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State of Nevada v. United States Department of Labor

United States District Court, E.D. Texas, Sherman Division

August 31, 2017




         Pending before the Court is the Motion for Expedited Summary Judgment (Dkt. #35) filed by the Plano Chamber of Commerce and more than fifty-five Texas and national business groups (collectively, “Business Plaintiffs”). After considering the relevant pleadings, the Court grants Business Plaintiffs' motion.


         Congress enacted the Fair Labor Standards Act (“FLSA”) in 1938. The FLSA requires employees engaged in commerce to receive no less than the federal minimum wage (currently, $7.25 per hour) for all hours worked. Employees are also entitled to overtime pay at one and one-half times the employee's regular rate of pay for all hours worked above forty in a week. When enacted, the FLSA contained a number of exemptions to the overtime requirement. Section 213(a)(1) of the FLSA exempts from both minimum wage and overtime requirements “any employee employed in a bona fide executive, administrative, or professional capacity.” 29 U.S.C. § 213(a)(1). This exemption is commonly referred to as the “EAP exemption.” While the FLSA did not define the terms “bona fide executive, administrative, or professional capacity, ” Congress delegated to the Secretary of Labor the power to define and delimit these terms through regulations. The Secretary of Labor authorized the Department of Labor (the “Department”) to issue regulations that interpret the EAP exemption.

         The Department's initial regulations defined “executive, ” “administrative, ” and “professional capacity” employees based on the duties they performed in 1938. Two years later, the Department revised regulations to require executive, administrative, or professional capacity employees to be salaried.

         In 1949, the Department again amended regulations. These regulations established the “long” test and the “short” test for assessing whether an employee qualified for the EAP exemption. The long test combined a low minimum salary level with a rigorous duties test, which restricted the amount of nonexempt work an employee could do to remain exempt. The short test combined a high minimum salary level with an easier duties test that did not restrict amounts of nonexempt work. After the Department implemented the long and short tests, Congress amended 29 U.S.C. § 213(a)(1) in 1961. This amendment permitted the Department to define and delimit the exemption “from time to time.”

         In 2004, the Department eliminated the long and short tests, replacing them with a “standard” duties test that did not restrict the amount of nonexempt work an exempt employee could perform. In addition, the Department set the salary level equivalent to the lower minimum salary level previously used for the long test. The 2004 regulations, which are currently in effect, require an employee to meet the following three criteria to be exempt from overtime pay. First, the employee must be paid on a salary basis (the “salary-basis test”). Second, an employee must be paid at least the minimum salary level established by regulations (the “salary-level test”). The current minimum salary level is $455 per week ($23, 660 annually). Third, an employee must perform executive, administrative, or professional capacity duties as established by regulations (the “duties test”).

         On March 23, 2014, President Obama issued a memorandum directing the Secretary of Labor to “modernize and streamline the existing overtime regulations for executive, administrative, and professional employees.” Presidential Memorandum of March 13, 2014; Updating and Modernizing Overtime Regulations, 79 Fed. Reg. 18, 737, 18, 737 (Mar. 13, 2014). Although the Department revised regulations in 2004, the President opined, “[R]egulations regarding . . . overtime requirements . . . for executive, administrative, and professional employees . . . have not kept up with our modern economy.” Id. In response to the President's memorandum, the Department published a Notice of Proposed Rulemaking to revise 29 C.F.R. Part 541. The Department received more than 293, 000 comments on the proposed rule, including comments from businesses and state governments, before publishing the final version of the rule (the “Final Rule”) on May 23, 2016.

         Under the Final Rule, the minimum salary level for exempt employees increased from $455 per week ($23, 660 annually) to $913 per week ($47, 476 annually). The Department bases the new salary level on the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage region of the country, which is currently the South. The Final Rule also creates an automatic updating mechanism that adjusts the minimum salary level every three years. The first automatic increase is scheduled to occur on January 1, 2020.

         The State of Nevada and twenty other states (collectively, “State Plaintiffs”) filed suit against the Department, the Wage and Hour Division of the Department, and their agents (collectively, “Defendants”) challenging the Final Rule (Dkt. #1). On October 12, 2016, State Plaintiffs moved for emergency injunctive relief (Dkt. #10).

         Business Plaintiffs filed a similar action challenging the Final Rule in Plano Chamber of Commerce v. Perez , No. 4:16-CV-732 (E.D. Tex. Sept. 20, 2016). The Court consolidated Business Plaintiffs' action with State Plaintiffs' action on the unopposed motion of Business Plaintiffs (No. 4:16-CV-732; Dkt. #11). On October 14, 2016, Business Plaintiffs moved for expedited summary judgment (No. 4:16-CV-732, Dkt. #7; No. 4:16-CV-731, Dkt. #35). On November 18, 2016, Defendants filed a response (Dkt. #56). On November 21, 2016, Business Plaintiffs filed a reply (Dkt. #58).

         On November 22, 2016, the Court preliminarily enjoined the Final Rule, which prevented the rule from going into effect on December 1, 2016 (Dkt. #60).[1] The Court's injunction applied to both states and businesses on a nationwide basis.

         On December 12, 2016, State Plaintiffs filed a motion to join Business Plaintiffs' motion for summary judgment (Dkt. #66). State Plaintiffs also requested the Court to consider their preliminary injunction briefing as part of the pending motion for summary judgment (Dkt. #66). On August 30, 2017, the Court granted State Plaintiffs' motion and thus will consider State Plaintiffs' preliminary injunction briefing as the States' briefs in support of summary judgment (Dkt. #97). The Court will likewise consider Defendants' preliminary injunction briefing as their opposition to State Plaintiffs' arguments (Dkt. #97).


         Before reaching the merits of Business Plaintiffs' motion, the Court must assess whether they have standing to sue in federal court. Article III of the Constitution limits federal jurisdiction to “Cases” and “Controversies.” Standing addresses whether a plaintiff is the proper party to bring a matter before the court for adjudication. A plaintiff does not have Article III standing if it cannot present a case or controversy. In Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992), the Supreme Court held Article III standing requires a plaintiff to show the following elements: (1) it has suffered an “injury in fact” that is concrete, particularized, and actual or imminent; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely the injury will be redressed by a favorable decision. An association has standing to bring suit on behalf of its members when: “(a) its members would otherwise have standing to sue in their own right; (b) the interests at stake are germane to the organization's purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.” Hunt v. Wash. State Apple Advert. Comm'n, 432 U.S. 333, 343 (1977).

         The Court finds Business Plaintiffs have met their burden of establishing Article III standing. Business Plaintiffs are local, state, or national trade associations representing millions of employers in Texas and throughout the country. It is clear the Final Rule directly affects both Business Plaintiffs and the employers they represent. For example, Business Plaintiffs and their members would incur significant payroll, accounting, and legal costs to comply with the Final Rule, both before and after its effective date. In addition, the Final Rule would affect how Business Plaintiffs and their members manage executive, administrative, and professional capacity employees who now qualify for overtime pay. Millions of these types of employees would have to be reclassified from salaried to hourly workers, resulting in limited work hours, reduced pay, and fewer ...

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