State of Nevada et al v. United States Department of Labor et al

Filing 60

MEMORANDUM OPINION AND ORDER - 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, an d 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. After considering the facts and circumstances of this case, the Court finds that security is unnecessary and exercises its discretion not to require the posting of security in this situation. Signed by Judge Amos L. Mazzant, III on 11/22/2016. (baf, )

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United States District Court
EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

STATE OF NEVADA, ET AL
v.
UNITED STATES DEPARTMENT OF
LABOR, ET AL

§
§
§
§
§
§

Civil Action No. 4:16-CV-00731
Judge Mazzant

MEMORANDUM OPINION AND ORDER
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

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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

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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

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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

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challenged action; and redressable by a favorable ruling.” Clapper v. Amnesty Int’l USA, 133 S.
Ct. 1138, 1147 (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 (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
(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 Rule at
this stage in the litigation. Accordingly, the automatic updating mechanism is ripe for review.

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LEGAL STANDARD
A party seeking a preliminary injunction must establish the following elements: (1) a
substantial likelihood of success on the merits; (2) a substantial threat that plaintiffs will suffer
irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any
damage that the injunction might cause the defendant; and (4) that the injunction will not
disserve the public interest. Nichols v. Alcatel USA, Inc., 532 F.3d 364, 372 (5th Cir. 2008). “A
preliminary injunction is an extraordinary remedy and should only be granted if the plaintiffs
have clearly carried the burden of persuasion on all four requirements.” Id. Nevertheless, a
movant ‘“is not required to prove its case in full at a preliminary injunction hearing.’” Fed. Sav.
& Loan Ins. Corp. v. Dixon, 835 F.2d 554, 558 (5th Cir. 1985) (quoting Univ. of Tex. v.
Comenisch, 451 U.S. 390, 395 (1981)). The decision whether to grant a preliminary injunction
lies within the sound discretion of the district court. Weinberger v. Romero-Barcelo, 456 U.S.
305, 320 (1982).
ANALYSIS
A. Likelihood of Success on the Merits
To prevail on their motion for preliminary injunction, the State Plaintiffs must
demonstrate a substantial likelihood of success on the merits. This requires a movant to present
a prima facie case. Daniels Health Scis., LLC v. Vascular Health Scis., 710 F.3d 579, 582 (5th
Cir. 2013) (citing Janvey v. Alguire, 647 F.3d 585, 595–96 (5th Cir. 2011)). A prima face case
does not mean the State Plaintiffs must prove they are entitled to summary judgment. Byrum v.
Landreth, 566 F.3d 442, 446 (5th Cir. 2009).
1. The FLSA’s Application to the States
The State Plaintiffs argue the FLSA’s overtime requirements violate the Constitution by
regulating the States and coercing them to adopt wage policy choices that adversely affect the
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States’ priorities, budgets, and services. The State Plaintiffs rely on National League of Cities v.
Usery, which held the Tenth Amendment limited Congress’s power to apply the FLSA’s
minimum wage and overtime protections to the States. 426 U.S. 833, 851–52 (1976). The
Supreme Court recognized:
One undoubted attribute of state sovereignty is the States’ power to
determine the wages which shall be paid to those whom they employ in order to
carry out their governmental functions, what hours those persons will work, and
what compensation will be provided where these employees may be called upon
to work overtime.
Id. at 845. The State Plaintiffs acknowledge that the Supreme Court overruled Usery in Garcia
v. San Antonio Metropolitan Transit Authority, 469 U.S. 528 (1985). However, they urge Garcia
has been, or should be, overruled because subsequent decisions have called into question
Garcia’s continuing validity. Accordingly, the State Plaintiffs claim the Department’s Final
Rule displaces the State Plaintiffs’ independence to set employee compensation, similar to the
FLSA amendments at issue in Usery.
Defendants contend that Supreme Court precedent in Garcia forecloses the State
Plaintiffs’ argument.
Garcia controls the disposition of this issue. The Supreme Court in Garcia established
that Congress had authority under the Commerce Clause to impose the FLSA’s minimum wage
and overtime requirements on state and local employees. 469 U.S. at 554. The Supreme Court
overruled Usery because it found rules based on the subjective determination of “integral” or
“traditional” governmental functions provide little or no guidance in determining the boundaries
of federal and state power. Id. at 546–47. In the line of cases following Garcia, the Supreme
Court has imposed limits on the power of Congress to enact legislation that affects state and local
governments. See, e.g., Printz v. United States, 521 U.S. 898, 935 (1997) (holding Congress

