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Lawsuits Challenge Department of Labor’s New Overtime Pay Regulation – But Don’t Get Your Hopes Up

By Scott Patterson

On December 1, 2016, the Department of Labor’s overtime pay regulation, which increases the required salary to qualify for the white collar overtime pay exemptions, is scheduled to take effect.  However, on September 20, 2016, two lawsuits were filed in a federal court in Texas in an effort to invalidate the regulation and to enjoin its implementation.  A group of twenty-one states, including Michigan, filed one of the lawsuits, and a group of business groups, including the U.S. Chamber of Commerce, filed the second lawsuit.

Despite these court challenges, employers should continue to plan on being in compliance with the new regulation on December 1.  Neither of the lawsuits has resulted in any stay or delay of the new regulation as yet.  And, while it is always difficult to predict in advance the results of litigation, the merits of one of the suits are very weak and while the merits of the second suit are stronger, it is only aimed at a limited part of the regulation and even if successful, with have no direct effect on the changes coming into effect on December 1.  The key parts of the DOL’s regulation that the lawsuits challenge include the following:

  • The increase in the salary threshold from the current $455.00 per week ($23,660.00 per year) to $913.00 per week ($47,476.00 per year) for employees covered by the executive, administrative, and professional (“EAP”) exemptions.
  • The automatic updating of the salary threshold every three years.

The challenge to the salary threshold increase is unlikely to succeed because it is based on an assertion that, in essence, the DOL does not have the power to establish a salary threshold for exempt status.  The problem with this challenge is that for decades the DOL has included a salary threshold in determining whether an employee qualifies for “exempt” status.  In 2004, for example, the DOL increased that salary threshold from a minimum of $250.00 per week to a minimum of $455.00 per week.  The DOL’s historical use of and increases in the salary threshold militate against the challenge that the DOL lacks the authority to increase the salary threshold to $913.00 per week.

The challenge to the automatic updating of the salary threshold is based on the assertion that Congress did not explicitly authorize the DOL to automatically update the salary threshold based on inflation or other reasons.  This challenge may have a better chance of success.  One reason is that the DOL has not previously automatically updated or indexed the salary threshold.  In its regulation, the DOL also acknowledged that the automatic updating, as well as its historical use of a salary threshold and the salary basis test for “exempt” status, was “without specific Congressional authorization.”  In 2004, the DOL even stated that there was “nothing in the legislative or regulatory history that would support indexing or automatic increases.”  Yet the Fair Labor Standards Act explicitly authorizes the DOL to “define and delimit” “from time to time by regulations” the exemptions for executive, administrative, and professional employees. 29 USC 213(a)(1).  The DOL’s position will be that the automatic updating or indexing amounts to a legitimate exercise of that statutory authority.  Whether the federal court will invalidate the automatic updating of the salary threshold on the basis that the DOL exceeded its statutory authority is uncertain.  In any event, striking down the automatic update provision of the regulation will not stop the remaining parts of the regulation from taking effect.

Employers should continue to prepare for the December 1st implementation of the DOL’s overtime regulation on the assumption that the regulation will take effect as scheduled.  They should not alter their preparations in response to the filing of the lawsuits challenging the DOL’s overtime regulation, given the lawsuits’ problematic prospects for success.