Co-authored by Gerald L. Maatman, Jr. and Jennifer A. Riley

Seyfarth Synopsis: In McCaster v. Darden Restaurants, the Seventh Circuit affirmed the District Court’s order denying class certification of claims for denial of earned vacation benefits at separation and granting summary judgment on part-time workers’ claims for accrual of benefits under policies that limited eligibility to full-time employees. The decision is an important one for vacation pay claims, as well as defense strategies to block class certification in wage & hour litigation.


Employers who offer vacation benefits have been subject to confusing and inconsistent rulings about eligibility requirements and accrual of benefits, along with litigation from enterprising plaintiffs’ class action lawyers seeking to take advantage of such uncertainty. On January 5, 2017, the U.S. Court of Appeals for the Seventh Circuit provided some welcome clarity when it rendered an employer-friendly decision in McCaster v. Darden Restaurants, Inc., No. 15-3258 (7th Cir. Jan. 5, 2017).

The Seventh Circuit ruled that eligibility requirements, like those limiting paid vacation benefits to full time employees, do not run afoul of “length of service” concepts that prohibit forfeiture of earned vacation benefits upon separation. Further, the Seventh Circuit set the bar for plaintiffs seeking to pursue such violations on a class-wide basis, holding that they may not do so without demonstrating an unlawful practice that spans the entire class of individuals subject to the vacation policy. As such, the Seventh Circuit’s opinion should have far-reaching implications.

Factual Background

Plaintiffs worked intermittently as hourly employees at Darden-owned restaurants for a period of time spanning roughly eight years. Id. at 2. McCaster worked primarily worked at a Red Lobster before June 1, 2008, and Clark primarily worked at an Olive Garden after June 1, 2008. Id. at 2-3.

During this time, Darden paid eligible employees vacation or “anniversary” pay when they reached the annual anniversary of their hiring date. Id. at 3. When an employee ceased working for the company, Darden included in the employee’s final paycheck the pro rata amount of anniversary pay he had earned prior to the date of separation. Id. Starting June 1, 2008, Darden limited vacation pay to full-time employees, defined as those who worked at least 30 hours per week. Id.

In this proposed class action, McCaster alleged that, prior to June 1, 2008, Darden failed to pay him accrued vacation pay when he left his job at Red Lobster, even though he had earned about 12 vacation hours in violation of the Wage Payment Collection Act (“IWPCA”). Id. Clark alleged that, after June 1, 2008, Darden failed to pay her vacation pay when she separated from employment. Id. at 3-4.

Plaintiffs moved to certify a class of “[a]ll persons separated from hourly employment with [Darden] in Illinois . . . who were subject to Darden’s Vacation Policy … and who did not receive all earned vacation pay benefits.” Id. at 4. The District Court rejected this definition because it described an improper fail-safe class. The District Court also rejected the plaintiffs’ proposed alternative definition because it failed to meet the requirements of Rule 23. Id.

Darden moved for partial summary judgment on Clark’s individual claim. Id. The company argued that Clark was not eligible for vacation pay during the relevant time period because she worked part-time. The District Court agreed and granted the motion. Id. at 5. McCaster subsequently settled his individual claim but reserved the right to appeal the denial of class certification. This appeal followed.

The Seventh Circuit’s Opinion

The Seventh Circuit affirmed the District Court’s orders denying class certification and granting summary judgment.

At the outset, the Seventh Circuit held that, because Darden’s vacation-pay policy covered only full-time employees, Clark did not qualify for benefits. Id. at 5. Clark argued that if an employer provides paid vacation to its full-time employees on a pro rata length-of-service basis, it may not deny this same benefit to its part-time employees. The Seventh Circuit rejected Clark’s argument.

The Seventh Circuit held that Clark’s interpretation had no support in the text of the IWPCA, its implementing regulations, or in Illinois cases interpreting it: “[T]he Act merely prohibits the forfeiture of accrued earned vacation pay. Whether an employee has earned paid vacation in the first place depends on the terms of the employer’s employment policy.” Id. at 6. Because Clark did not work full time, she did not accrue benefits subject to forfeiture at separation.

