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Sept. 20 — Coalitions of business groups and states sued the Labor Department within hours of each other, seeking to block the new overtime rule ( Nevada v. Labor Dept., E.D. Tex., No. 4-16-cv-00731, complaint 9/20/16 ; Plano Chamber of Commerce v. Perez, E.D. Tex., No. 4:16-cv-0732, complaint 9/20/16 ).
Litigation is considered the best avenue for stopping the rule from going into effect in December because congressional efforts face a veto threat.
The two lawsuits were filed Sept. 20 in the U.S. District Court for the Eastern District of Texas—one from the U.S. Chamber of Commerce and other business groups and another from 21 mostly Southern and Midwestern states. Nevada and Texas are the lead plaintiffs.
Both lawsuits were assigned to Judge Amos Mazzant, who was nominated by President Barack Obama in 2014. Mazzant is the only one of the three judges serving in the Eastern District’s Sherman division to be nominated by a Democratic president.
“If both suits are in front of an Obama appointee, then it’s essentially game over, at least in the district court,” a former Labor Department official during the George W. Bush administration told Bloomberg BNA via e-mail. "They may fare better in the Fifth Circuit, but that takes time.” The former official spoke on condition of anonymity.
The states and the Chamber are likely to appeal immediately to the U.S. Court of Appeals for the Fifth Circuit if Mazzant shoots down their requests for an injunction blocking the rule. A Fifth Circuit panel recently affirmed an injunction freezing an Obama administration program to expand deportation protections for certain undocumented workers.
The DOL overtime rule would make about 4 million workers newly eligible for time-and-a-half pay for all hours worked after 40 in a week. It would do that by more than doubling the salary threshold—up to about $47,500—under which workers are automatically entitled to overtime pay.
The states argue that the DOL exceeded its authority in rolling out the new rule by focusing on the salary a worker makes, instead of the duties performed, to determine overtime eligibility. They also challenge a provision that adjusts the salary threshold for inflation every three years.
Samuel Bagenstos, a University of Michigan law professor and former high-ranking Justice Department official in this administration, told Bloomberg BNA in an e-mail that he’s been following many of the Texas lawsuits against Obama regulations. “This one is really out there,” said Bagenstos of the states’ lawsuit. “From a legal perspective, the claims in the complaint range from the merely baseless to the patently frivolous.”
The states’ lawsuit originated in the Nevada office of the attorney general, before other states were asked to sign on.
While both sets of litigants are asking for an entire injunction to stop the rule from taking effect Dec. 1, a judge may be more likely to only strike down the portion of the regulation that requires the salary threshold to be indexed every three years to the 40th percentile of full-time salaried workers in the South.
“Indexing was a major motivating force behind us filing this lawsuit,” Texas Attorney General Ken Paxton (R) told Bloomberg BNA Sept. 20.
Bagenstos, who previously worked alongside Labor Secretary Thomas Perez at the Civil Rights Division, said, “The Administrative Procedure Act claim challenging indexing is laughable. And really everything in the regulation is a totally down-the-middle, normal-science exercise of authority expressly given to the Secretary of Labor by Congress.”
The states are suing in their capacities as government employers, while the Chamber and more than 50 other business groups are challenging the rule on behalf of themselves and the businesses they represent. Both groups are asking for a preliminary injunction to stop the rule from going into effect.
The Chamber and the states say the rule will force employers to cut jobs or switch workers to hourly from salary positions in order to avoid the expected jump in labor costs. The states also say the rule violates the Tenth Amendment by using a federal mandate to dictate how they spend their money.
“We’ve pledged to try to ensure that we are defending states in the waning months of the Obama administration” from presidential overreach, Adam Laxalt (R), Nevada’s attorney general, told Bloomberg BNA Sept. 20. “Obviously our state is heavily affected by this rule. We have a major tourism economy that is labor heavy and it’s very much going to affect our state economy,” Laxalt said.
