.<\/em> Case No. 4:16-cv-00732. \u00a0The\u00a0two lawsuits argue that DOL unconstitutionally overstepped its authority to establish a federal minimum salary level to qualify for the Fair Labor Standards Act\u2019s (“FLSA”) white collar exemption and violated the Administrative Procedure Act (“APA”).<\/p>\n

The New Rule & its Impact on Employers<\/strong><\/p>\n

The long awaited controversial rule was released in May 2016 to the disdain of employers, as we’ve explained in prior blog posts<\/a>.\u00a0 The most significant change in the final rule is the new $47,476.00 minimum threshold salary required to qualify as an exempt employee, representing more than a 100% increase from the present level and a huge financial undertaking for employers. \u00a0All employers throughout the country must meet this same mandatory salary level to classify an employee as exempt, despite the substantial differences in cost of living from state to state and region to region.<\/p>\n

Furthermore, the new rule implements an automatic increase in the threshold salary level every three years based on the 40th percentile for salaried workers in the lowest-wage region.\u00a0 The first automatic increase would take place January 1, 2020.\u00a0 This portion of the new rule differs greatly from DOL\u2019s previous views on triennial or annual increases.\u00a0 In the 2004 Final Rule regarding the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, the DOL specifically stated:<\/p>\n

[t]he Department has repeatedly rejected requests to mechanically rely on inflationary measures when setting the salary levels in the past because of\u00a0concerns regarding the impact on lower-wage geographic regions and industries. This reasoning applies equally when considering automatic increases to the salary levels. The Department believes that adopting such approaches in this rulemaking is both contrary to congressional intent and inappropriate.<\/p><\/blockquote>\n

69 Fed. Reg. 22122, 22171-72 (Apr. 23, 2004).<\/p>\n

This triennial increase will certainly have a significant impact on employers.\u00a0 First, it makes it harder for employers to determine whether to raise the salaries of their exempt employees or reclassify them because it is difficult to predict exactly what the salary level will be in three years.\u00a0 Such a raise may become more burdensome to employers as the average salary level gets higher from year to year, particularly if employers are unable to continuously raise salary levels prior to the automatic increase.\u00a0 This will ultimately force employers to reevaluate their exempt employee classifications every three years to determine whether it is financially feasible to take on that additional salary increase to maintain exempt status. \u00a0Second, a mandatory increase guarantees a raise in the minimum salary threshold even during difficult economic times when employers may be less likely to afford such a pay increase.<\/p>\n

Challenge to the New Rule Filed by 21 States and Chamber of Commerce<\/strong><\/p>\n

The lawsuits filed by the\u00a0group of 21 states and the coalition of businesses led by the U.S. Chamber of Commerce seek to enjoin the DOL from implementing and enforcing the new rule and a declaratory judgment that the rule is unlawful. \u00a0The plaintiffs rely mainly on the FLSA and the APA to support their argument that DOL overstepped its authority in increasing the salary level and implementing an automatic triennial increase.<\/p>\n

Both lawsuits argue that the DOL\u2019s actions are in excess of Congressional authorization although on slightly different grounds. \u00a0The states contend that the applicability of the white collar exemption must be determined based upon the duties and activities actually performed by the employees, not merely with respect to their salaries.\u00a0 While the plaintiffs admit that salary may be one factor to consider, it cannot be a litmus test or a proxy for distinguishing between overtime-eligible employees and overtime exempt white collar workers. Essentially, the states are complaining that DOL did not update the duties test which should be the ultimate guide in determining whether an employee qualifies for overtime. \u00a0In contrast, the U.S. Chamber of Commerce claims that the salary threshold is indefensibly high and\u00a0defies the mandate of Congress to exempt executive, administrative, professional, and computer employees from the overtime requirements of the FLSA.<\/p>\n

The lawsuits similarly claim that the DOL violated the APA\u00a0in implementing automatic updates of the salary basis test and compensation level every three years because it violates the FLSA\u2019s statutory command to define and delimit the meaning of an employee employed in a bona fide executive capacity.\u00a0 29 U.S.C. \u00a7 213(a)(1).\u00a0 Furthermore, the plaintiffs allege that the automatic triennial increase in the salary basis test and compensation level violates APA\u2019s notice and comment rulemaking procedures.\u00a0 In effect, the automatic increase permits the DOL to avoid its responsibility to assess the financial impact of such an increase prior to its implementation. \u00a0Finally, the plaintiffs claim that\u00a0DOL acted arbitrarily, capriciously, and otherwise not in accordance with the law by\u00a0departing\u00a0from decades of precedent and Congressional intent without any reasoned explanation.<\/p>\n