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cannot compel the states to enact or administer a federal regulatory program). However, no
Supreme Court case has specifically overruled Garcia. The Supreme Court has declared that
lower courts must follow precedent and allow the Supreme Court to overrule its decisions.
Agostini v. Felton, 521 U.S. 203, 237 (1997) (quoting Rodriguez de Quijas v. Shearson/Am.
Express, Inc., 490 U.S. 477, 484 (1989)).
Therefore, the Court will follow Garcia and apply the FLSA to the States.
The State Plaintiffs also argue the FLSA does not apply to the States based on the clear
statement rule. This argument likewise does not succeed. Under the FLSA, employers are
required to pay the federal minimum wage to their employees or those “employed in an
enterprise engaged in commerce or in the production of goods for commerce.” 29 U.S.C. § 206.
“Enterprise engaged in commerce or in the production of goods for commerce” is defined to
include the “activity of a public agency.” Id. § 203(s)(1)(C). A “public agency” means “the
government of a State or political subdivision thereof; any agency of . . . a State, or a political
subdivision of a State.” Id. § 203(x). Thus, Congress was clear in its intention for the FLSA to
apply to States.
2. Statutory Construction and Chevron Deference
When reviewing an agency’s construction of a statute, the Court applies a two-step
process. The Court first determines “whether Congress has directly spoken to the precise
question at issue.” Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842
(1984). “If the intent of Congress is clear, that is the end of the matter; for the court, as well as
the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842–43.

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Second, if Congress has not unambiguously expressed its intent regarding the precise question at
issue, then the Court will defer to the agency’s interpretation unless it is “arbitrary, capricious, or
manifestly contrary to the statute.” Id. at 844.
At the first step, the Court must apply “traditional tools of statutory construction” to
determine whether the statute is ambiguous. Id. at 843 n.9. A statute is ambiguous if it is
susceptible to more than one reasonable interpretation or more than one accepted meaning.
United Servs. Auto Ass’n v. Perry, 102 F.3d 144, 146 (5th Cir. 1996). Statutory construction
begins with the language of the statute, “the specific context in which that language is used, and
the broader context of the statute as a whole.” Robinson v. Shell Oil Co., 519 U.S. 337, 341
(1997). The Court may also consider the statute’s legislative history and its purpose to ascertain
Congress’s intent. Bellum v. PCE Constructors, Inc., 407 F.3d 734, 739 (5th Cir. 2005). “The
judiciary is the final authority on issues of statutory construction and must reject administrative
constructions which are contrary to clear congressional intent.” Chevron, 467 U.S. at 843 n.9.
Section 213(a)(1) provides, in relevant part, that “any employee employed in a bona fide
executive, administrative, or professional capacity . . . as such terms are defined and delimited
from time to time by regulations of the Secretary” shall be exempt from minimum wage and
overtime requirements. 29 U.S.C. § 213(a)(1).
The State Plaintiffs assert the plain language of the EAP exemption is clear and illustrates
Congress’s intent. They argue Congress directly and unambiguously spoke about the type of
employees that must be exempt from overtime and the considerations to evaluate such
employees. Thus, the State Plaintiffs maintain that the Court should decide this issue at the first
step of the Chevron analysis.

