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Texas, small business organizations sue Department of Labor over OT rule

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Business Practices | Legal
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Texas Attorney General Ken Paxton has sued the U.S. Department of Labor over a final overtime rule issued by the agency that he alleges violates the law and “attempts to usurp authority not granted by Congress.”

The overtime rule changes don’t provide an exemption for the DOL’s definition of small businesses and could potentially have an impact on repair shops’ bottom lines.

“Courts have already ruled that such a regulation is illegal,” a news release from Paxton’s office states. “The rule would increase the salary thresholds determining employee eligibility for overtime pay exemption and establish automatic salary threshold increases every three years.”

In September 2016, when the Obama Administration sought to mandate a similar regulatory change in violation of the law, Paxton sued and was granted an injunction. In August 2017, DOL’s actions were found to be illegal, and a final judgment was issued against the rule by a federal court.

“Now, DOL has produced a substantially similar rule that once again violates the Administrative Procedure Act and contradicts the Fair Labor Standards Act (FLSA),” the release states.

In addition to the lawsuit, Paxton has filed a motion for a preliminary injunction to prevent the rule from taking effect.

“Biden’s attempt to sidestep the Constitution and mandate policies he could never get passed through the lawful process is a revival of the illegal scheme we fought during the Obama Administration,” said Paxton, in the release. “I look forward to holding this Administration accountable for their regulatory overreach — we fought and won this battle once before.”

An exemption within the FLSA applies the act to overtime pay for “any employee employed in a bona fide executive, administrative, or professional capacity … as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor].”

Paxton argues in his lawsuit that the exemption only refers to duties, not salary. The court ruled the minimum salary for the exemption “essentially make[s] an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level,” according to the lawsuit.

“Yet, for decades, defendants and their predecessors at the Department of Labor (“DOL”) have adopted rules that add a minimum salary requirement to the EAP Exemption,” the suit states. “In other words, under Defendants’ rules, an ’employee employed in a bona fide executive, administrative, or professional capacity’ is nevertheless not exempt from the Overtime Rule if the employee does not make a certain minimum salary.”

The 2024 rule increases the EAP Exemption minimum salary requirement from $684 per week ($35,568 annually) to $844 per week ($43,888 annually) beginning July 1, 2024, and to $1,128 per week ($58,656 annually) beginning Jan. 1, 2025.

In an April news release, DOL Acting Secretary Julie Su stated, “This rule will restore the promise to workers that if you work more than 40 hours in a week, you should be paid more for that time. Too often, lower-paid salaried workers are doing the same job as their hourly counterparts but are spending more time away from their families for no additional pay. That is unacceptable. The Biden-Harris administration is following through on our promise to raise the bar for workers who help lay the foundation for our economic prosperity.”

However, Paxton contends in his suit that, “The Court should set aside the 2024 Rule’s minimum salary level because, like the 2016 Rule, it “would exclude so many employees who perform exempt duties, [which shows that Defendants] fail[ed] to carry out Congress’s unambiguous intent. Thus, the Final Rule… is unlawful… the 2024 Rule makes salary rather than an employee’s duties determinative of whether the employee is subject to the EAP Exemption.”

Overall, Paxton calls the new rule “arbitrary and capricious,” against precedent, and violating the Tenth Amendment.

“The Tenth Amendment is a barrier to Congress’s power under the Commerce Clause to apply the FLSA to the States and the 29 C.F.R. Part 541 salary basis test and compensation levels,” the lawsuit states. “Enforcing the FLSA and the 2024 Rule’s minimum salary level against the States infringes upon state sovereignty and federalism by dictating the wages that States must pay to those whom they employ in order to carry out their governmental functions, what hours those persons will work, and what compensation will be provided where these employees may be called upon to work overtime.”

Paxton seeks preliminary injunctive relief against the DOL to delay the effective date of the 2024 rule’s minimum salary level until the court can consider full briefing on it and to prevent enforcement of the rule’s minimum salary level.

Permanent injunctive relief and a ruling from the court that the DOL’s rule violates the Administrative Procedure Act are also sought.

Small business organizations also recently filed suit against the DOL over the rule, including the National Federation of Independent Business (NFIB), with nearly identical arguments.

“Countless employer members of the Plaintiff associations — across many industries, job categories, and geographic areas — will suffer irreparable harm from the loss of their employees’ previously exempt status under the 2024 rule,” the suit states. “The costs of compliance will force many smaller employers and non-profits operating on fixed budgets to cut critical programming, staffing, and services to the public. Many employers will lose the ability to effectively and flexibly manage their workforces upon losing the exemption for frontline executives, administrators, and professionals.”

In a news release, NFIB Small Business Legal Center Executive Director Beth Milito added, “DOL’s final rule is an additional complicated and expensive government mandate that small businesses have to navigate at a time when small business optimism is historically low. DOL does not have the legal authority to raise the salary threshold or include automatic updates. The small business community asks the Court to consider the needs of Main Street and stop DOL from enforcing this onerous regulation.”

The plaintiffs have asked the court to vacate the new overtime rule and ensure it isn’t enforced.


Featured image credit: Andrii Dodonov/iStock

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