Iowa, for example, estimates that the new overtime requirements will cost the state $19.1 million in payroll expenses for government and public university workers in the first year after the rule goes into effect. Other states argued they may have to shred their budgets elsewhere in order to meet payrolls.
As expected, both groups argue that the DOL violated the Administrative Procedure Act in issuing the rule by exceeding its authority and acting in an “arbitrary and capricious” manner.
The Fair Labor Standards Act delegates to the labor secretary the power to determine which workers should be removed from overtime requirements under the law’s exemption for workers in “bona fide executive, administrative, or professional” positions.
The overtime rule currently in place allows employers to exempt workers who make more than $23,500 and perform certain managerial duties. The new rule increases the salary threshold and keeps the existing duties test in place.
The states and the Chamber argue that the DOL is essentially putting the duties considerations on the back burner, in favor of a bright line salary threshold. Although the Labor Department said the new threshold makes eligibility less ambiguous, the groups claim the DOL is shirking its responsibility to determine whether workers are actually performing “bona fide executive, administrative, or professional” jobs.
“DOL relegates the type of work actually performed to a secondary consideration while dangerously using the ‘salary basis test,’ unencumbered by limiting principles, as the exclusive test for determining overtime eligibility,” the states said in the complaint.
The states also argue that the DOL exceeded its authority to update the exemption “from time to time” by providing for automatic threshold increases every three years. The Chamber also says that the “escalator” provision should be subject to notice and comment rulemaking requirements every time the threshold is updated.
“We are confident in the legality of all aspects of our final overtime rule,” Labor Secretary Perez said in a statement. “It is the result of a comprehensive, inclusive rule-making process.”
“Partisan lawsuits filed today by 21 states and the U.S. Chamber of Commerce seek to prevent the Obama administration from making sure a long day’s work is rewarded with fair pay,” Perez said.
The Labor Department said when it issued the final rule that the salary threshold and duties test falls squarely within the authority delegated to the department by Congress. It also said the indexing provision is part of filling the gaps intentionally left in the statute by Congress and ensuring that the threshold isn’t eroded by inflation.
Asked what the government’s response should be to the indexing argument, Seth Harris, the former acting labor secretary under Obama, told Bloomberg BNA: “Congress didn’t require a full-fledged rulemaking for every threshold update. In fact, Congress didn’t specify that there should be a threshold. Instead, Congress delegated the authority to define `executive,’ `administrative,’ and `professional’ to the Labor Department.”
“As long as it’s reasonable for an indexed threshold to be one part of those definitions, the courts should refrain from intervening.”
Texas is a particularly attractive venue for the overtime challengers, because federal judges in the state have recently been willing to pump the brakes on other Obama administration initiatives.
A federal judge in the Northern District of Texas in June enjoined the DOL from implementing its “persuader” rule, which expands disclosure requirements for employers that use advisers to help fight unionization drives.
A separate move to expand deportation protections for some undocumented workers also remains on hold, thanks to an injunction in the Southern District of Texas.
“I assume the state plaintiffs chose to file in such an out-of-the-way venue because they thought they would be most likely to draw a favorable judge there,” said Bagenstos, the Michigan law professor. “But it would take a serious act of judicial willfulness to reject these regulations.”
Another likely factor motivating the filing in the Texas Eastern District is the jurisdiction’s reputation of moving cases quickly, earning the nickname “rocket docket.” An injunction would need to be issued within about 10 weeks for it to occur before the regulation’s Dec. 1 effective date.
Littler Mendelson P.C. is representing the Chamber of Commerce.
To contact the editor responsible for this story: Susan J. McGolrick at email@example.com
Text of the business groups' lawsuit is available at http://www.bloomberglaw.com/public/document/Plano_Chamber_of_Commerce_et_al_v_Perez_et_al_Docket_No_416cv0073/1. Text of the states' lawsuit is available at http://www.bloomberglaw.com/public/document/State_of_Nevada_et_al_v_United_States_Department_of_Labor_et_al_D.
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