The Seventh Circuit further concluded that the District Court did not abuse its discretion in denying class certification. Id. at 8. The Seventh Circuit held that, under Plaintiffs’ class definition, class membership turned on whether class members had valid claims. As such, Plaintiffs defined “a classic fail-safe class,” which the District Court properly rejected. Id. at 9.

Although Plaintiffs offered an alternative definition free from fail-safe concerns, including “[a]ll persons separated from hourly employment with [Darden] in Illinois . . . who were subject to Darden’s Vacation Policy.” the Seventh Circuit held that the District Court properly rejected it for failure to satisfy the requirements of Rule 23. Id. at 10.

The Seventh Circuit concluded that Plaintiffs’ alternative class failed to satisfy the commonality requirement. Id. at 11. Whereas the proposed alternative class consisted of all separated employees from December 11, 2003, to the present, Plaintiffs failed to identify any unlawful conduct on Darden’s part that spanned the entire class and caused all class members to suffer the same injury. Plaintiffs simply argued that some separated employees did not receive all the vacation pay they were due. The Seventh Circuit noted that “[t]hat may be true, . . . But establishing those violations (if there were any) would not involve any classwide proof.” Id. at 12.

Implications For Employers

The Seventh Circuit provided welcome clarity for employers that maintain vacation policies by cutting through conflicting case law and setting the bar for class certification of supposed violations. McCaster establishes that employers may set eligibility requirements that differentiate workers and rejects the notion that part-time workers accrue vacation benefit under a policy that limits participation to full-time employees. Further, in setting a bar for certification of such cases, the Seventh Circuit made clear that the commonality requirement remains a significant threshold for plaintiffs seeking to litigate their claims on a representative basis. It rejected the notion that mere violations of a pay policy are eligible for resolution on a class basis without some evidence of a state-wide practice that caused all class members to suffer the same injury. As a result, the opinion should have far-reaching and lasting impact.

coins-currency-investment-insurance-128867Co-authored by Robert S. Whitman and Howard M. Wexler

With employers about to ring in 2017, the New York State Department of Labor—with only two days to spare—has finalized regulations to increase the salary threshold for exempt status. The regulations, originally introduced on October 19, 2016, take effect on December 31, 2016.

Employers were hopeful that the State would abandon (or delay) these regulations given the now-enjoined U.S. Department of Labor’s overtime exemption rules that were set to go into effect on December 1, 2016. In response to such concern, however, the State DOL noted, “this rulemaking is not based on, or related to, the federal rulemaking concerning salary thresholds…this rulemaking is required by law and non-discretionary. Its purpose and effect is to maintain the longstanding historical relationship between minimum wage and salary threshold amounts…”

In keeping with the upcoming gradual increase in the State’s minimum wage levels, the new tiered salary thresholds for exempt status across the state will be:

Large Employers (11 or more employees) in New York City

  • $825.00 per week on and after December 31, 2016;
  • $975.00 per week on and after December 31, 2017; and
  • $1,125.00 per week on and after December 31, 2018.

Small Employers (10 or fewer employees) in New York City

  • $787.50 per week on and after December 31, 2016;
  • $900.00 per week on and after December 31, 2017;
  • $1,012.50 per week on and after December 31, 2018; and
  • $1,125.00 per week on and after December 31, 2019.

Employers in Nassau, Suffolk, and Westchester Counties

  • $750.00 per week on and after December 31, 2016;
  • $825.00 per week on and after December 31, 2017;
  • $900.00 per week on and after December 31, 2018;
  • $975.00 per week on and after December 31, 2019;
  • $1,050.00 per week on and after December 31, 2020; and
  • $1,125.00 per week on and after December 31, 2021.

Employers Outside of New York City, Nassau, Suffolk, and Westchester Counties

  • $727.50 per week on and after December 31, 2016;
  • $780.00 per week on and after December 31, 2017;
  • $832.00 per week on and after December 31, 2018;
  • $885.00 per week on and after December 31, 2019; and
  • $937.50 per week on and after December 31, 2020.