Unique to the Complaint filed by the 21 States,\u00a0they argue that the rule\u00a0is unlawful as applied to the States because it violates the 10th Amendment.\u00a0 The plaintiffs claim that enforcing the FLSA and the new rule against the States infringes upon state sovereignty and federalism by dictating the wages that\u00a0States must pay to \u201cwhom they employ in order to carry out their governmental functions, what hours those persons will work, and what compensation will be provided where these employees may be called upon to work overtime.\u201d\u00a0 These are matters that the States believe to be indisputable attributes of State sovereignty \u2013 i.e. employment relationships, services, functions, and budgets.<\/p>\n

Whether any of these claims will succeed remains to be seen.\u00a0 In addition to declaratory relief, both lawsuits\u00a0seek\u00a0a temporary and permanent injunction preventing the DOL from implementing and enforcing the new overtime rules and regulations. \u00a0However, in the event the Texas federal court does not rule on the injunction before the December 1, 2016 roll-out deadline, employers should be prepared to comply with the new rule.<\/p>\n

Next Step for Employers<\/strong><\/p>\n

Despite this challenge to the new rule, employers still need to reevaluate how to effectively handle the exempt employee classification of all those currently exempt employees below the new threshold salary level.\u00a0 For those assistant managers and supervisors earning pay near the new threshold salary level, especially those who generally work more than 40 hours per week, it may be a more financially feasible decision to raise their salary rather than try to address the issue of potential overtime pay.\u00a0 Alternatively, for those employees currently earning a wage closer to the prior threshold level of $23,660.00, reclassifying them as non-exempt and closely monitoring hours worked to keep them at or below 40 hours per week would likely be the more feasible option.\u00a0 However, it would be wise for employers to evaluate and handle these decisions on a case-by-case basis.<\/p>\n

Many employers will also have to provide new training on time recording policies.\u00a0 Exempt employees do not have to track the time they work because they are paid on a salary basis.\u00a0 When exempt employees are reclassified as non-exempt, accurate tracking will become essential, requiring training for these employees, as well as their managers.\u00a0 Furthermore, time tracking systems should be evaluated and potentially upgraded to ensure they have the capacity to track the influx of newly non-exempt employees.\u00a0 Employers must also update pay systems and ensure pay calculations have been properly restructured to reflect the proper hourly pay and overtime rates.<\/p>\n

Finally, employers should review their related policies and procedures to determine which need to be updated to reflect the requirements of this new rule.\u00a0 Given the nuances of these regulations and the current duties test, guidance from legal counsel will be useful for any employee classification and policy review.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By: \u00a0Kara M. Maciel and Dan Deacon On September 20, 2016, business groups and states filed two lawsuits in the U.S. District Court for the Eastern District of Texas challenging President Obama’s new overtime rule that is…<\/p>\n","protected":false},"author":21,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_price":"","_stock":"","_tribe_ticket_header":"","_tribe_default_ticket_provider":"","_tribe_ticket_capacity":"","_ticket_start_date":"","_ticket_end_date":"","_tribe_ticket_show_description":"","_tribe_ticket_show_not_going":false,"_tribe_ticket_use_global_stock":"","_tribe_ticket_global_stock_level":"","_global_stock_mode":"","_global_stock_cap":"","_tribe_rsvp_for_event":"","_tribe_ticket_going_count":"","_tribe_ticket_not_going_count":"","_tribe_tickets_list":"[]","_tribe_ticket_has_attendee_info_fields":false,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[813],"tags":[909,825,908],"class_list":["post-1196","post","type-post","status-publish","format-standard","hentry","category-wage-hour-compliance","tag-agency-investigations-audits","tag-employee-classification-exempt-vs-non-exempt","tag-pay-practices"],"acf":[],"yoast_head":"\nStates and Businesses Seek Injunction to Prevent DOL Overtime Rule From Taking Effect on December 1 - Employer Defense Report<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.connmaciel.com\/employer-defense-report\/states-and-businesses-seek-injunction-to-prevent-dol-overtime-rule-from-taking-effect-on-december-1\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"States and Businesses Seek Injunction to Prevent DOL Overtime Rule From Taking Effect on December 1 - Employer Defense Report\" \/>\n<meta property=\"og:description\" content=\"By: \u00a0Kara M. 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