As we continue marching toward D-day on the Department of Labor’s new overtime rules kicking in, the rules are facing last minute challenges from all angles. First, states and private businesses pushed back. In late September, 21 states jointly filed a lawsuit in the Eastern District of Texas asking that the court block the DOL from implementing the rules. The same day, a group of over 50 businesses jointly filed a similar lawsuit of their own in the same court. A week later, the U.S. House of Representatives passed a bill that would push the rules’ start date out another six months, from December 1, 2016 to June 1, 2017.
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The New Exempt Requirements
Under the new DOL rules, the minimum salary threshold for “white collar” exempt employees will effectively double. Effective December 1, 2016, employees will have to earn $955 per week, which translates to $47,476 annually, to be properly classified as exempt. In addition to doubling the salary threshold on the white collar exemptions, the new law will increase the salary necessary to retain the “highly compensated employee” exemption. The HCE exemption currently applies to employees who earn at least $100,000 annually and “customarily and regularly” perform one or more of the exempt duties performed by employees who qualify for one of the white collar exemptions. Under the new law, these same employees will need to earn at least $134,004 annually.
To account for inflation and cost-of-living increases, the new law also establishes a mechanism for automatically updating the salary and compensation levels described above every three years.
The State and Business Lawsuits
The state lawsuit was filed by the Nevada attorney general and joined by 20 other states, including Arizona, Texas, Georgia, Nevada, Utah, and others. The states make the following arguments for blocking the new rules:
- The new rules unlawfully deplete state resources and force states to “adopt or acquiesce to federal policies, instead of implementing state policies;”
- The new rules create an improper salary-based litmus test rather than focusing on the duties employees perform to determine their exempt status;
- The mechanism for automatic salary updates exceeds the authority Congress bestowed on the DOL.
The business lawsuit, filed by the U.S. Chamber of Commerce and business groups including the National Retail Federation, the National Association of Manufacturers, and the National Federation of Independent Business, among others, raises similar arguments and also alleges that the new salary thresholds are set at arbitrarily high levels that are “no longer a plausible proxy for the categories exempted by Congress.”
Both lawsuits ask for preliminary and permanent injunctions preventing the rules from taking effect. In all likelihood, motions on this request will be heard before December 1.
The House Bill
Unlike the lawsuits, the U.S. House bill, H.R. 6094, does not look to prevent the rules from going forward entirely. Rather, it just seeks to push out the rules’ start date by six months. Proponents of the bill have argued that businesses simply need more time to get their houses in order, and that implementation just before the holidays would likely result in several people losing jobs at the worst possible time. The bill still must go through the Senate before making its way to the President’s desk.
What Employers Should Do
My best advice for employers is to keep preparing for the rules to take effect on December 1. All of the above challenges are longshots. For the lawsuits to be successful, the federal courts hearing it would have to disregard U.S. Supreme Court precedent holding that the Fair Labor Standards Act could constitutionally be extended to cover state governments. Moreover, the DOL’s ability to impose a salary requirement on the exemptions has been widely recognized for decades. At best, the lawsuits may be successful in blocking the rules’ mechanism for automatically adjusting the salary threshold every three years. But success on that issue will not prevent the new salary thresholds from kicking in on December 1.
Finally, the House bill stands virtually no chance of success. Even if the bill can get through the less business-friendly Senate, President Obama has already indicated that he will veto it. And the prospects of getting enough votes to override a veto are almost nonexistent.
In short, despite these challenges, the new overtime rules are almost certainly going to be implemented by December 1. Employers who have not already done so should use these next two months to audit their exempt classifications and consult with legal counsel to determine the best approach for their business and ensure they are in compliance by the deadline. Employers can then just consider it a fortuitous bounce if it happens that they get more time or, better yet, the rules go away entirely.