In addition to the increased salary levels, the new regulations adjust the amount employers can deduct for employees’ uniforms and claim as a meal and tip credit in line with the gradual increase of the minimum wage toward $15. There is a tiered system for these changes as well depending on the employer’s location.

Authored by

Seyfarth Synopsis: In what many employers will see as a “break” from workplace reality, the Supreme Court, in Augustus v. ABM Security Services, Inc., announced that certain “on call” rest periods do not comply with the California Labor Code and Wage Orders. As previously reported on our California Peculiarities Employment Law Blog, this decision presents significant practical challenges for employers in industries where employees must respond to exigent circumstances.


On December 23, 2016, the California Supreme Court issued its long-anticipated decision in Augustus v. ABM Security Services, Inc., affirming a $90 million judgment for the plaintiff class of security guards on their rest break claim. The Supreme Court found that the security guards’ rest breaks did not comply with the California Labor Code and Wage Orders, because the guards had to carry radios or pagers during their rest breaks and had to respond if required.

The Supreme Court took a very restrictive view of California’s rest break requirements, concluding that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest breaks.” Thus, in the Supreme Court’s view, an employers may not require employees to remain on call—“at the ready and capable of being summoned to action”—during rest breaks.

See our One Minute Memo for more details on the decision and thoughts on the implications of this case for California employers. The Augustus decision presents significant practical challenges for employers, especially in industries in which employees must be able to respond to exigent circumstances.

Workplace Solution:

The holding that “on call” rest periods are not legally permissible should prompt employers to evaluate their rest-break practices. In industries where employees must remain on call during rest periods, employers should consider seeking an exemption from the Division of Labor Standards Enforcement. Lawyers in the Seyfarth California Workplace Solutions group can assist with other suggestions for responding to this decision.

Co-authored by Steve Shardonofsky and Tiffany Tran

Resolving a split in the lower courts and deciding an issue of first impression for the Court, the Fifth Circuit earlier this week held that prevailing plaintiffs in FLSA retaliation cases may recover emotional distress damages. While perhaps not unexpected, since the result joins with the majority rule in other Circuits, the outcome means that the costs to litigate these claims and the potential exposure may increase dramatically by the inclusion of possible emotional distress damages. The number of claims will likely increase as well, since plaintiffs with little or no economic damages now have another reason to sue.

In Pineda v. JTCH Apartments, LLC, Santiago Pineda filed an FLSA lawsuit to recover overtime for maintenance work he performed for the property owner (JTCH Apartments, LLC) at the apartment complex where he and his wife, Maria Pena lived. In exchange for the work, Pineda claimed he received discounted rent, but was not paid overtime. Three days after Pineda filed suit, Pineda and Pena received a notice to vacate their apartment for non-payment of rent equal to the amount of the prior rent discounts. After leaving the apartment, Pena (who leased the apartment) subsequently joined her husband’s lawsuit and both of them asserted retaliation claims, alleging that the eviction notice and demand for rent owed were meant to punish them for the initial overtime suit. A jury ultimately found for Pineda on both his overtime and retaliation claims. The district court refused to instruct the jury on Pineda’s emotional distress damages for his retaliation claim and also dismissed Pina’s retaliation claim because she was not an “employee” of JTCH Apartments and therefore could not assert claims under the FLSA.

Numerous federal appellate courts (including the First, Second, Sixth, Seventh, and Ninth Circuits) have directly and indirectly allowed for the recovery of emotional distress damages in in FLSA retaliation cases. Acknowledging this background, the Fifth Circuit found that the language in the FLSA’s damages provision allowing “such legal or equitable relief as may be appropriate ” should be read expansively to include compensation for emotional distress that is typically available for intentional torts like retaliatory discharge. In so holding, the Fifth Circuit distinguished its prior ruling that emotional distress damages are not available under the ADEA, even though both statutes contain somewhat similar language and should be interpreted consistently. The Court also found that Pineda’s testimony regarding marital discord, sleepless nights, and anxiety about where his family would live after the eviction was sufficient to have the jury decide this issue.