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Defendants respond that Section 213(a)(1) is ambiguous because Congress did not
address or define the terms “bona fide executive, administrative, or professional capacity.”
Instead, Congress delegated to the Department the broad authority to interpret the terms through
regulations.1 Defendants contend the Final Rule is within its delegated authority and should be
reviewed under the deferential standard applied at the second step of Chevron.
The precise question at issue here is: What constitutes an employee employed in an
executive, administrative, or professional capacity? The statute is not silent in answering this
question. The Court assumes Congress’s intent from the plain meaning of a word when the
statute does not define a term. INS v. Phinpathya, 464 U.S. 183, 189 (1984). Because Section
213 does not define the terms “executive,” “administrative,” and “professional,” the Court
considers their plain meaning at or near the time the statute was enacted. Taniguchi v. Kan Pac.
Saipan, Ltd., 132 S. Ct. 1997, 2002 (2012). “Beyond the law itself, dictionary definitions inform
the plain meaning of a statute.” United States v. Radley, 632 F.3d 177, 182–83 (5th Cir. 2011)
(citing United States v. Ferguson, 369 F.3d 847, 851 (5th Cir. 2004)).
The Oxford English Dictionary defines “executive” as someone “[c]apable of
performance; operative . . . [a]ctive in execution, energetic . . . [a]pt or skillful in execution.”
Executive, 8 The Oxford English Dictionary (1st ed. 1933). “Administrative” is defined as
“[p]ertaining to, or dealing with, the conduct or management of affairs; executive.”
Administrative, 1 The Oxford English Dictionary (1st ed. 1933). And the dictionary defines
“professional” as “[p]ertaining to, proper to, or connected with a or one’s profession or
calling . . . [e]ngaged in one of the learned or skilled professions . . . [t]hat follows an occupation
1

Defendants repeatedly quote Auer v. Robbins, which states “[t]he FLSA grants the Secretary broad authority to
‘defin[e] and delimi[t]’ the scope of the exemption for executive, administrative, and professional employees.” 519
U.S. 452, 456 (1997). This case analyzed the application of the salary-basis test to police sergeants. But the
validity of the salary-basis test was not challenged. Auer, 519 U.S. at 457. Further, establishing a salary-basis test
does not supplant the duties test and Congress’s intent.

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as his (or her) profession, life-work, or means of livelihood.” Professional, 8 The Oxford
English Dictionary (1st ed. Supp. 1933). These words relate to a person’s performance, conduct,
or function without suggesting salary.
After reading the plain meanings together with the statute, it is clear Congress intended
the EAP exemption to apply to employees doing actual executive, administrative, and
professional duties. In other words, Congress defined the EAP exemption with regard to duties,
which does not include a minimum salary level. The statute’s use of “bona fide” also confirms
Congress’s intent. “Bona fide” modifies the terms “executive, administrative, and professional
capacity.” The Oxford English Dictionary defines “bona fide” as “[i]n good faith, with sincerity;
genuinely.” Bona fide, 1 The Oxford English Dictionary (1st ed. 1933). The plain meaning of
“bona fide” and its placement in the statute indicate Congress intended the EAP exemption to
apply based upon the tasks an employee actually performs. Therefore, Congress unambiguously
expressed its intent for employees doing “bona fide executive, administrative, and professional
capacity” duties to be exempt from overtime.
Defendants do not dispute or contest the plain meanings of “executive, administrative,
and professional” but argue the EAP exemption carries a status as well as function component.
Defendants offer the definitions of “capacity” and “position.”

In 1930, “capacity” was

understood to mean “position, condition, character, relation,” or “to be in, put into . . . a position
which enables or renders capable.” (Dkt. #51 at p. 6 (citing Capacity, 2 The Oxford English
Dictionary (1st ed. 1933))). “Position” was understood to mean “relative place, situation, or
standing; specif[ically], social or official rank or status.” (Dkt. #51 at p. 7 (citing Position,
Webster’s Dictionary (1st ed. 1942))). Despite the reference to “status” in the definition of
“position,” the Court is not convinced the plain meanings of “capacity” and “position” reference

