Co-authored by Brett Bartlett, Alex Passantino, and Kevin Young

Seyfarth Synopsis: On Thursday afternoon, a federal judge in Texas issued an order officially invalidating the U.S. Department of Labor’s 2016 overtime rule, which would have more than doubled the minimum salary level for most overtime-exempt employees. While the long awaited ruling brings a measure of closure for employers, the possibility of appeal, as well as the new administration’s efforts to revise the existing overtime exemption rules, will be critical issues for employers watch in the weeks and months to come.

For nearly a year, employers have been watching and waiting as litigation challenging the Obama administration’s revision to the FLSA’s executive, administrative, and professional (“EAP”) exemptions—a revision intended to make millions of more Americans eligible for overtime pay—wound its way through litigation in the Eastern District of Texas and the Fifth Circuit of Appeals. As of Thursday afternoon, the waiting is over: District Judge Amos Mazzant issued an order invalidating the revised rule.

The Obama DOL’s revised rule, which was finalized in the summer of 2016 and slated to take effect on December 1, 2016, would have increased the salary level required for EAP employees from $455 per week (i.e., $23,660 per year) to $913 per week (i.e., $47,476 per year). The rule also called for automatic, inflation-indexed updates to the salary level every three years. Ultimately, the revised rule did not become effective on December 1, however, because Judge Mazzant issued an order days prior that preliminarily enjoined it from going into effect.

District Judge Mazzant issued his order in two consolidated lawsuits challenging the DOL for acting beyond its rulemaking authority. The order was the result of a motion filed by a group of state attorneys general who argued that the DOL’s rulemaking was invalid, in part because it exceeded the authority Congress gave DOL to define who is a “bona fide” EAP employee who should not be entitled to overtime pay. At about the same time that the “state plaintiffs” filed their motion for preliminary injunction, which the district court granted, another set of plaintiffs—a group of business associations (“business plaintiffs”)—filed an expedited motion for summary judgment, advancing similar arguments that the DOL’s rulemaking was unlawful.

After Judge Mazzant granted the state plaintiffs’ preliminary injunction motion, the Obama DOL filed an interlocutory appeal in the Fifth Circuit attacking the injunction order. Importantly, however, this was just before the Trump Administration took office. Ultimately, briefing in the appeal was delayed as a new president settled into office and his new Labor Secretary, Alexander Acosta, took the helm at DOL. In doing so, Secretary Acosta and his Acting Solicitor were required to assess how to maneuver a proceeding involving an injunction order that on the one hand blocked the implementation of an overtime rule championed by the prior administration, but on the other hand suggested that the DOL might not have authority to set any salary level for the EAP exemptions, despite having done so for nearly eighty years.

In the meantime, the business plaintiffs’ motion for summary judgment lingered before the district court.

Thursday’s ruling was preceded by a recent flurry of activity. On Wednesday, for example, Judge Mazzant issued an order confirming no further argument was necessary on the summary judgment motion. The court also collapsed the state plaintiffs’ and business plaintiffs’ cases together and joined the state plaintiffs to the business plaintiffs’ pending summary judgment motion. Nevertheless, it seemed unlikely that Judge Mazzant would rule on the summary judgment motion before hearing from the Fifth Circuit regarding his earlier preliminary injunction order. After all, an appellate ruling on whether it was proper to preliminarily enjoin the new rule certainly could have impacted or at least informed Judge Mazzant’s reasoning on whether the rule should be declared invalid, as the summary judgment motion argued it should.

Meanwhile, at the Fifth Circuit, oral argument was slated for October 3, and the parties were jockeying for an opportunity to be heard. The business plaintiffs, who were not parties to the appeal, requested permission to appear as amici at the oral argument. Soon thereafter, all parties filed a motion to stay proceedings while they attempted to negotiate a deal that would eliminate the need for further proceedings. Indeed, even on Thursday as the district court was issuing its final judgment, the parties on appeal were filing various submissions with the Fifth Circuit.

