No Court Delay of Overtime Rule, Labor Solicitor Predicts

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By Kevin McGowan

Nov. 10 — The Labor Department’s new regulations requiring employers to pay overtime unless a salaried employee is paid $47,500 or more annually will take effect Dec. 1 as scheduled, Solicitor of Labor M. Patricia Smith predicted.

A federal district court in Texas currently is considering a lawsuit filed by 21 states seeking a preliminary injunction that would block the DOL’s Fair Labor Standards Act regulation from taking effect. They argue the new salary basis test, which also would index the amount for inflation every three years, exceeds the department’s legal authority.

But Smith said the states’ arguments lack merit because the FLSA grants the Labor Department broad authority to set the contours of the act’s “white collar” exemption.

The department since 1940 has included both a salary test and a “duties test” to decide if a salaried worker should be considered an exempt employee or one entitled to overtime pay, she said.

No New Rulemaking Warranted

The states argue that the DOL also should have engaged in separate rulemaking on its plan to index the salary basis amount and raise it every three years as warranted by inflation.

State employers and other interested groups had plenty of opportunity to comment on the DOL’s indexing plan during a rulemaking process on the entire proposal that stretched over two years and yielded about 270,000 public comments, Smith said.

The department carefully considered every aspect of its new white-collar exemption rule and issued more than 30 supplementary guidance documents in response to specific concerns raised by employers, she said.

There’s no reason for a court to halt implementation of a rule the Labor Department already delayed for about six months to give employers time to prepare and comply, Smith said.

It also would be odd for the court now temporarily to halt the DOL rule based on the indexing provision, which won’t kick in until 2020, Smith said.

The salary basis hasn’t been raised since 2004 and before that, it had remained the same amount since the 1970s, she said. Its current amount is about $23,660 a year.

The estimated additional 4.2 million workers who will receive overtime pay under the new test “have been waiting for their raises for a long period of time,” Smith said.

Smith, who has been the Labor Department’s solicitor since 2010, made her remarks at the American Bar Association’s Section of Labor and Employment Law’s annual meeting in Chicago.

Rule’s Fate Under Trump Discussed

The DOL overtime rule’s future is uncertain given that President-elect Donald Trump takes office in January backed by a Republican-majority Congress.

Trump on the campaign trail didn’t explicitly discuss the new overtime rule, but his economic advisers derided as job-killers most federal regulations that affect business.

A Trump administration could try to overturn the new salary basis test through another Labor Department regulation, but that rulemaking process would take at least two years at its speediest, Smith said.

By that time, employers would have made the changes necessary to comply and perhaps discovered it’s not that onerous or lost their appetite to fight the new rule, she said.

Alternatively, Congress could act to delay or overturn the regulation, but that route also has obstacles, Smith said.

There are pending bills to delay the rule’s implementation, but President Barack Obama has pledged to veto any that reach his desk before Jan. 20.

A bill to delay or rescind the rule passed during the Trump administration probably would be signed by Trump.

But in that scenario, the DOL rule would have taken effect, employers would have taken steps to comply and the new system would have been in place “for awhile” before congressional action was completed, Smith said.

Businesses Decry Compliance Costs

Employers don’t deny the current salary basis of $23,660 is outdated and probably should be revised, said Chris Wilkinson, a management lawyer and partner with Orrick Herrington & Sutcliffe in Washington.

But business estimates $1.6 billion in new total costs from the DOL’s implementation of a rule that doubles the salary test, Wilkinson said at the ABA conference.

Instead, employers believe the salary basis changes should be phased in in steps over a number of years, said Wilkinson, a former Labor Department lawyer during the Obama administration.

Wilkinson “just made the case” for indexing and not allowing the amount to go unchanged for decades at a time, Smith replied.

Trump’s campaign didn’t make overturning the new overtime rule a “high priority,” although he did mention a possible “carve out” for small business, Wilkinson said.

Congressional Republicans “emboldened by the election” might want to take some action against the new rule, he said.

But repealing and replacing the Affordable Care Act, for example, probably is a higher priority for Republicans in Congress once Trump is in the White House, Wilkinson said.

To contact the reporter on this story: Kevin McGowan in Chicago at kmcgowan@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com

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