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or imply a salary requirement as set out in the Final Rule.2 The Supreme Court interprets
“capacity” to counsel “in favor of a functional, rather than a formal, inquiry, one that views an
employee’s responsibilities in the context of a particular industry in which the employee works.”
Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156, 2170 (2012). The plain meanings of
the terms in Section 213(a)(1), as well as Supreme Court precedent, affirms the Court’s
conclusion that Congress intended the EAP exemption to depend on an employee’s duties rather
than an employee’s salary.
Section 213(a)(1) authorizes the Department to define and delimit these classifications
because an employee’s duties can change over time.3 The plain meaning of “define” is to “state
explicitly; to limit; to determine the essential qualities of; to determine the precise signification
of; to set forth the meaning or meanings of,” and the plain meaning of “delimit” is “to fix or
mark the limits of: to demarcate; bound.” Walling v. Yeakley, 140 F.2d 830, 831 (10th Cir.
1944) (internal quotation marks omitted).

While this explicit delegation would give the

Department significant leeway to establish the types of duties that might qualify an employee for
the exemption, nothing in the EAP exemption indicates that Congress intended the Department
to define and delimit with respect to a minimum salary level. Thus, the Department’s delegation
is limited by the plain meaning of the statute and Congress’s intent. Directly in conflict with
Congress’s intent, the Final Rule states that “[w]hite collar employees subject to the salary level
test earning less than $913 per week will not qualify for the EAP exemption, and therefore will
be eligible for overtime, irrespective of their job duties and responsibilities.” With the Final
2

The Court is not making a general statement on the lawfulness of the salary-level test for the EAP exemption. The
Court is evaluating only the salary-level test as amended under the Department’s Final Rule.
3
The Fifth Circuit dealt with a challenge to the EAP exemption in Wirtz v. Mississippi Publishers Corp., 364 F.2d
603 (5th Cir. 1966). The Fifth Circuit stated the EAP exemption “gives the Secretary broad latitude to ‘define and
delimit’ the meaning of the term ‘bona fide executive . . . capacity.’” Id. at 608. Wirtz is distinguishable from this
case and thus is not binding. Wirtz did not evaluate the lawfulness of a salary-level test under Chevron step one, as
Wirtz predated Chevron. Further, Wirtz offers no guidance on the lawfulness of the Department’s Final Rule salary
level.

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Rule, the Department exceeds its delegated authority and ignores Congress’s intent by raising the
minimum salary level such that it supplants the duties test.4 Consequently, the Final Rule does
not meet Chevron step one and is unlawful.5 The Department’s role is to carry out Congress’s
intent. If Congress intended the salary requirement to supplant the duties test, then Congress,
and not the Department, should make that change.
Moreover, even if Section 213(a)(1) is ambiguous, the Department’s Final Rule does not
deserve deference at Chevron step two.

The Final Rule is not “based on a permissible

construction of the statute.” Chevron, 467 U.S. at 843. Specifically, the Final Rule does not
comport with Congress’s intent. The broad purpose of 213(a)(1) was to exempt from overtime
those engaged in executive, administrative, and professional capacity duties. Since the FLSA
was enacted, the Department has promulgated regulations to define and delimit the EAP
exemption. To be exempt from overtime, the regulations require an employee to (1) have EAP
duties; (2) be paid on a salary basis; and (3) meet a minimum salary level. The Final Rule raises
the salary level from $455 per week ($23,660 annually) to $913 per week ($47,476 annually).
The salary level was purposefully set low to “screen[] out the obviously nonexempt employees,
4