So perhaps all were surprised when District Judge Mazzant issued orders finding that the DOL’s 2016 rulemaking was invalid, and that the AFL-CIO would not be joined to the case. The district court’s ruling on both of these issues is fairly straightforward. On the motion for summary judgment, which collapsed all parties and remaining issues into its walls, the court ruled as follows:

  • As associations and similar groups, the business plaintiffs had standing to challenge the DOL’s rulemaking.
  • The FLSA does in fact apply to state governments, contrary to the state plaintiffs’ arguments.
  • Applying Chevron deference analysis, the DOL exceeded its authority by setting a salary level test that in effect eliminated the need to consider whether employees performed duties that demonstrate their roles working in a bona fide EAP capacity, based on definitions that Congress would have understood at the time it enacted the FLSA.
  • The automatic updating provided by the DOL’s final 2016 rule was unlawful for similar reasons.
  • Clarifying an area of concern for the DOL and other stakeholders, the court did not rule on the question of whether the DOL has authority to set any salary level for the EAP exemptions. The court’s ruling concerned only the 2016 rulemaking, finding the heightened salary level under the revised rule goes too far.

In denying the AFL-CIO’s motion to intervene as a necessary or permissive party, the court reasoned:

  • The union’s motion was untimely, as it had been aware of the litigation and the issues on which it bore. Yet it waited to file its motion to intervene until material events had occurred in the litigation.
  • The union failed to show that the DOL and related defendants were not adequately representing the interests that it purported to protect.
  • The union had argued among its primary points that Secretary of Labor nominee Andrew Puzder would not protect those interests; but Alexander Acosta was confirmed as Secretary of Labor, meaning that Mr. Puzder’s potential actions never became a reality.
  • And the court would nevertheless not exercise its discretion to allow the union to join the case.

The question on everyone’s mind is: where does this leave us?

One easy answer is that with respect to the EAP exemption itself, the 2004 rule remains in place. Employees making $455 per week (i.e., $23,660 per year) and whose primary duty satisfies one of the EAP duties tests may be classified as exempt.

Beyond that, there are no easy answers. The parties are no doubt considering whether the district court’s summary judgment order, which purports to withdraw all prior rulings, renders the pending appeal moot or requires its dismissal. After all, the summary judgment motion decided by the district court presents largely the same issues currently before the Fifth Circuit—namely, the validity of the new overtime rule. Some commentators have already exclaimed that the district court’s order mooted the interlocutory appeal entirely. Our view is that the question could be more complicated. Suffice it to say, there’s a lot to digest.

Either way, it also remains unclear whether either side will appeal Thursday’s rulings. While one would assume that DOL will not, we can’t slam the door on the possibility. As we saw with the appeal of the preliminary injunction, even the new Administration’s policy differences may not override DOL’s desire to defend itself against court orders limiting its authority, as the preliminary injunction did and as the court’s summary judgment order appears to do. If DOL determines that there is an institutional need to preserve its rulemaking authority, then it is possible we might see a DOL-initiated appeal, which would further complicate the question of how the union might agitate the proceedings.

As for the AFL-CIO, next steps are even foggier at this moment. Given that the DOL has already signaled the commencement of new rulemaking on the EAP exemptions, the AFL-CIO may take the view that even a complete victory on appeal—i.e., one that would permit its inclusion in the case and the reversal of the district court’s summary judgment decision—would ring hollow, as it could be undone by the DOL’s efforts to formulate a new rule that would take the place of the Obama rule.

Without question, the Eastern District of Texas’s order invalidating the 2016 overtime rule brings a large measure of closure for employers waiting to learn whether the rule would ever go into effect. The completeness and finality of that closure will depend largely on whether the AFL-CIO seeks appeal, as well as the DOL’s anticipated efforts to implement a new rule altogether. We will, of course, continue to monitor and update you on these important events.

Co-authored by Steve Shardonofsky and Kevin A. Fritz

Seyfarth Synopsis: As employers begin to pick up the pieces following Hurricane Harvey, management will likely encounter questions about employee pay, benefits, and leaves of absence during and after this disaster, and may also have questions about how to help their workers get by during this difficult time. After making sure your workers are safe, and as you start to rebuild and repair, read on for practical guidance on these pressing issues.

This past weekend Hurricane Harvey made land fall, causing unprecedented and catastrophic flooding in southeastern Texas. Our thoughts go out to our colleagues, clients, and friends affected by this natural disaster. We are thinking of you during this difficult and trying time.

Pay for Non-Exempt Employees

The General Rule

Under the Fair Labor Standards Act (FLSA), an employer is only required to pay non-exempt employees for hours actually worked. In other words, businesses are not required to pay non-exempt employees if they are not working, including times when the employer closes its doors or reduces hours of operation, whether or not forced to do so by inclement weather. Moreover, while some states require some minimum “reporting” or “show up” pay for employees who show up for work and are either turned away at the door or dismissed before the end of their scheduled shifts, Texas is not one of those states.