Citing Thompson v. N. Am. Stainless, LP, Pena alleged that as the spouse of an employee who was retaliated against she was within the “zone of interests” protected by the statute. The Fifth Circuit, however, rejected this argument because Thompson applied under Title VII, which applies to a “person claiming to be aggrieved,” whereas the anti-retaliation provision of the FLSA makes it unlawful to discharge or discriminate against “any employee.” The Court affirmed dismissal of Pena’s claim and remanded the case for a determination about whether Pineda is entitled to compensation for emotional distress.

Although not unexpected, the result in Pineda means that potential exposure, settlements, and jury awards for FLSA retaliation claims in the Fifth Circuit may increase dramatically by the inclusion of possible emotional distress damages. The cost to defend these claims will increase as well, as parties will be required to investigate and litigate these fact-intensive damages issues. The number of claims may increase over time as well, since plaintiffs with little or no economic damages now have another reason to pursue their claims. On the other hand, with a resounding “no,” the Fifth Circuit has quashed any lingering doubt about whether a Thompson-style “zone of interests” test applies under the FLSA.

Authored by Alex Passantino

It’s the week before Christmas; ’16’s nearly done.
As we sit back and ponder the Year of 541.
The journey’s been long; it’s taken some time.
What’s happened thus far? Let us tell you in rhyme.

As the year drew anew, we sat with breath bated,
While within DOL they discussed and debated.
Should we take our proposal and set it on fire?”
“Take the percentage of time test and set the bar higher?”

“No, we meant what we said and we said what we meant,
We’ll still increase the salary, but we’ll change the percent.”
“Messing with duties will cause us nothing but trouble,
So just take the old salary, and make the new one be . . . double.”

From the moment it published, the rule came under attack.
Even Congress started plotting to take it all back.
But summer it came, then autumn did too.
And raises or OT would be in on 12/2.

With communications all drafted . . . maybe one last correction,
The narrative changed with November’s election.
Might the rules be undone by a Trump Administration?
Or would December’s due date cause such plans great frustration?

We considered . . . while preparing for our Turkey Day function,
When a court in East Texas stopped the rules by injunction.
A week before kickoff. For some ‘twas too late.
For others, they scooped up their plans and yelled “Wait!”

With more motions, appeals, and attempts to intervene,
We look at it all and ask “What does this mean?”
There’s gossip, speculation, and some wack-a-doo theories.
Apropos for a year when the Cubs won the Series.

We’ll know when we know, maybe a few days before.
More excitement is what ‘17 has in store.
But before we look forward, we’ll take one last look back.
Because wage-hour issues this year did not lack.

Some employers may feel there’s less cause for concern
When facing a lawsuit filed by an intern.
And as they consider which students their program will host,
Pay special attention to who benefits most.

California, of course, continued its wage-hour saga.
Whether sitting or standing or some thing they call PAGA.
And if plaintiffs have no trial plan, make sure you get your shots in,
Before calculating piece rate using IBM’s Watson.

Turning back east, we recall how DOL’s year went,
Beginning with January’s missive about joint employment.
A description of vertical and horizontal relations,
Should it “meet with an accident,” there’ll be standing ovations.

Spring brought a trip to SCOTUS for the service advisor.
DOL changed the reg; its explanation? “We’re wiser.”
But for positions the agency has held very long,
The Supremes told the Department “Hey, you’re doing it wrong.”

The rest of the year deserves more time to expound.
From exempt underwriters to permission to round.
And here’s hoping that someday the world will just get it,
And create a singular rule that involves the tip credit.

Decertification. Half-time. Franchise compliance.
A wide breadth of issues that appear with reliance.
But the future’s a mystery, so with great anticipation,
Happy New Year, and Thank You — Love, wagehourlitigation.

Authored by Robert S. Whitman and Howard M. Wexler

Amid the uncertainty concerning the DOL’s enjoined overtime exemption rules and similar state-led efforts to increase the salary threshold, such as in New York, the Second Circuit recently gave employers an early holiday present when it resolved a long-standing split among New York federal courts and held that “New York’s law does not call for an award of New York liquidated damages over and above a like award of FLSA liquidated damages.”