The Supreme Court has decided cases in which an agency has overstepped its bounds and offered an interpretation
of a statute that “goes beyond the meaning that the statute can bear” without conducting a Chevron analysis. MCI
Telecomm. Corp., 512 U.S. at 229; see also Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034, 2040 (2012) (“We
need not resolve that dispute—or address whether, if Chevron deference would otherwise apply, it is eliminated by
the policy statement’s palpable overreach with regard to price controls.”).
5
The Fifth Circuit and the Supreme Court routinely strike down agency interpretations that clearly exceed a
permissible interpretation based on the plain language of the statute, particularly if they have great economic or
political significance. A recent Supreme Court case, King v. Burwell, involved an interpretation of a statute that
would affect millions of people and cost billions of dollars. 135 S. Ct. 2480 (2015). The Supreme Court determined
that the interpretation was an issue of deep “economic and political significance,” and “had Congress wished to
assign that question to an agency, it surely would have done so expressly.” Id. at 2489 (citation omitted). The
Supreme Court rejected the agency’s interpretation, finding it “implausible that Congress meant the Act to operate in
this manner.” Id. at 2494; see also Util. Air Regulatory Grp. v. E.P.A., 134 S. Ct. 2427, 2444 (2014) (“When an
agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the
American economy’ . . . we typically greet its announcement with a measure of skepticism. We expect Congress to
speak clearly if it wishes to assign to an agency decisions of vast ‘economic and political significance.’”); Texas,
497 F.3d at 501 n.6 (“Additionally, courts ‘must be guided to a degree by common sense as to the manner in which
Congress is likely to delegate a policy decision of such economic and political magnitude to an administrative
agency.’” (quoting FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000))).

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making an analysis of duties in such cases unnecessary.”

Harry Weiss, Report and

Recommendations on Proposed Revisions of Regulations, Part 541, at 7–8 (1949).

The

Department has admitted that it cannot create an evaluation “based on salary alone.” Id. at 23.
But this significant increase to the salary level creates essentially a de facto salary-only test. For
instance, the Department estimates 4.2 million workers currently ineligible for overtime, and
who fall below the minimum salary level, will automatically become eligible under the Final
Rule without a change to their duties. Defining and Delimiting the Exemptions for Executive,
Administrative, Professional, Outside Sales and Computer Employees, 81 Fed. Reg. 32,391,
32,405 (May 23, 2016). Congress did not intend salary to categorically exclude an employee
with EAP duties from the exemption.6

Therefore, the Final Rule should not be accorded

Chevron deference because it is contrary to the statutory text and Congress’s intent.
3. The Automatic Updating Mechanism Under the APA
Under the Final Rule, the automatic updating mechanism will change the minimum
salary level based on the 40th percentile of weekly earnings of full-time salaried workers in the
lowest wage region of the country. The State Plaintiffs claim the mechanism violates the APA
because the salary level is adjusted without a notice and comment period.

6

The Supreme Court reasoned:

Since an agency’s interpretation of a statute is not entitled to deference when it goes beyond the meaning
that the statute can bear . . . the Commission’s permissive detariffing policy can be justified only if it makes
a less than radical or fundamental change in the Act’s tariff-filing requirement . . . authority to ‘modify’
does not contemplate fundamental changes.
MCI Telecomm. Corp., 512 U.S. at 228–29. As in MCI, authority to define and delimit does not contemplate
fundamental changes or justify a radical change in the statute’s operation. Congress gave the Department the
authority to define what type of duties qualify—it did not give the Department the authority to supplant the duties
test and establish a salary test that causes bona fide EAP’s to suddenly lose their exemption “irrespective of their job
duties and responsibilities.”

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Because the Final Rule is unlawful, the Court concludes the Department also lacks the
authority to implement the automatic updating mechanism. Thus, there is no need to address the
State Plaintiffs’ other arguments.
For the reasons set forth above, the State Plaintiffs have shown a likelihood of success on
the merits because the Final Rule exceeds the Department’s authority under Chevron.
B. Likelihood of Irreparable Harm
The State Plaintiffs must demonstrate they are “likely to suffer irreparable harm in the
absence of preliminary relief.” Winter v. Nat. Res. Def. Council, 555 U.S. 7, 20 (2008). “[H]arm
is irreparable where there is no adequate remedy at law, such as monetary damages.” Janvey,
647 F.3d at 600. An injunction is appropriate only if the anticipated injury is imminent and not
speculative. Winter, 555 U.S. at 22.
Defendants suggest the State Plaintiffs allege only financial injury, which is not enough
to justify a preliminary injunction. Defendants also take issue with the State Plaintiffs’ estimates
of costs incurred under the Final Rule.
The State Plaintiffs’ proposed preliminary injunction seeks to enjoin the Department
from implementing its Final Rule on December 1, 2016. The State Plaintiffs allege that, in the
absence of a preliminary injunction, the significant cost of complying with the Final Rule will
cause irreparable injury. The State Plaintiffs offer many examples of such costs. They submit
declarations from seven state officials who estimate it will cost their respective states millions of
dollars in the first year to comply with the Final Rule. The Department agrees the Final Rule
will cause increased costs.