An important exception to this general rule exists for non-exempt employees who receive fixed salaries for fluctuating hours from week to week. Because these employees must be paid a “fixed” salary, employers must pay these workers their full weekly salary for any week in which any work was performed and may not dock their pay for days when the office is closed due to inclement weather.

Even if your business is not open during inclement weather days, you always are free to pay employees for that time, and may also permit them to use their paid leave time, if applicable.

Inclement Weather Delays and Traffic

Flooding and severe weather often cause unpredictable traffic delays, and may even result in employees becoming stranded on the road. Employees who perform work while stranded—for example, by taking phone calls or answering e-mails on their way to work—must be compensated for that time even if done away from the office. Similarly, an employee who is stranded in an employer’s vehicle on their way to work and instructed to safeguard the vehicle or other property is generally entitled to pay for time beyond their ordinary home-to-work commute (i.e., once their scheduled shift begins).

With respect to inclement weather, the general and most practical advice is to pay for any extra time spent getting to work during a scheduled shift, particularly when employees are stranded for reasons outside their control. It is likely that the Department of Labor or even a court would find that all of the time the employee was stranded within their regular shift is compensable time. Even where reasonable minds could differ on these questions, since the costs of defending these claims often exceed the underlying payroll costs, it often makes sense to pay employees for this time in the first place.

Pay for Exempt Employees

The General Rule

Exempt employees under the FLSA must be paid on a “salary basis” and earn a full day’s pay when they work any part of the day, regardless of the quality or quantity of the work performed. Thus, if a business is closed because of inclement weather and an exempt employee is ready, willing, and able to work, she must be paid for that day. On the other hand, if the exempt employee does not work for an entire workweek (for personal reasons or because the business is closed), the exempt employee need not be paid for that time—that is, the employer may “dock” her salary for the full workweek.

If the business is open and an exempt employee elects to stay home to make repairs or volunteer at a local shelter, the employer may “dock” their salary in full day increments (but perhaps consider not doing so to encourage volunteerism and aid in recovery efforts). In these instances, and including situations when exempt employees elect to arrive late or leave early for personal reasons, employers may also deduct accrued leave time in full or partial day increments as long as the employee receives his or her full pay for the week. In the event that the employee does not have any accrued time, an employer may also simply pay him or her for the day or allow the employee to take an advance on accrued paid leave and make it up at a later time. This practice is not allowed for non-exempt employees, who must be paid overtime for all hours worked over 40 in a work week. See here for more information on the FLSA salary basis rules.

Safe Harbor

Remember, improper or inadvertent deductions from pay will not typically result in the loss of exemption status if the employer reimburses the employees for the improper deductions, has a clearly communicated safe harbor policy prohibiting improper deductions, and a complaint mechanism for exempt employees to use if improper deductions are made.

Telework or Working from Home

Allowing employees to work from home during this time will aid recovery efforts and help families recover faster. Regardless of exemption status, employees who work from home during inclement weather, even if only a few hours per week, must be paid for that time. Thus, employers who will keep their businesses up and running during the aftermath of Hurricane Harvey should clearly communicate to employees who is and who is not permitted to work from home, when that work can be done, whether overtime is permitted, and how to record time worked outside of the company’s premises. It is also important to remind employees to record all hours worked, even when the work is done away from the employer’s premises. Employers should be sensitive to the fact that not all employees will be able to work remotely, and therefore should consider alternative arrangements like temporary or shared offices.

On-Call and Waiting Time

Power outages are common during natural disasters, and many employers will require their employees to wait out or work through such power failures. In most cases, any employee who is required to remain at the employer’s premises or close by and therefore unable to use that time for his own benefit (even if not working) must be compensated for that time. For example, employees who are onsite to perform emergency repairs and who are not free to leave the company’s premises must be compensated for time even if they do not ultimately perform any work. Similarly, if an employee is onsite and required to wait through a power outage, the time waiting for the power to resume is typically considered time worked and is therefore compensable.

Volunteer Time for Company Repairs

Employers should generally be cautious about having employees “volunteer” to assist during an emergency, particularly if those duties benefit the company and are regularly performed by employees. Exempt employees who volunteer to help will not be entitled to any additional compensation. But remember that too much time spent on manual tasks or other tasks unrelated to their regular job duties could invalidate their exempt status and allow them to claim overtime compensation. Conversely, non-exempt employees must be paid for all time worked, even if they offer to work and help make repairs for “free,” with one exception:  Employers may accept free work from employees of government or non-profit agencies who volunteer out of public-spiritedness to perform work that is not at all similar to their regular duties.

