December 15, 2016, Trial News | The American Association For Justice Archive

December 15, 2016, Trial News

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Federal judge issues nationwide injunction against DOL’s new overtime rule

Diane M. Zhang

photo of time sheet report

A Texas federal judge has issued a nationwide injunction blocking a U.S. Department of Labor (DOL) rule that would have expanded overtime pay to nearly 4.2 million workers across the country. The new rule was to become effective on Dec. 1, 2016.

A Texas federal judge has issued a nationwide injunction blocking a U.S. Department of Labor (DOL) rule that would have expanded overtime pay to nearly 4.2 million workers across the country. (Nevada v. U.S. Dep’t of Labor, No. 4:16-CV-00731 (E.D. Texas Nov. 22, 2016).) The new rule was to become effective on Dec. 1, 2016.

As Trial News previously reported, in May 2016, the DOL announced a new overtime rule that would require employers to pay salaried workers earning up to $47,476 annually time-and-a-half for every hour they work over 40 in a week. The previous salary threshold was $23,600. The new rule was part of a broader initiative to promote economic equality and to better reflect the original intent of the Fair Labor Standards Act (FLSA).

The FLSA bars certain types of employees from its general minimum wage and overtime requirements. For example, employees who were paid a predetermined and fixed salary above a certain threshold for a job that involved primarily “executive, administrative, or professional” (EAP) duties—the so-called “white collar exemption”—could not receive overtime pay. The final rule raised the salary threshold requirement of this three-factor test, which would have significantly increased the percentage of salaried employees eligible for overtime pay. That number is currently estimated at around 7 percent under the existing salary threshold.

Nevada and 20 other states filed an emergency motion for preliminary injunction against the DOL’s Wage and Hour Division, challenging the final rule and arguing that it exceeded the DOL’s authority. The state plaintiffs argued that the FLSA’s overtime requirements violate the Constitution by regulating the states and coercing them to adopt wage policy choices that adversely affect their priorities, budgets, and services. The plaintiffs cited National League of Cities v. Usery, 426 U.S. 833 (1976)—in which the U.S. Supreme Court held that the Tenth Amendment limits Congress’s power to apply the FLSA’s minimum wage and overtime protections to the states.

The defendants argued that Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528 (1985)—which overruled Usery and held that the Commerce Clause authorizes Congress to impose the FLSA’s minimum wage and overtime requirements on states—forecloses the states’ argument. The plaintiffs, however, countered that subsequent decisions have called into question Garcia‘s continuing validity. Judge Amos Mazzant agreed that Garcia is the controlling decision, holding that Congress has this authority.

Judge Mazzant then reviewed the statute under the two-step analysis outlined in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)first, determining whether Congress has addressed the precise question at issue and second, determining whether the final rule comports with Congress’s intent.

Under Chevron deference, the state plaintiffs argued, the plain language of the FLSA—which exempts employees with EAP duties from overtime pay and minimum wage—is clear and illustrates congressional intent: Congress spoke directly about the type of employees—those with executive, administrative, or professional duties—that do not fall within the statute’s requirements for overtime pay. The defendants, on the other hand, argued that this language is ambiguous because Congress did not address or define the terms “executive,” “administrative,” or “professional,” delegating authority to the DOL to interpret those terms via regulations.

Judge Mazzant agreed with the plaintiffs, stating that Congress clearly defined the EAP exemption with regard to duties, not a minimum salary level. The final rule, however, states that “[w]hite collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities”—meaning that whether an employee receives overtime pay depends on salary level, not duties. Therefore, Mazzant reasoned, the DOL exceeded its authority because it ignored congressional intent and supplanted the duties test with a minimum salary level ($47,476) instead.

In issuing the injunction, the court also agreed that the states would suffer irreparable harm absent preliminary relief. The plaintiffs submitted several declarations from state officials, who estimated that it would cost their respective states millions of dollars in the first year of compliance. Determining that the plaintiffs would suffer irreparable harm but the defendants would not if there were a delay in implementing the final rule, Mazzant granted the preliminary injunction. Although the defendants argued that the injunction should be limited to the states that showed evidence of irreparable harm, the judge chose to issue a nationwide one, reasoning that the final rule would apply to all states and therefore the scope of the alleged injury would extend across the country.

The DOL appealed the decision, filing a motion for an expedited hearing or a motion for a stay. On Dec. 11, the Fifth Circuit granted the DOL’s motion for an expedited hearing, indicating that oral arguments will take place in mid- to late February.