Nevada v. U.S. Dep't of Labor

• Citation: 218 F.Supp.3d 520
• Decision Date: 22 November 2016
• Docket Number: Civil Action No. 4:16–CV–00731
• Parties: State of NEVADA, et al v. UNITED STATES DEPARTMENT OF LABOR, et al.
• Court: U.S. District Court — Eastern District of Texas

218 F.Supp.3d 520

State of NEVADA, et al

v.UNITED STATES DEPARTMENT OF LABOR, et al.

Civil Action No. 4:16–CV–00731

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

Filed November 22, 2016

Lawrence Vandyke, Nevada Office of the Attorney General, Carson City, NV, Jordan Tindle Smith, State of Nevada, Attorney General's Office, Las Vegas, NV, Prerak Shah, David Austin Robert Nimocks, Office of the Attorney General, Austin, TX, for State of Nevada, et al.

Julie Shana Saltman, Kevin Matthew Snell, United States Department of Justice, Washington, DC, James Garland Gillingham, United States Attorney's Office, Tyler, TX, for United States Department of Labor, et al.

MEMORANDUM OPINION AND ORDER

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

Pending before the Court is the Emergency Motion for Preliminary Injunction (Dkt. # 10) filed by the State of Nevada and twenty other states (the "State Plaintiffs"). After considering the relevant pleadings, exhibits, and argument at the preliminary injunction hearing, the Court enters the findings of fact and conclusions of law set forth below. Based on these findings and conclusions, the Court grants the State Plaintiffs' motion.

BACKGROUND

Congress enacted the Fair Labor Standards Act ("FLSA") in 1938. The FLSA requires that employees engaged in commerce receive not 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 "white collar" or "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 to interpret the EAP exemption.

The Department's initial regulations, found in 29 C.F.R. § 541, defined "executive," "administrative," and "professional" employees based on the duties they performed in 1938. Two years later, the Department revised the regulations to require EAP employees to be paid on a salary basis.

In 1949, the Department again amended the 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 higher 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 EAP categories "from time to time."

In 2004, the Department eliminated the long and short tests, replacing them with the "standard" duties test that did not restrict the amount of nonexempt work an exempt employee could perform. The Department also set a salary level equivalent to the lower salary that the Department previously used for the long test. The 2004 regulations, which are currently in effect, require an employee to meet the following three criteria to qualify for the EAP exemption. 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 the regulations (the "salary-level test"). The current minimum salary level to qualify for the exemption is $455 per week ($23,660 annually). And third, an employee must perform executive, administrative, or professional duties (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 the regulations in 2004, the President opined, "regulations 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.

Effective December 1, 2016, the Final Rule will increase the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $921 per week ($47,892 annually). The new salary level is based upon 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 establishes an automatic updating mechanism that adjusts the minimum salary level every three years. The first automatic increase will occur on January 1, 2020.

The 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, the State Plaintiffs moved for emergency preliminary injunctive relief (Dkt. # 10). Defendants filed their response on October 31, 2016 (Dkt. # 37). The State Plaintiffs filed their reply on November 10, 2016 (Dkt. # 50). Defendants filed their sur-reply on November 15, 2016 (Dkt. # 51).

The Plano Chamber of Commerce and over fifty other business organizations (the "Business Plaintiffs") challenged the Final Rule in Plano Chamber of Commerce et al. v. Perez et al. , No. 4:16–cv–732 (E.D. Tex. Sept. 20, 2016). On October 14, 2016, the Business Plaintiffs moved for expedited summary judgment (No. 4:16–cv–732, Dkt. # 7; No. 4:16–cv–731, Dkt. # 35). The Court consolidated the Business Plaintiffs' action with the State Plaintiffs' action on the unopposed motion from the Business Plaintiffs. In evaluating the merits of the State Plaintiffs' preliminary injunction, the Court considered the Business Plaintiffs' summary judgment motion as an amicus brief in support of the preliminary injunction for overlapping issues (Dkt. # 33). The Court also considered Defendants' opposing amicus brief (Dkt. # 46).

On November 16, 2016, the Court held a preliminary injunction hearing to consider oral argument regarding the State Plaintiffs' motion.

JURISDICTION

This matter presents a federal question and therefore the Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331. The Court has authority to grant injunctive relief pursuant to Rule 65 of the Federal Rules of Civil Procedure and review administrative decisions pursuant to 5 U.S.C. § 702 of the Administrative Procedures Act ("APA").

The Court begins by examining whether the State Plaintiffs have standing to sue in federal court. Article III of the Constitution limits federal jurisdiction to "Cases" and "Controversies." A party that cannot present a case or controversy within the meaning of Article III does not have standing. Under the three-part test for Article III standing, a plaintiff must show an injury that is "concrete, particularized, and actual or imminent; fairly traceable to the challenged action; and redressable by a favorable ruling." Clapper v. Amnesty Int'l USA , ––– U.S. ––––, 133 S.Ct. 1138, 1147, 185 L.Ed.2d 264 (2013) (internal quotation marks and citation omitted). The State Plaintiffs face imminent monetary loss that is traceable to the Department's Final Rule. They would also receive redress if the Court determines the Final Rule is unlawful. Defendants do not contest standing. Therefore, the Court confirms that the State Plaintiffs have Article III standing.

Defendants claim the State Plaintiffs' challenges to the automatic updating mechanism are not ripe for adjudication. The Court is not persuaded by this argument. A challenge to administrative regulations is fit for review if "(1) the questions presented are 'purely legal one[s],' (2) the challenged regulations constitute 'final agency action,' and (3) further factual development would not 'significantly advance [the Court's] ability to deal with the legal issues presented.' " Texas v. United States , 497 F.3d 491, 498–99 (5th Cir. 2007) (internal quotation marks omitted) (citing Nat'l Park Hosp. Ass'n v. Dep't of Interior , 538 U.S. 803, 812, 123 S.Ct. 2026, 155 L.Ed.2d 1017 (2003) ). Here, the State Plaintiffs make only legal arguments. They question the lawfulness of the Final Rule, the Department's authority to promulgate it, and whether the automatic updating mechanism complies with APA requirements. All parts of the Final Rule constitute final agency action because the rule was published and is set to go into effect on December 1, 2016. Further, the Final Rule creates new legal obligations for employers who must pay a higher salary level for certain employees to be exempt from overtime. See Bennett v. Spear , 520 U.S. 154, 177–78, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997) (stating the two-part test for "final agency action" to include an action that marks the consummation of the agency's decision-making process and an action where "rights or obligations have been determined, or from which legal consequences will flow"). The facts of this case have sufficiently developed to address the legality of the Department's Final...