Leaves of Absence After a Natural Disaster

Otherwise eligible employees affected by a natural disaster may elect to take leave under the Family and Medical Leave Act (FMLA) for a serious health condition caused by the disaster. Additionally, employees affected by a natural disaster who must care for a child, spouse, or parent with a serious health condition may also be entitled to leave. This includes job-protected leave to care for a family member who is a current service member with a serious injury or illness. FMLA leave for this purpose is called “military caregiver leave.”

Adding to the difficulty, employers may encounter uncommon FMLA issues during and after severe storms, including absences caused by an employee’s need to care for a family member who requires refrigerated medicine or medical equipment that is not operating properly because of a power outage. What’s more, under the Americans with Disabilities Act, an employee who is physically or emotionally injured as a result of a disaster may be entitled to leave as a reasonable accommodation, so long as it would not place undue hardship on the operation of the employer’s business.

Employees who are part of an emergency services organization may also have rights under the Uniformed Services Employment and Reemployment Rights Act (USERRA). Under certain conditions, USERRA provides job-protected leave for U.S. service-members. Although USERRA does require advance notice of military service, there are no strict time limits for notice after a natural disaster as long as it is reasonably “timely.” Employers should be prepared to receive and assist employees giving notice under USERRA and other laws allowing for job-protected leave.

Many counties in Texas have been declared in a state of emergency following Hurricane Harvey. While this does not provide pay or other protections for Texas employees, the Texas Workforce Commission advices that “absences due to closure of the business based on bad weather or other similar disaster or emergency condition should not count toward whatever absence limit a business has” —particularly for nonessential employees. On the other hand, if other employees are able to make it in to work (including workers from similar areas), absences for personal reasons may count toward an absence limit. On balance, however, it is always advisable to discourage the discipline of any nonessential employees who are unable to report to work during a state of emergency.

Weathering the Storm Together

While legal compliance is important, there are other practical ways employers can help workers weather the storm and get back on track. Business owners should consider relaxing the usual telecommuting rules to allow affected employees to work from home as much as possible. To minimize financial hardship, employers should continue to process payroll in a timely manner. Consider providing pay advances, loans, or even advances for paid time off/vacation time to help employees offset unanticipated expenses for repairs and insurance deductibles.

To the extent possible, employers may consider offering employees paid leave for time spent volunteering to assist with disaster relief efforts. Employers can also implement a leave donation/sharing policy to allow employees to donate paid leave to employees who will use it to volunteer in relief services or for those otherwise affected by this terrible disaster.

For more information on this topic, please contact the authors, your Seyfarth Attorney, or any member of Seyfarth Shaw’s Wage and Hour Team.

Authored by Cheryl Luce

Employers often grapple with what to do when their policies prohibit off-duty work, like working on mobile devices after hours, that employees don’t follow. Even if it has a policy prohibiting off-duty work, if the employer knows (or should know) an employees is working, the employer must compensate the employee for the off-duty work. The same can be said if an employer has a policy requiring employees to report all off-duty time worked but knows (or should know) that employees are not reporting it. As the regulations put it, employers cannot “sit back and accept” work without compensating it, even though the employer has rules against it. 29 C.F.R. § 785.13.

But what about when the employer knows that employees are working off-duty, but does not know that employees aren’t reporting their time? Does the requirement that an employer must exercise “reasonable diligence” to unearth unreported work mean the employer has a responsibility to check what it knows of employees’ off-duty work against the time they report? Earlier this month, the Seventh Circuit agreed that the FLSA’s “suffer or permit to work” standard does not go so far.

In Allen v. City of Chicago, police officers at the Chicago Police Department’s Bureau of Organized Crime claimed that they were owed overtime pay for off-duty work on their BlackBerrys, even though they failed to report the overtime using the police department’s time slip reporting system. The trial court concluded that the Bureau supervisors knew the officers sometimes worked off-duty on their BlackBerrys, but they did not know or have reason to know that the officers were not submitting time slips for such work. Affirming the judgment in favor of the police department, the Seventh Circuit held that the trial court reasonably concluded that requiring the police department to check what they knew of the officers’ off-duty work against officers’ time slips they approved would be “extremely impractical.”

