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Lawsuits Filed to Stop DOL Overtime Rule

On September 20, 2016, a coalition of more than 55 Texas and national business groups, including the U.S. Chamber of Commerce, filed a lawsuit in federal court in Texas. The lawsuit asks the court to vacate and set aside the Department of Labor’s new Overtime Rule, set to take effect December 1, 2016. Further, it asks the court to issue an injunction, postpone the effective date of the Overtime Rule, and to maintain the status quo, pending the court’s review of the lawsuit.

A second lawsuit was also filed by the Attorney Generals of Nevada, Texas and 21 other states to enjoin the new Rule.

The lawsuit filed by the business groups argues that the Overtime Rule exceeds the authority of the DOL, that it is arbitrary and capricious, contrary to procedures required by law, and otherwise contrary to law. The new Overtime Rule defies the mandate of Congress to exempt Executive, Administrative, Professional, and Computer employees from the overtime requirements of the Fair Labor Standards Act. The Rule raises the minimum salary threshold so high that it is no longer a plausible proxy for the categories exempted by Congress.

The Chamber of Commerce argues that the new Overtime Rule violates the law and exceeds the authority of the DOL by establishing an unprecedented “escalator” provision that will dramatically increase the minimum salary overtime. There is no authority in the FLSA for indexing. The DOL acts contrary to the mandate of Congress if it sets the minimum salary level for exemption so high that it excludes from the exemption many employees who would meet the duties requirements.

The lawsuit notes that improving the conditions of exempted employees is not the objective of the salary regulations. Rather, the sole purpose of the salary level test is to screen out the obviously non-exempt employees. Historically, any new figure recommended should be somewhere near the lower end of prevailing salaries for these employees.

In all minimum salary adjustments prior to the new Overtime Rule, the DOL has set the minimum salary level for exemption by studying the salaries actually paid to exempt employees, then setting the salary no higher than the 20th percentile in the lowest wage regions, the smallest sized establishment groups, the smallest sized cities, and the lowest wage industries. For the first time in the 78-year history of the FLSA, the new Overtime Rule establishes a minimum salary test that will exclude from the white collar exemptions 40% or more of all salaried workers in the lowest wage census region (currently the south).

The business groups also argue that the Rule provision allowing the inclusion of non-discretionary bonuses of up to 10%, as long as they are paid quarterly, is arbitrary and capricious. The Rule provides no reasoned analysis for the 10% or quarterly limitations.

Bottom Line: The DOL Rule intrudes upon the province of Congress. The DOL is in effect “legislating.” When Congress passed the statute exempting Executive, Administrative, Professional, and Computer employees, it did not intend for the DOL to use rulemaking to take away the exemptions.

Editor’s Note: Let us hope that the suits are successful in stopping the DOL Rule that will have a devastating financial impact on businesses of all sizes. The new Rule amounts to regulations by the Secretary of Labor. This is administrative overreach.

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