Under the FLSA, an employer that underpays an employee is liable in the amount of those unpaid wages “and in an additional equal amount as liquidated damages” if it did not act in good faith.  Similarly, under the NYLL, liquidated damages in the amount of 100% total wages due are mandatory unless the employer proves its good faith.  The NYLL is silent as to whether it provides for liquidated damages in cases where liquidated damages are also awarded under the FLSA.

In Chowdury v. Hamza Express Food Corp. et al., an employee challenged the damages award he received after his former employer defaulted in his lawsuit for unpaid wages under the FLSA and New York Labor Law.  The employee sought two discrete liquidated damages awards: one under the FLSA and one under the NYLL.  Noting a split among district courts as to whether such “cumulative” or “stacked” liquidated damages awards are available, the Magistrate Judge recommended denial of a cumulative award, concluding that it would be an unfair double recovery.  The District Court adopted the Magistrate Judge’s recommended ruling.

The Second Circuit affirmed.  It held that “double recovery” of liquidated damages under the FLSA and NYLL was unwarranted. “Had the New York State legislature intended to provide a cumulative liquidated damages award under the NYLL, we think it would have done so explicitly in view of the fact that double recovery is generally disfavored where another source of damages already remedies the same injury for the same purpose.”  Accordingly, the court held, “In the absence of any indication otherwise, we interpret the New York statute’s provision for liquidated damages as satisfied by a similar award of liquidated damages under the federal statute.”

The decision is a big win for employers as it resolves what has frequently been a bone of contention between parties litigating (and trying to resolve) wage and hour lawsuit in New York brought under the FLSA and NYLL, and potentially could be used in other states where penalties under wage-and-hour laws serve the same purpose as the FLSA’s liquidated damages provision.  The potential exposure in New York cases is already high enough to give employers the holiday blahs:  back wages, 100% liquidated damages, 9% pre-judgment interest, a 6-year limitations period, and attorneys’ fees.  This decision at least removes the possibility that plaintiffs will claim, like George Costanza, an entitlement to “double dip.”

Happy Holidays!

Authored by Michael Kopp

With all the drama of a get-away chase, the Third Circuit recently brought to a screeching halt plaintiffs’ counsel’s elaborate maneuvers to end run repeated decertification of their FLSA actions, and held as a matter of first impression in Halle v. West Penn Allegheny Health System, Inc. that opt-in plaintiffs have no right to appeal decertification. The decision is important for three reasons. First, it offers a road block against the use of opt-in plaintiffs to appeal a decertification order, including where the named plaintiffs’ claims have been mooted. Second, it offers instruction on how to structure class notices to foreclose potential opt-in appeals. Third, it underscores the heightened strategic value of Rule 68 offers to named plaintiffs in FLSA actions after decertification to block appeals.

In a long and winding procedural path, plaintiffs’ counsel employed a “whack a mole” strategy to keep the possibility of a collective action alive after successive certification defeats. Counsel originally filed two separate FLSA collective actions, asserting claims that two hospitals and their affiliates failed to compensate work performed during unpaid meal period times. After conditional certification of the separate actions, over 3,000 and 800 individuals respectively opted into the two actions. In a happier moment in this narrative, the district court judges decertified the actions, due to differences in practices for reversing the 30-minute automatic deduction for meal periods, and differences in job duties and supervision that would impact whether work was performed during meal periods.

Plaintiffs’ first escape maneuver was a voluntary dismissal of their claims with prejudice, in the hopes of prompt appellate review of the interlocutory decertification orders. Instead, the Third Circuit rejected this “procedural slight-of-hand,” and held that by dismissing their claims, the named plaintiffs had mooted their claims (along with any right to challenge decertification). The appeals were dismissed for lack of jurisdiction.