The Allen police officers also contended that the police department discouraged them from seeking overtime payment for off-duty BlackBerry work, which stopped them from submitting time slips for the work. Neither the trial court nor the Seventh Circuit were moved by the evidence in support of this argument. No supervisor ever told plaintiffs not to submit time slips for BlackBerry work, and no officer was disciplined for submitting such time slips. The plaintiffs’ de facto policy theory failed.

This case serves as a reminder that employers are only required to pay for off-duty work that they know or should have known was performed—not what they could have known was performed. Assuming it has no reason to believe an employee who sometimes works off hours is working off the clock, an employer in the Seventh Circuit is generally not required to cross-check the employee’s timecards to make sure they are reporting all time worked.

Authored by Alex Passantino

Seyfarth Synopsis: The Wage & Hour Division announced its regulatory plan for the next year and it is less ambitious than some may have anticipated.  A request for information on the overtime rule and a proposal to rescind a limited tip credit regulation are all that is on the immediate horizon for employers.

Each spring and fall, Washington waits with bated breath as the Executive Branch releases its regulatory agenda. As the first pronouncement of some of the specifics of the Trump Administration’s regulatory plans, this year’s agenda was anticipated more than most. And now we have it

The Wage and Hour Division’s initial plans include the announced Request for Information on the white collar exemptions, which is expected to be published this month. An as-of-yet-unannounced action, however, is a notice of proposed rulemaking (NPRM) that would rescind aspects of the Department’s 2011 rule related to tipped employees. Specifically, the NPRM would seek comment on the Department’s proposal to rescind the portion of the rule that restricts tip pooling for employers who do not use the tip credit to satisfy their minimum wage obligations. That rule has been the subject of much litigation, with mixed results. One of the cases may be on its way to the Supreme Court, with the Administration’s response to a cert petition due on September 8. With the NPRM slated for an August publication, it’s possible that the Administration may be seeking to avoid review by the Supreme Court on some of the touchier issues related to the proper deference a federal agency should be afforded. We’ll keep you posted.

Finally, WHD has identified a long-term plan to revisit the Section 14(c) program. Section 14(c) of the FLSA permits, under certain circumstances, employment of individuals with disabilities at subminimum wages. It is a politically sensitive program, and one in need of updating. No timetable has been provided for the Department’s review.

Co-authored by Kristin McGurn and Kevin Young

Seyfarth Synopsis: At a time when the Massachusetts meal break landscape is increasingly friendly to employees, a federal judge in the state recently denied class certification in a meal break case, Romulus, et al. v. CVS Pharmacy, Inc. At issue were store policies, common in retail, that called for in-store key-holder coverage whenever the store was occupied. This decision represents both a victory and a roadmap for employers, and particularly retailers, facing meal break claims under Massachusetts law.

The plaintiffs in Romulus alleged that as Shift Supervisors, they were required to remain in the store during certain of their unpaid meal breaks, particularly during times when no other managers were present in the store. Further, the plaintiffs alleged, such breaks were often interrupted due to work. Based on these allegations, the plaintiffs sought certification of two classes of Shift Supervisors under Rule 23 of the Federal Rules of Civil Procedure.

On Wednesday, Judge Rya W. Zobel of the District of Massachusetts entered an order denying the plaintiffs’ bid for class certification. Relying on the Massachusetts Supreme Judicial Court’s recent decision in DeVito v. Longwood Security Services, which set a strict standard for being “relieved of all duties” in order for meal breaks to be unpaid under state law, Judge Zobel assumed for purposes of her decision that remaining on-premises during a break is compensable “work.” Even under that assumption, Judge Zobel found class certification improper due to the plaintiffs’ inability to satisfy Rule 23’s “commonality” and “predominance” requirements.

With respect to commonality, Judge Zobel relied on the U.S. Supreme Court’s monumental decision Dukes, et al. v. Wal-Mart Stores, Inc. in searching for a “common contention” that might produce the same injury to all class members. The judge found that resolving plaintiffs’ claims depended on the answers to two questions: (1) were putative class members required to remain in the store during meal breaks; and (2) if so, were they required to clock out (and thus be unpaid). She ruled that plaintiffs’ reliance on CVS’s policy and handbook statements were insufficient to resolve these critical questions on a class-wide level.

