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Controversial Overtime Regulations Spur Lawsuits and Legislation

Barely two months before the Department of Labor’s (“DOL”) new overtime regulations become effective on December 1, 2016, Michigan and 20 other states are collectively challenging their constitutionality and legality. The lawsuit, along with a similar lawsuit filed by 56 local, regional and national business groups, seeks a court order holding that the regulations are unlawful and unenforceable.

Bills have also been introduced in the House of Representatives and the Senate that would delay the December 1 effective date by 6 months.

The Fair Labor Standards Act and DOL’s Regulation of the Act

The Fair Labor Standards Act (“FLSA”) generally requires employers to pay overtime (hours over 40 in one week) at a rate equal to 1½ times the employee’s hourly rate. Certain salaried, “white collar” workers, however, are exempted from this requirement. But, Congress did not specifically define who these exempted workers are, except to say generally that they are “employed in a bona fide executive, administrative or professional capacity.” Rather than defining these terms, Congress mandated that the DOL develop regulations defining the exemptions.

The DOL initially developed the overtime regulations in 1938 and has only revised them 7 times since, most recently in May 2016. Among other changes, the DOL’s May 2016 revisions more than double the minimum salary workers must be paid to remain “exempt” from overtime pay (the so-called “salary level test”). The regulations also establish an index or “escalator” to automatically increase this salary level test every three years. Other changes are discussed in Nemeth Law’s Employment Blog here.

Arguments that the Regulations are Unlawful

No one argues that the DOL lacks the authority to issue reasonable regulations interpreting the FLSA. However, the DOL’s authority to issue regulations is limited in two ways. First, the subject of the regulations must be authorized by law and may only interpret or clarify a requirement of law, not introduce new requirements. Second, the regulations must first be published as “proposed” regulations, allowing for comment by members of the public, before final regulations can be issued. The states argue that the DOL’s overtime regulations violate both requirements.

When it passed the FLSA, Congress wanted to exempt “white collar” workers from being paid overtime, while requiring overtime pay for production-level employees. As a result, when the DOL first created the salary level test, it intended to provide a quick and easy way to identify who was, and was not, a “white collar” employee. The DOL believed that the amount that employees made should indicate the type of work that they were doing. They believed that while there would be production-level employees making more than the minimum salary level, there would not be any white collar workers making less than the higher salary level that was set for white collar workers. The states argue that by more than doubling the salary level, this original intent is lost. Under the new test, white collar employees who are performing white collar work could legitimately be making less than the new salary level. Even though these employees are performing the type of work that Congress meant to be exempt from overtime, employers must now pay it. As a result, the states and business groups argue the regulations no longer interpret the FLSA, but introduce a new requirement –which is beyond the DOL’s authority.

The new regulations also include an “escalator” or “index” which automatically increases the salary level every three years. Because the increases are automatic, the DOL will not publish any “proposed” regulations. No comments will be received from the public. The DOL will simply increase the salary level. According to the states, every prior increase in salary levels under the FLSA has first been published as a proposed change and the DOL has received comments from the public on the proposed increase. The states argue that by making the increases automatic, the notice provided by publishing proposed changes and the ability of the public to comment on the changes will be lost. This, the states allege, is illegal.

Another argument contained in the states’ lawsuit is based on an alleged violation of the U.S. Constitution. The 10th Amendment to the U.S. Constitution says that if a power is not given to the federal government, then only the states have that power. According to the states, the federal government is not given the power to determine the salaries and hours of work of state employees, only the states have that power. As a result, the states argue that the new salary level test violates the 10th Amendment because the federal government set a minimum salary that states must pay their employees.

Compliance with the Regulations in Light of the Challenges

The litigation process moves slowly. Bottom line – be prepared to comply with the new regulations come December 1st. Do not stop preparing.

Continue to follow the Nemeth Law Employment Blog for more updates.

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