Not to be deterred, plaintiffs’ counsel filed two new class actions against the same hospital defendants, with only slight modifications to the proposed class. The district courts promptly slammed the brakes, struck the collective allegations, and held that issue preclusion barred the named plaintiffs (who were opt ins in the prior actions), from re-litigating the prior decertification decision. In what appeared to be the end of the road, the employers then mooted the named plaintiffs’ claims by extending Rule 68 offers which were all accepted.

Not willing to give up the chase, plaintiff’s counsel deployed opt-in plaintiffs to appeal the order striking the collective allegations, claiming the opt-ins were “party plaintiffs” with full rights to appeal. The Third Circuit rejected these “procedural gymnastics,” finding that (1) the order striking the collective allegations effectively dismissed the opt-ins as parties to the action, and they therefore could not appeal the subsequent judgments, and (2) the opt-ins had signed consent forms ceding the individual authority to litigate, including the right to appeal. The Third Circuit recognized the claimed “unfairness” of leaving the opt-in plaintiffs without an opportunity to appeal where the employer “picked off” the named plaintiffs. Nonetheless, the court found that the “potential for unfairness” cannot trump an absence of jurisdiction.

Halle is, accordingly, important guidance in structuring class notices, and highlights the continuing strategic value of Rule 68 offers later in the action, including to moot claims and thereby potentially obtain expedited finality for a decertification order.

SDFLAuthored by Christopher Kelleher and Noah Finkel

Seyfarth Synopsis: Federal court denies motion for conditional certification for a proposed class of employees working at separate Subway franchises.

Earlier this year, the DOL’s Wage-Hour Division issued a much-publicized Administrator Interpretation on what employers constitute joint employers, including an explanation of how two or more employers under common ownership can constitute “horizontal” joint employers.  As articulated by the WHD’s sweeping pronouncement, it appeared that virtually any jointly-owned entities might constitute joint employers, at least in the eyes of the WHD.

But in a victory for employers in the battle over joint employer status, a federal district judge in the Southern District of Florida recently denied a motion for conditional collective action certification for a group of Subway employees of different franchises with common ownership.  In Aguiar, et al. v. Subway 39077, Inc., Timothy E. Johnson, et al., plaintiff Yirandi Aguiar sought collective action certification for the overtime claims for all “Store Managers” working at approximately 38 Subway franchises owned and operated as separate corporate entities by Timothy Johnson in Southern Florida.

Applying the usual “fairly lenient standard” to determine whether conditional collective action  certification was warranted, the Court rejected Aguiar’s attempt to certify the collective on several levels.  First, the proposed collective was comprised of individuals employed by approximately 38 separate, non-party corporate entities.  Second, Aguiar only provided “Consent to Join” forms and affidavits from three individuals including herself, and thus failed to sufficiently show the existence of other employees who wished to opt into the action.

Third, and most significantly, even if Aguiar could satisfy these first two elements, the Court found that the putative plaintiffs were not similarly situated.  In making this determination, the Court noted that the individuals worked at separate corporate entities, and Aguiar did not show that she or other employees were authorized to sell or make sandwiches at any other of the 38 franchises.  Additionally, the franchises were spread throughout Southern Florida, and thus were not geographically concentrated.  And finally, Aguiar failed to provide information regarding a joint payroll department or joint supervision over the proposed collective action members.

This case demonstrates that even under the “lenient standard” described above, merely alleging common ownership over a number of franchises is not enough to show joint employment status or to obtain a broad conditional certification order.

Authored by Seyfarth’s Wage & Hour Litigation Practice Group

Late Tuesday afternoon, Judge Amos Mazzant of the United States District Court for the Eastern District of Texas issued an order enjoining the U.S. Department of Labor’s implementation and enforcement of the new overtime exemption rules that were set to go into effect on December 1, 2016. The court granted a motion for preliminary injunction filed by the attorneys general of 22 states, in which the states argued among other things that the new rules were unlawfully promulgated and would be likely to cause irreparable harm to the states that requested the injunction. The court also considered amicus arguments made by various chambers of commerce and trade associations, which filed a companion case asserting similar and separate grounds for overturning the DOL’s new rules. Although the court’s order leaves some room for confusion on this point, it appears to apply to all public and private sector employers nationwide.

