This week, Kentucky, alongside 20 other states, sued the Department of Labor in a Texas Federal Court.  The states’ Complaint, 4:16-cv-00731, attacks the DOL’s Final Rule that raises the salary minimum for exempt workers.  That same day, numerous businesses and the Chamber of Commerce filed a similar Complaint, 4:16-cv-732, challenging the regulation.

The states contend that the Final Rule infringes upon state sovereignty and federalism by dictating the wages that a state must pay its employees.  The states contend that “as a result of the new overtime rules and the accompanying damage to state budgets, states will be forced to eliminate or alter employment relationships and cut or reduce services and programs.  Left unchecked, DOL’s salary basis test and compensation levels will wreck state budgets.”  States’ Complaint at 84.  As to Kentucky, the Complaint alleges that “the Commonwealth of Kentucky estimates that, by December 1, 2016, it will have approximately 1,600 state employees who will move into the category of employees covered by the new rule, i.e. into non-exempt status.”  States’ Complaint at 75.

There are previous Supreme Court cases supporting the DOL’s ability to regulate this area, but the states argue that prior Supreme Court precedent permitting federal regulation of state employees’ wages should be overruled and/or has been diminished by subsequent cases.  States’ Complaint at 85.

The remainder of the states’ Complaint claims that the DOL’s Final Rule exceeds agency authority because it places the emphasis on exempt employees’ salaries rather than their duties, which they claim, is contrary to statutory text.  The states also argue that automatic updates to the salary requirements, that will take place every three years, exceed agency authority and violate notice and comment procedures.  Notice and comment provisions are required for regulations like the Final Rule because regulators are not legislators that have been elected by the public.  The states argue that automatically updating the salary every three years, without going through this process, is unconstitutional.  The counter argument is that the Final Rule had the automatic update provision within it and went through the notice and comment process.

In a separate lawsuit brought by businesses, many of the same arguments are made with regard to the DOL’s power to enact such a regulation and automatically increase the salary every three years.  The two lawsuits are pending in the U.S. Federal Court in the Eastern District of Texas at Sherman before a 2014 Obama appointee, Sherman Judge Amos Mazzant.

The Labor Secretary Thomas E. Perez immediately released a statement concerning the lawsuits:

“We are confident in the legality of all aspects of our final overtime rule. It is the result of a comprehensive, inclusive rule-making process. Despite the sound legal and policy footing on which the rule is constructed, the same interests that have stood in the way of middle-class Americans getting paid when they work extra are continuing their obstructionist tactics. 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. The overtime rule is designed to restore the intent of the Fair Labor Standards Act, the crown jewel of worker protections in the United States. The crown jewel has lost its luster over the years: in 1975, 62 percent of full time salaried workers had overtime protections based on their pay; today, just 7 percent have those protections – meaning that too few people are getting the overtime that the Fair Labor Standards Act intended. I look forward to vigorously defending our efforts to give more hardworking people a meaningful chance to get by.”

What about the Final Rule’s effective date of December 1?
The states and businesses who brought these lawsuits will most likely move to enjoin the Final Rule, or at the very least, argue that the effective date should be pushed back.  It is not clear whether an injunction will be obtained, so it is best at this time for employers to continue to prepare for the Final Rule to be effective on December 1 until there is clear proof that the effective date will be delayed.  The mere filing of these lawsuits should not stop employers from preparing for implementation of the Final Rule by either planning to raise exempt employees’ salaries or converting those employees to overtime eligible status.

We will keep you posted on these cases.  If you have any questions, we are here to help.