While new overtime provisions of the Fair Labor Standards Act are being challenged in court, employers should still prepare for a likely December 1 effective date.
On September 20, 2016, 21 states and more than 50 business groups filed two separate lawsuits against the United States Department of Labor (DOL) in the Eastern District of Texas seeking to prevent the implementation of the DOL’s amendments to the overtime provisions of the Fair Labor Standards Act (FLSA). Back in May, we told you about the revised regulations and conducted a webinar discussing practical steps employers should take to bring their wage and hour practices into compliance before the December 1, 2016 effective date. Notwithstanding these two recent lawsuits, our recommendation to prepare for implementation on December 1 remains the same.
On May 17, 2016, the DOL released revised regulations regarding the overtime provisions of the FLSA. The primary change in the regulations and the focus of the lawsuits discussed below is the increase in salary threshold for the most common white collar overtime exemptions (i.e., executive, administrative and professional) from $23,660 a year to $47,476 a year, or from $455 a week to $913 a week. The new regulations also increase the salary threshold for “highly compensated employees” from $100,000 per year to $134,000 per year. Both salary thresholds are indexed to update automatically every three years.
Arguments in the Lawsuits
The states’ lawsuit puts forth three primary arguments: 1) the use of a salary basis test defies the text of the FLSA, which refers only to duties performed by white collar employees and makes no reference to a salary basis test or indexing mechanism; 2) the automatic indexing of the salary threshold violates the notice-and-comment rulemaking requirements of the Administrative Procedure Act; and 3) the revised rules violate the Tenth Amendment to the Constitution because the new regulations infringe upon state sovereignty and require states to pay higher wages or overtime to state employees performing executive, administrative or professional work. The lawsuit brought by the business groups challenges the FLSA overtime provisions as a violation of the Administrative Procedure Act.
The filing of these lawsuits does not stay the implementation of the DOL’s new overtime rules. Unless and until a court with jurisdiction over an employer either invalidates the DOL rules or stays their enforcement pending the outcome of the litigation, employers remain bound by the DOL rules.
Stay the Course
While we will continue to monitor these lawsuits, we are not optimistic that they will ultimately be successful. Accordingly, we encourage employers to continue their preparations based on the stated December 1 effective date for the revised overtime rules. Preparing for the revised regulations is a time-intensive process which includes such things as: identifying exempt employees who are making less than the new salary threshold of $47,476 per year; conducting a privileged review of job duties; reviewing other pay policies; and ensuring that appropriate changes are made in human resources information systems.
There is no assurance that the District Court will make a decision by December 1, and even if it does, that decision will likely be appealed to the Fifth Circuit Court of Appeals. From a practical perspective, it is significantly easier for an employer to take time-intensive steps such as those identified above now than it will be to scramble at the last minute to meet the December 1 deadline. If your company has not yet taken steps to comply with the revised FLSA regulations, now is the time to start.