Although an important and exciting step in the right direction, this is not the final word.

First, this is a temporary injunction. It contains strong suggestions of what the court might ultimately do with a final determination regarding whether to invalidate the new rules. It explains various reasons why the rules are unlawful. But, at this time, all of those reasons and the results they might ultimately justify are preliminary.

Second, unlike most pre-judgment orders, an order granting or denying a preliminary injunction is immediately appealable. On appeal, the appellate court applies an abuse of discretion standard. Generally speaking, a court abuses its discretion by (1) committing an error of law, such as applying an incorrect legal standard, (2) basing the preliminary injunction on a clearly erroneous finding of fact, or (3) issuing an injunction that contains an error in form or substance. There are aspects of the court’s order that the federal government might argue prove each of these points. But it is fair to say that the Fifth Circuit Court of Appeals, which is the court that would hear the government’s appeal, rarely overturns orders granting preliminary injunctions. Within the past several decades, it has done so very few times.

Third, if it does not win reversal of the district court’s order in this case, it is conceivable that the government would seek review by the U.S. Supreme Court. Even if the Court of Appeals were to reverse, the States and Associations could petition the Supreme Court for review. Given the current composition of the Court, a 4 – 4 decision would leave the Fifth Circuit’s decision intact, leaving open the possibility that other Circuits, when confronted with the issue, could rule differently. That would create a difficult dilemma for employers that operate in multiple states across the country.

Fourth, if the plaintiffs ultimately prevail in securing the court’s judgment that the DOL’s new rules are unlawful, the federal government will have another opportunity to appeal. With the passage of time necessary for the parties to litigate their respective positions through judgment and then to wind their way through the appellate process, it is hard to predict whether an appeal would actually follow. The new administration, its new Secretary of Labor, and its new Solicitor of Labor would likely have much to consider by that point. And this sets aside for the moment the possibility that the congress will successfully pass—and the new president will sign—a Congressional Review Act resolution, mooting the need for further litigation at all.

To put it simply, the court’s ruling on Tuesday creates a significant amount of uncertainty that is going to last for a while longer. And it begs the enormous question: What should businesses do in reaction to the court’s preliminary injunction?

Many businesses are very far along in their plans to comply with the new rules by December 1. Many have already begun their communications with employees whose pay or classification would be impacted because of the new rules. Some have already effected changes impacting those employees. Further, those businesses that had not taken steps to comply have employees who have almost certainly heard about the rules and have assumed they would soon receive raises or become overtime eligible.

In that light, the injunction—though heralded as a positive development for businesses—has the potential to create significant risk and disruption. A careful hand is required. Obviously there is much to consider and much more to do. But here is a deft starting point:

  • If changes are about to be made, consider whether they can be postponed while stakeholders decide what further steps should be taken. The decision whether to postpone changes and what further steps to take must account for any payroll, timekeeping, and human resources changes are in progress. Can those changes be stalled as well, without unacceptable costs and other business disruptions?
  • If communications are set to be distributed to employees who would be impacted by the December 1 rule, postpone them while stakeholders develop their next steps plan.
  • If changes have not been made but communications have been distributed or begun, consider whether a revised communication plan can be executed while postponing the changes that have not yet been made. Any revised communications plan should begin with the fundamental explanation that: A federal court in Texas has issued an order that makes it uncertain how the FLSA’s overtime pay exemptions apply to employees who would be impacted by the new rules that were to go into effect on December 1. Because of the court’s order, those rules will not go into effect as expected. To ensure that it is able to follow the laws that govern how employees are paid under the FLSA, the company has revised its plans and will be reporting back to you soon about how this will impact you.
  • If communications have been distributed and changes have been made, stop and consider carefully how to proceed. Because this is an extremely positive result achieved by the plaintiffs in Texas, some business may be excited to quickly undo the changes that they made. Caution and care are advisable.
  • Employees who have been reclassified from exempt to nonexempt status or who have received pay raises will have begun to acclimate to their new status and pay. An abrupt change could cause them to seek assistance from a plaintiff’s lawyer, and could open a Pandora’s Box of potential (hopefully unjustifiable) claims.