Defining and Delimiting the Exemptions for Executive,

Administrative, Professional, Outside Sales and Computer Employees, 81 Fed. Reg. at 32,547.
Besides costs, the State Plaintiffs also allege that compliance costs will impact governmental
programs and services. As one example, the State of Kansas must evaluate whether its agencies
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should increase the salaries of their employees to the new minimum salary level or allow these
employees to become non-exempt and eligible for overtime (Dkt. #10, Exhibit #3 at ¶ 7). In
particular, the Kansas Department for Children and Families and the Kansas Department of
Corrections have over fifty percent of employees affected by the Final Rule (Dkt. #10, Exhibit
#3 at ¶ 11). The Kansas Department for Children and Families and the Kansas Department of
Corrections are unable to increase salaries to comply with the Final Rule, as “limited resources
of both agencies are already being prioritized toward . . . critical, public safety-related
functions.” (Dkt. #10, Exhibit #3 at ¶ 12–13). As a result, agencies with budgets constraints,
such as the two in Kansas, have relatively few options to comply with the Final Rule—all of
which have a detrimental effect on government services that benefit the public. Should the State
Plaintiffs ultimately prevail on the merits of their suit, this type of injury cannot be redressed
through a judicial remedy after a hearing on the merits.
Accordingly, State Plaintiffs have shown they will suffer irreparable harm if the
preliminary injunction is not granted.
C. Balance of Hardships
When deciding whether to grant an injunction, “courts must balance the competing
claims of injury and must consider the effect on each party of the granting or withholding of the
requested relief.” Winter, 555 U.S. at 9 (citation omitted).
The State Plaintiffs contend the balance of hardships favors granting a preliminary
injunction because: (1) the States will be required to spend substantial sums of unrecoverable
public funds if the Final Rule goes into effect; and (2) the Final Rule causes interference with
government services, administrative disruption, employee terminations or reclassifications, and

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harm to the general public. Defendants respond that the balance of hardships weighs in favor of
Defendants because the State Plaintiffs have not established irreparable harm.
Here, as discussed above, the State Plaintiffs have shown a likelihood of success on the
merits and irreparable harm. Defendants have not articulated any harm they will suffer from
delaying an implementation of the Final Rule.
Accordingly, the State Plaintiffs have demonstrated that the balance of hardships weighs
in favor of preliminary injunctive relief.
D. The Public Interest
‘“In exercising their sound discretion, courts of equity should pay particular regard for
the public consequences in employing the extraordinary remedy of injunction.”’ Winter, 555
U.S. at 24 (quoting Weinberger, 465 U.S. at 312). This factor overlaps substantially with the
balance-of-hardships requirement. Id.
The State Plaintiffs assert the public interest necessitates an injunction. They argue the
Final Rule harms the public by increasing state budgets, causing layoffs, and disrupting
governmental functions.
Defendants maintain injunctive relief would harm the public. Defendants point out that
enjoining the Final Rule would deny additional pay, either from an increased salary or from
overtime payments, to those who are misclassified.
The Court finds the public interest is best served by an injunction. If the Department
lacks the authority to promulgate the Final Rule, then the Final Rule will be rendered invalid and
the public will not be harmed by its enforcement. However, if the Final Rule is valid, then an
injunction will only delay the regulation’s implementation. Due to the approaching effective
date of the Final Rule, the Court’s ability to render a meaningful decision on the merits is in
jeopardy. A preliminary injunction preserves the status quo while the Court determines the
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Department’s authority to make the Final Rule as well as the Final Rule’s validity. See, e.g.,
Texas v. United States, 809 F.3d 134 (5th Cir. 2015), aff’d by an equally divided court, 136 S. Ct.
2271 (2016) (enjoining the Department from applying a new rule pending a full determination of
the matter on the merits).
Accordingly, the Court determines that the State Plaintiffs have satisfied all of the
elements required for the issuance of a preliminary injunction.
SCOPE OF THE INJUNCTION
The parties dispute the scope of the injunction. The State Plaintiffs seek to apply the
injunction nationwide. Defendants contend a nationwide injunction is inappropriate. Instead,
Defendants suggest the injunction should be limited to the states that showed evidence of
irreparable harm.
Absent contrary intent from Congress, federal courts have the power to issue injunctions
in cases where they have jurisdiction. Califano v. Yamasaki, 442 U.S. 682, 705 (1979). It is
established that “the scope of injunctive relief is dictated by the extent of the violation
established, not by the geographical extent of the plaintiff class.” Id. at 702 (citation omitted).
A nationwide injunction is proper in this case. The Final Rule is applicable to all states.
Consequently, the scope of the alleged irreparable injury extends nationwide. A nationwide
injunction protects both employees and employers from being subject to different EAP
exemptions based on location. This Court is not alone in its decision. See Texas v. United
States, No. 7:16-cv-54, 2016 WL 4426495, at *17 (N.D. Tex. Aug. 21, 2016) (issuing a
nationwide injunction to ban enforcement of a Department of Education rule related to
transgender bathroom policies); Nat’l Fed’n of Indep. Bus. v. Perez, No. 5:16-cv-66, 2016 WL

