Twenty-one states have joined together in suing the U.S. Department of Labor (DOL) in the hopes of halting the imminent implementation of its new overtime rule, which they claim is unconstitutional and fiscally unsustainable.
Starting December 1, the DOL’s new overtime rule mandates time-and-a-half overtime be paid by public and private-sector employers to hourly employees earning less than $47,476 annually. This is a significant jump from the previous salary threshold of $23,660 per year set by Congress in the Fair Labor Standards Act. The DOL’s new overtime rule also includes employees earning less than the new threshold that perform executive, administrative, or professional duties (commonly referred to as “white-collar” employees) who were previously exempt.
The aggrieved states argue that the increased threshold is unconstitutional because the original threshold and exemptions were set by Congress and, once the DOL did away with the “white-collar” exemption, the DOL’s action illegally overruled congressional authority. To bolster its constitutional arguments, the states also argue that the DOL’s new overtime rule violates the Tenth Amendment by indirectly controlling state budgets.
Finally, the states argue that by modifying the threshold and eliminating the “white-collar” exemption, the DOL created an automatic method of re-calculating overtime pay that “ratchets” up the salary threshold every three years, in violation of the Administrative Procedure Act.
Once implemented, the DOL’s new overtime rule would dramatically impact state and local work forces. The main concern is sustainability – the drastic increase in the number of employees eligible for time-and-a-half overtime pay would grow overnight. For states and municipalities, that may mean previously unforeseen cuts in social service budgets and difficulty negotiating future union labor contracts. For small businesses, that may mean that many will be unable to afford their current employees, let alone experience growth. In fact, the DOL’s new overtime rule may lead to employees seeing reduction of hours, pay cuts, and even experience layoffs.
New York has not joined the lawsuit as of yet. It would be smart for New York small businesses to get ready to take a financial hit come December should the DOL’s new overtime rules take effect. Re-evaluate your budget for the coming year, including whether you can afford employee overtime.
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