For businesses that have not done anything to prepare for the December 1 rule, keep your eyes and ears open for further developments.

Of course, these are also not the final words on how businesses should adapt their actions to the turbulence that this otherwise positive court ruling could cause. What is important is that business stakeholders consider carefully what their next steps will be and to weigh carefully the costs and benefits of available options. A careful plan will help to avoid further business disruptions, unhappy workforces, and plaintiffs’ lawyers.

Capitol HillAuthored by Alex Passantino

As the nation waited for the final states to be called in the early morning hours on Wednesday, we here at the Wage & Hour Litigation Blog focused on our one thing:  what impact would the result have on the DOL’s overtime exemption regulations scheduled to go into effect on December 1, 2016?  How does the election of a Republican House, a Republican Senate, and President-Elect Donald Trump change what employers should be doing as we speed towards the December 1 deadline?

The short answer is that — at least for the near-term — employers should continue the same way as they have been, with a laser focus on being in compliance by December 1.

That being said, there are a couple of ways that the regulations can be stopped before December 1.  And there are a couple of others that may change the game after December 1.

The first path is through the Eastern District of Texas.  As we have reported previously, 21 states and dozens of trade associations filed separate lawsuits (which since have been consolidated) challenging the overtime exemptions rules on a variety of grounds.  A hearing on the states’ motion for injunctive relief is scheduled for next week, on November 16.  The trade associations are being permitted to participate as amici in the states’ case, and also have filed an expedited motion for summary judgment.  It is possible that the judge will enjoin the rules in advance of the December 1 effective date.  As is the case with most litigation, however, that result is less than certain.

A second pre-December 1 path to stopping — or at least delaying — the overtime exemption regulations is through Senator Alexander’s Overtime Reform and Review Act, S. 3464.  That bill would — by statute, not by regulation — increase the salary level to $692 per week on December 1, 2016, then increase it again in 2018, 2019, and 2020 until it hit $913/week.  The bill also contains special provisions protecting nonprofit, state and local government, and education employers from salary increases unless certain conditions are met.  Although the Senate has been expected to take up the bill upon return to Capitol Hill, the short legislative calendar and the threat of a veto by President Obama pose significant hurdles to relief before the December 1 deadline.

Once we get into 2017, there are additional tools at the disposal of Congress and a Trump Administration.  With the new salary level taking effect nearly eight weeks before Inauguration Day, however, there will be substantial political calculations involved in any use of those tools.

One tool is the seldom-used Congressional Review Act, a law that allows Congress to review and disapprove new agency regulations within prescribed time periods.  Congress could pass a “resolution of disapproval” of the new regulations that would have the effect of rescinding the rules.  Under the CRA, any regulation issued within the final 60 legislative days before Congress adjourns sine die is treated as having been issued on the 15th legislative day of the next session of Congress.  This allows the CRA resolution to be considered by the new Congress and, in this case, the new President, which makes it much more likely that the resolution will be successful.  Because the final 60 legislative days can be counted only in retrospect, the regulations that might be subject to this procedure are unknown.  An early estimate placed the “deadline” at May 16, 2016.  The overtime exemption rules were issued on May 23, 2016, which would place them within the review period.  Whether they actually fall within that period depends on how much Congress is in session over the coming weeks.  Assuming the overtime exemption rules fall within the relevant period, in the next session of Congress, and after January 20, 2017, President Trump could sign the CRA resolution, which would make it as if the rules never existed.

Finally, we could see rulemaking by the Trump Administration, such as a notice-and-comment rulemaking revising the salary level downward and/or eliminating the three-year automatic update provision.  Going through the notice-and-comment process would be time-consuming and likely would not result in any relief on the salary level until well into 2017, at best.

Ultimately, employers should continue their efforts to be compliant by December 1.  There are far too many variables at this point to conclude otherwise.