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3766121, at *46 (N.D. Tex. June 21, 2016) (issuing a nationwide injunction to bar
implementation of the Department’s “Advice Exemption Interpretation”).
CONCLUSION
The Court determines that the State Plaintiffs have satisfied all prerequisites for a
preliminary injunction. Fed. R. Civ. P. 65(d). The State Plaintiffs have established a prima facie
case that the Department’s salary level under the Final Rule and the automatic updating
mechanism are without statutory authority. The Court concludes that the governing statute for
the EAP exemption, 29 U.S.C. § 213(a)(1), is plain and unambiguous and no deference is owed
to the Department regarding its interpretation.
Although the State Plaintiffs have made a persuasive case that Garcia may have been
implicitly overruled, this Court is constrained to follow Garcia absent an express statement from
the Supreme Court overruling it. For that reason, the Court cannot address the State Plaintiffs’
general objection that any application of the FLSA’s overtime requirement to them as sovereign
states violates the Tenth Amendment.
Because the Court concludes that 29 U.S.C. § 213(a)(1) does not grant the Department
the authority to utilize a salary-level test or an automatic updating mechanism under the Final
Rule, the Court does not evaluate the State Plaintiffs’ non-delegation argument.
Finally, the Court has authority to enjoin the Final Rule on a nationwide basis and
decides that it is appropriate in this case, and therefore GRANTS the State Plaintiffs’ Emergency
Motion for Preliminary Injunction (Dkt. #10).
Therefore, the Department’s Final Rule described at 81 Fed. Reg. 32,391 is hereby
enjoined. Specifically, Defendants are enjoined from implementing and enforcing the following
regulations as amended by 81 Fed. Reg. 32,391; 29 C.F.R. §§ 541.100, 541.200, 541.204,

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541.300, 541.400, 541.600, 541.602, 541.604, 541.605, and 541.607 pending further order of
this Court.
The Court has considered the issue of security pursuant to Rule 65(c) of the Federal
Rules of Civil Procedure and determines that Defendants will not suffer any financial loss that
warrants the need for the State Plaintiffs to post security. The Fifth Circuit has held that a
district court has the discretion to “require no security at all.” Kaepa, Inc. v. Acchilles Corp., 76

.

F.3d 624, 628 (5th Cir. 1996). After considering the facts and circumstances of this case, the
Court finds that security is unnecessary and exercises its discretion not to require the posting of
security in this situation.
IT IS SO ORDERED.

SIGNED this 22nd day of November, 2016.

___________________________________
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE

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