21 States File Lawsuit Against New Federal Overtime Rule

Twenty-one states filed a lawsuit in federal court to halt the implementation of a new Administration rule on overtime pay on September 20, 2016. The rule, which was finalized in May 2016 and which will take full effect on December 1, 2016, will dramatically increase the number of workers who are eligible for overtime pay.The lawsuit, which is led by Texas and Nevada, was filed in the United States District Court for the Eastern District of Texas, in the court of Judge Amos L. Mazzant III.  The lawsuit alleges that the new overtime exemption rules will force many businesses and local governments to increase their employment costs to meet the new overtime salary threshold of $47,476 per year. Employees not only in the private sector, but also public employees of state and local government, and public colleges and universities, will have to make at least that amount per year in order to be exempted by their employer from overtime pay under the “white collar” salary-basis exemption.

The plaintiffs in the lawsuit are Alabama, Arizona, Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Utah, and Wisconsin.  The states argue that the financial impacts of the new rule are unduly burdensome financially on the local and state governments. For example, in Iowa, the new rule will add approximately $19.1 million in additional costs to state government and public universities in the first year alone. The impact in other states is similarly burdensome.

The plaintiffs request that the new overtime rule be judged unlawful for those states, and that implementation be halted by the court. It is unclear whether the court will hold a hearing and issue any decision before the December 1, 2016 implementation deadline in the final federal rule.  However, there is at least the possibility of relief for employers as a result of this lawsuit.

The federal rulemaking was undertaken to revise the standards in the Fair Labor Standards Act (FLSA).  The FLSA took effect in 1938, guaranteeing workers would receive no less than a minimum wage, and the salary-basis exemption was added in 1940.  While the threshold for salary-basis exemption has been raised steadily since 1940, the proposed increase by the Obama Administration would represent an over 100% increase (from $23,660 per year to $47,476), and would implement automatic increases moving forward for the first time ever.

TIA is closely monitoring all developments relating to the new overtime rule, and is working to provide members with information to help them comply.  For more information please contact Will Sehestedt at sehestedt@tianet.org.