The state attorneys general of Nevada and Texas have a filed a federal court lawsuit seeking to declare invalid the Obama Administration’s new “white collar” exemption rules governing the payment of overtime compensation. They ask the court to vacate and set aside the new rules.
Nineteen other states, not including Florida, also joined the lawsuit against the United States Department of Labor (DOL) and Labor Secretary Thomas P. Perez. The lawsuit, filed in Sherman, Texas, on September 20, has been assigned to Chief U.S. District Judge Ron Clark, 63, who was named to the federal bench by President George W. Bush in 2002. From 1997 to 2002 Clark served as a Republican member in the Texas House of Representatives.
In a separate lawsuit filed at the same time in the same court, more than 55 Texas and national business groups led by the Chamber of Commerce of Plano, Texas, and including the U.S. Chamber of Commerce, the National Association of Manufacturers, the National Automobile Dealers Association, and the National Retail Federation, also challenged the rules on behalf of private employers. That lawsuit was assigned to U.S. District Judge Amos L. Mazzant, III. Mazzant, 51, was named to the bench in 2014 by President Obama. Previously, Texas Republican Gov. Rick Perry had appointed Mazzant to the Texas Fifth Court of Appeals.
The two lawsuits will likely be consolidated.
“Under the premise of updating regulations related to the Fair Labor Standards Act (FLSA), DOL has disregarded the actual requirements of the statute and imposed a much-increased minimum salary threshold that applies without regard to whether an employee is actually performing ‘bona fide executive, administrative, or professional’ duties,” the states’ lawsuit alleges.
The new overtime rules exceed Constitutional authorization, the states’ lawsuit claims, because they require state governments to pay overtime to state employees who are performing executive, administrative, or professional functions if the State employees earn a salary less than an amount determined by the Executive Branch of the federal government.
The states therefore claim that the new rules violate the Tenth Amendment to the U.S. Constitution, which provides that “[t]he powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or the people.” The new overtime rules “commandeer, coerce, and subvert the States by mandating how they structure the pay of State employees and, thus, they dictate how States allocate a substantial portion of their budgets,” the court complaint claims. Additionally, the new rules were enacted in violation of the federal Administrative Procedure Act, the lawsuit also alleges.
The states’ lawsuit claims that in its new rules DOL has gone beyond what is allowed by the FLSA statutes, and that the new rules are “arbitrary and capricious” and “in excess of Congressional authorization, and must be declared invalid and set aside.”
The states’ lawsuit alleges that the Department of Labor disregarded original Congressional intent by making the exemptions focus on salary and not on whether an employee is actually performing “white collar duties” to qualify for exempt status. The lawsuit specifically claims that the new salary threshold overlooks the fact that some workers in the designated salary range perform management duties that would make them ineligible for overtime.
Both lawsuits are also critical of the Labor Department for including an automatic indexing “escalator” mechanism that will raise the salary level every three years, regardless of economic conditions.
In their lawsuit, the business groups allege that the Obama Administration violated the federal Administrative Procedure Act in enacting the new overtime exemption rules. They claim that the new rules exceed the authority of the DOL under the FLSA and are “arbitrary, capricious, contrary to procedures required by law, and otherwise contrary to law,” and “defy the mandate of Congress to exempt executive, administrative, professional, and computer employees from the overtime requirements of the FLSA.”
“The new minimum salary level will result in defeating the exemption for a substantial number of individuals who could reasonably be classified as bona fide executive, administrative, or professional employees on the basis of their duties,” the business groups’ complaint alleges. “The Department’s new salary threshold is so high that it is no longer a plausible proxy for delimiting which jobs fall within the statutory terms ‘executive,’ ‘administrative,’ or ‘professional,’ ” and “contradict the congressional requirement to exempt such individuals from the minimum wage and overtime requirements of the FLSA.”
The new rules, an initiative of President Obama, are set to take effect on December 1, 2016. In them, DOL determined that the required minimum salary level for the “white collar” exemptions to apply will now be $913 per week, or $47,476 annually. The revised rules nearly double the previous salary test level of $455 per week, or $23,660 per year.
The Department of Labor has estimated that the change will automatically extend overtime pay provisions — and nullify existing exemptions — for more than 4.2 million workers in the first year of implementation, and an additional 3.9 million in the second year. “This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work,” the agency said.
The Plaintiff States estimate that the new overtime rules will increase their employment costs significantly based, in part, upon the number of salaried employees who will no longer be overtime exempt. They argue that because the states cannot reasonably rely upon a corresponding increase in revenue, they will have to reduce or eliminate some essential government services and functions unless the court intervenes. Iowa, for instance, estimates that the new rules will add approximately $19.1 million of additional costs on the State of Iowa government and its public universities in the first year alone.
“Once again, President Obama is trying to unilaterally rewrite the law,” Texas Attorney General Ken Paxton, a Republican, said in a statement. “And this time, it may lead to disastrous consequences for our economy. The numerous crippling federal regulations that the Obama administration has imposed on businesses in this country have been bad enough. But to pass a rule like this, all in service of a radical leftist political agenda, is inexcusable.”
Joining Texas and Nevada as plaintiffs in the lawsuit are Alabama, Arizona, Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, New Mexico, Ohio, Oklahoma, South Carolina, Utah and Wisconsin. All except Louisiana have Republican governors, although the Louisiana state legislature is controlled by Republicans.
U.S. Labor Secretary Thomas Perez said in a statement that the DOL is confident in the legality of all aspects of its final overtime rule and would be vigorously defending the department’s “efforts to give more hard-working people a meaningful chance to get by.”
“Despite the sound legal and policy footing on which the rule is constructed, the same interests that have stood in the way of middle-class Americans getting paid when they work extra are continuing their obstructionist tactics,” Perez said. “The overtime rule is designed to restore the intent of the Fair Labor Standards Act, the crown jewel of worker protections in the United States.”
Texas AFL-CIO President John Patrick said the new overtime rules do not by themselves require employers to pay workers more, but instead require a higher threshold before employers can “demand all but unlimited work hours.”
“Our nation’s overtime law was designed to promote a society in which people work to live rather than live to work,” Patrick said. “The decision by Texas to file a lawsuit against the overtime rule is a backward-gazing insult that tells hundreds of thousands of Texans that neither their extra work nor their family time is valued.”
The business trade groups said losing the overtime exemption for “frontline executives, administrators and professionals” would cost employers the ability to effectively and flexibly manage their workforces. They said millions of employees across the country would have to be reclassified from salaried to hourly workers, a move that would impose restrictions on their work hours “that will deny them opportunities for advancement and hinder performance of their jobs — to the detriment of their employers, their customers, and their own careers.”
