by Laura Pokrzywa
You may have heard that last week almost half of the states joined ranks to file a complaint against the Department of Labor (DOL) regarding the new overtime rules scheduled to take effect December 1st this year. Twenty-one states from Nevada to Maine, from Georgia to New Mexico, from Kentucky to Utah, filed their Complaint for Declaratory and Injunctive Relief against the DOL, Secretary of Labor Thomas Perez, the Wage and Hour Division of the DOL along with two of its top administrators.
Among their complaints, the states argue that the new rule puts too much emphasis on the salary level, leaving the more important duties test as a secondary consideration. They also decry the automatic indexing mechanism included in the new rule, designed to increase the minimum salary level every three years. In their complaint, the States say this mechanism ignores the DOL’s own statement made in 2004 that said “nothing in the legislative or regulatory history…would support indexing or automatic increases …. The Department believes that adopting such approaches in this rulemaking is both contrary to congressional intent and inappropriate.”
The 21 states agree with that statement. The main focus of the complaint, in fact, is a protest that the new rule is an overstepping of Constitutional authorization, especially in light of the automatic increases planned and the lack of limits on those increases. The States are protesting the control that is being given to the Federal government over State and local governments. The new rule obligates the States to pay overtime to State employees that are performing white-collar functions if the State employees earn a salary less than an amount determined by the Executive Branch of the Federal Government. “By committing an ever-increasing amount of State funds to paying State employee salaries or overtime, the Federal Executive can unilaterally deplete State resources, forcing the States to adopt or acquiesce to federal policies, instead of implementing State policies and priorities. Without a limiting principle (and DOL has recognized none) the Federal Executive could deliberately exhaust State budgets simply through the enforcement of the overtime rule.” The complaint goes on to say that by forcing many State and local governments to shift resources from other important priorities to increased payroll for certain employees, the new rule effectively imposes the Federal Executive’s policy wishes on State and local governments, which is a clear violation of the limits imposed on Federal government in the Constitution.
They also note that local governments do not have the same ability as private employers to increase prices or reduce profits. “Because the Plaintiff States cannot reasonably rely upon a corresponding increase in revenue, they will have to reduce or eliminate some essential government services and functions. For example, certain infrastructure and social programs may be reduced or cut. The Plaintiff States’ budgets will have less discretionary funds available because, as result of the new federal overtime rule, a greater percentage of their funds will be devoted to employment costs against the States’ will. These changes will have a substantial impact on the lives and well-being of the Citizens of the Plaintiff States.”
The complaint details the impact the new rule is expected to have on individual states. The State of Iowa estimates an additional $19.1 million of costs on the State government and its public universities in the first year. Arkansas estimates in excess of $1 million will be needed to maintain its current level of overtime usage and payouts. Like many other states, Arkansas will have to limit and shift workloads to avoid additional overtime liability resulting in the reduction of services or delays in the provisions of those services.
In addition to this complaint from these 21 States, a separate challenge was filed in the same Texas court on the same day by a broad coalition of business groups led by the U.S. Chamber of Commerce, including the Texas Association of Business, the National Automobile Dealers Association, the National Association of Manufacturers, the National Association of Wholesaler Distributors, the National Federation of Independent Business, the National Retail Federation and more than 50 other national and Texas business groups. This challenge also argues that the DOL exceeded its statutory authority in issuing the regulation. In addition, the Pennsylvania Chamber of Business and Industry reports that the PA Chamber “led a statewide coalition of associations and industry groups last week in sending a letter to lawmakers on the Senate Labor and Industry Committee, urging their support for legislation that would help to mitigate the impact of federal overtime requirements – particularly as new, more challenging rules are scheduled to take effect on Dec. 1, 2016.”
Whether or not any part of this new rule will be changed is yet to be decided. The 21 states will have to wait for a federal judge in Sherman, Texas to rule if their complaint will lead to changes to the impending increase to the salary minimums.
For now, the best thing employers can do is to continue to plan for the December 1st implementation of the new overtime rules. Stay tuned to our blog for updates as they become available. If you have any questions about the new rules, contact one of our HR Consultants by emailing us at email@example.com.
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