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Lawsuits unlikely to stall overtime rules

Crain’s Detroit Business

By Dustin Walsh

September 25, 2016

For Brogan & Partners Convergence Marketing Inc., new federal overtime pay rules mean its new associates may lose out on valuable experience.

The Birmingham-based advertising agency will be forced to limit the hours of just-out-of-college associates who otherwise would put in more hours to learn the ropes of the industry, said Ellyn Davidson, managing partner.

“When you first enter the workforce, you want to do things that further your career that might require you working more than 40 hours a week,” Davidson said. “In advertising, we might have a young person come to a TV shoot for the day or focus group in the evening as a learning experience. Now, it brings up an issue for companies like mine that have to make a financial decision on that experience for them.”

The only hope for Brogan & Partners, and many others, rests with two lawsuits filed last week challenging the U.S. Department of Labor’s ruling to expand mandatory overtime pay to more than 4 million workers. But those challenges face an uphill battle, according to experts.

The message to businesses: Be ready for Dec. 1, when the new rule is scheduled to take effect.

The rule requires employers to pay overtime to salaried workers earning less than $47,500 a year, doubling the current standard of $23,660 set in 2004. A suit filed in U.S. District Court in Texas by Michigan and 20 other states says that the overtime rule, in regard to state employees, will increase costs and force the cut of essential government services. The U.S. Chamber of Commerce, with the support of dozens of other chamber organizations, the National Automobile Dealers Association, the National Association of Manufacturers, and many others, claims in a suit filed in the same court the rule will ultimately force businesses to demote or lay off workers due to higher labor costs.

Local legal experts, however, say the legal challenges stand little chance in court and are preparing clients for the start of the Dec. 1 rule.

“I’m certainly not surprised to see the lawsuits, but I think (both suits) have a steep uphill climb to succeed,” said Gary Klotz, partner and labor and employment attorney for Butzel Long PC in Detroit. “Both suits are challenging the authority for the Department of Labor to do something they’ve done in the past. If they did it then, they can do it now.”

The 21 states in the suit claim the overtime ruling violates the 10th Amendment to the U.S. Constitution in that enforcing the rule infringes upon state sovereignty to employ and pay its workers as it sees fit.

The result will hammer state budgets, the suit claims.

However, the Labor Department also raised the overtime pay threshold in 2004 under President George W. Bush to $23,660 from the meager $8,060 set in 1975. At that time, the DOL said the ruling would provide overtime pay to more than 6 million workers. That ruling, while unpopular among businesses, did not receive a similar legal challenge.

The U.S. Chamber of Commerce lawsuit challenges the DOL’s right to index the threshold to inflation. Under the impending ruling, the salaried worker salary threshold will rise with inflation every three years.

“DOL’s unprecedented escalator provision in the new overtime rule exceeds any authority granted to the department by Congress, which has never authorized indexing of the minimum salary thresholds related to overtime,” the lawsuit states.

Klotz said that just because the DOL did not enact the indexing provision in 2004 does not mean it’s not legal.

“Congress hasn’t said they can’t do (indexing),” Klotz said. “Just because (DOL) didn’t do it in the past doesn’t mean the current department can’t look at the statute differently. I believe it’s within their authority.”

Regardless of whether the lawsuits have merit, the ruling is going to negatively impact business, said Sandy Baruah, president and CEO of the Detroit Regional Chamber, which is supporting the U.S. Chamber-led suit.

“People in Washington (D.C.) have clearly never run a business … ,” Baruah said. “They assume most businesses are bad businesses, but that’s not true. This very well could drag wages down and now forces employers to track some employees’ hours rigorously and some not. What does that do to a work culture?

“The intent (of the rule) is not bad, but the unintended consequences are. The federal government is not nimble; it’s not a scalpel, it’s a blunt instrument. Businesses are getting hit with blunt force by these regulations.”

Davidson said the spirit of the rule is encouraging, but the consequences on professional firms is harmful.

“I want people to be able to live a decent life, afford food and have a roof over their heads,” Davidson said. “I’m sympathetic to that cause, but it poses a real challenge when we have new grads coming into an industry that is constantly getting squeezed. The days of fat media commissions in advertising don’t exist like they used to.”

Daniel Villaire, an attorney at Royal Oak-based law firm Howard and Howard Attorneys PLLC, said his work with clients has included an audit, or cost analysis, to determine the financial impact of the ruling as well as attempting to measure the effect on morale as some employees move from salaried to hourly and vice versa.

“After the audit, we develop a plan to implement the new overtime rules and make any necessary changes to positions, pay, policies and practices,” Villaire said.

Klotz said the issue has become highly politicized.

“These states all have Republican attorney generals and/or governors,” Klotz said. “Texas is taking the lead because it’s been successful before. But I’d be stunned if they were able to get a nationwide injunction on this matter.”

Texas Attorney General Ken Paxton issued a statement when the suit was filed on Sept. 20, calling it a radical liberal move by the Obama administration.

“The numerous crippling federal regulations that the Obama administration has imposed on businesses in this country have been bad enough,” Paxton said in a statement. “But to pass a rule like this, all in service of a radical leftist political agenda, is inexcusable.”

Labor Secretary Tom Perez defended the rules.

“Despite the sound legal and policy footing on which the rule is constructed, the same interests that have stood in the way of middle-class Americans getting paid when they work extra are continuing their obstructionist tactics,” Perez said, The Texas Tribune reported.

But Texas has succeeded in challenging the Obama administration in the past. The state of Texas has sued his administration at least 45 times since 2009. Texas has won seven of those cases, including a June split U.S. Supreme Court decision that struck down President Obama’s executive order to shield millions of illegal immigrants from deportation.

Nevertheless, attorneys continue to prepare clients, Klotz said.

“I haven’t heard from a single client since the suits were filed, but if I did, I’d tell them to continue to get ready for Dec. 1,” Klotz said.