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States Challenge Federal Overtime Rule

Twenty-one state officials filed a lawsuit claiming the Obama administration’s rule to extend mandatory overtime pay will place a huge burden on state budgets.
September 22, 2016

​AUSTIN – Texas Attorney General Ken Paxton and Nevada Attorney General Adam Paul Laxalt filed a lawsuit on Wednesday on behalf of 21 states, challenging the Obama administration’s overtime rule.

The AGs maintain that the overtime rule more than doubles the salary threshold for a U.S. worker to be entitled to overtime and will force many state and local governments, as well as private businesses, to substantially increase their employment costs. Some governments and private businesses may even be forced to eliminate services or lay off employees.

Joining Texas and Nevada in the lawsuit are Alabama, Arizona, Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Mississippi, Nebraska, New Mexico, Ohio, Oklahoma, South Carolina, Utah and Wisconsin.

Also, the National Retail Federation filed a suit in U.S. District Court on behalf of the millions of employers and employees who will be drastically affected if the Labor Department’s changes to the federal overtime rules go into effect on December 1.

“Retailers are already struggling to implement this new government mandate before the swiftly approaching deadline, and the automatic update included in the rule would make them do this same dance every three years for as long as they are able to remain in business,” said NRF Senior Vice President for Government Relations David French. “This is a massive government overreach of executive authority, and the courts need to put a stop to it.”

Issue Background
On May 18, 2016, the U.S. Department of Labor (DOL) issued a final rule to update the regulations governing which employees are eligible for overtime pay. Today, employers are required to pay overtime for all employees earning $455 per week or $23,660 or less per year. Under the new rule, that salary threshold would increase and require businesses to pay overtime for all employees earning $913 a week or $47,476 or less per year.

For the first time in the Labor Department’s history, it failed to consider salary levels in the retail marketplace when setting the final rule—in all previous rulemakings, DOL had reduced the national overtime threshold to account for average retail wages. The DOL also took the unprecedented step of setting the threshold to automatically update every three years using the same flawed methodology.

The new overtime rule kicks in on December 1, 2016; however, several lawmakers are pushing legislation that would require the DOL to redraft the rule. NACS is not opposed to adjusting the overtime salary threshold; however, NACS believes that the threshold must be established in a manner that is appropriate for the particular industry and geographic region in which the employee is working.

NACS supports H.R. 4773 and S. 2707 to require the DOL to go back to the drawing board and redraft the rule, taking into consideration the overall economic impact of its decisions.