Specifically, Judge Zobel rejected the contention that policy statements relating to supervisor presence in the store when it was occupied by customers, taken together with a policy providing unpaid meal breaks, equated to common proof of an illegal practice capable of resolving all class members’ claims. The plaintiffs did not contend that the policies were facially unlawful, but rather challenged their implementation. Siding with CVS, Judge Zobel noted that the policy language did not necessitate that a Shift Supervisor remain in-store during meal breaks or take a meal break when no other manager was present. The judge also noted CVS policy language providing for the reporting and payment of in-store breaks. Accordingly, Judge Zobel found that—even assuming a policy requiring Shift Supervisors to remain in the store during certain meal breaks—resolving whether class members were required to clock out and go without pay for such breaks could not be resolved through common proof.

Judge Zobel also found that Rule 23’s more demanding predominance factor was unmet. That is, even if the law required CVS to compensate Shift Supervisors for meal breaks when they were required to remain on premises, the questions of whether supervisors were in fact required to do so, and whether they were then compensated, remained both unanswered and individualized. Denying certification, Judge Zobel ruled that the proposed classes were not “sufficiently cohesive to warrant adjudication by representation.”

The Romulus decision represents a major win for employers in the battle to avoid class certification, which is particularly notable on the heels of the stringent standard for unpaid meal breaks established in DeVito. The decision also provides a strategic roadmap for employers seeking to avoid certification where break-by-break implementation of facially lawful meal break policies is challenged.

Co-authored by Robert J. Carty, Jr., John Phillips, and Alex Passantino

Seyfarth Synopsis: On June 30, the Department of Labor filed its reply brief to support its appeal from a preliminary injunction that enjoined the DOL from implementing its 2016 revisions to the salary-level tests for determining applicability of the FLSA’s executive, administrative, and professional exemptions. In its reply, the government argues it had the authority to make those revisions. How the Fifth Circuit handles the appeal, now that it is fully briefed, will affect what happens from here in the lower court in ways that are difficult to predict.

As we reported last week, the Department of Labor finally filed a reply brief in its appeal of the preliminary injunction prohibiting it from implementing or enforcing its 2016 “Final Rule”—that is, its revisions to the FLSA regulation governing the executive, administrative, and professional (“EAP”) exemptions.

Over the last few days, we’ve been fielding lots of questions about what might happen next. Let’s try to game it out.

But first, we should set the stage. The plaintiffs asserted three main challenges to the Final Rule:

  1. The plaintiffs contested the DOL’s very authority to implement the rule’s salary-level requirement in the first place. The district court accepted this argument—at least with respect to the 2016 Final Rule—and found it unlawful in its entirety.
  2. The plaintiffs argued that the Final Rule’s new “indexing” feature violates the Administrative Procedures Act (“APA”) because it would automatically adjust the minimum salary requirements without any notice or comment period. The district court found the indexing feature unlawful, but only because it had already struck down the entire Final Rule; it expressly bypassed the APA arguments.
  3. The plaintiffs asserted a Tenth Amendment challenge claiming that the Final Rule cannot apply to state governments. The district court rejected this position.

On appeal, the DOL initially defended the Final Rule in all respects, including its $913 weekly minimum salary. Now working under the new administration, the DOL has narrowed its approach in its reply. Rather than continuing a full-throated defense of the previous administration’s Final Rule, the DOL has now limited its argument to one (and only one) issue; it also announced its intention to revisit the $913 minimum:

The Department has decided not to advocate for the specific salary level ($913 per week) set in the final rule at this time and intends to undertake further rulemaking to determine what the salary level should be. Accordingly, the Department requests that the Fifth Circuit address only the threshold legal question of the DOL’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule.

This is definitely a plot twist, and our readers understandably want to know how it might affect the outcome of this appeal.

We won’t try to predict how the Fifth Circuit will rule on the basic “authority” question. But if it agrees with the district court’s reasoning, the path forward is clear: It will affirm, and the DOL may seek rehearing and/or Supreme Court review if it believes it necessary to preserve its long-asserted authority to set a salary level.

Things will get much more complicated if the Fifth Circuit overrules the district court and finds that the DOL acted within its authority. Here are a few thoughts on what might happen in that case:

  • On the current record, it is unlikely that the court would reach the plaintiffs’ APA challenge to the new “indexing” feature, since the parties’ appellate briefs expressly avoided that issue. That said, the court could request additional briefing on the issue, or could remand the case and instruct the district court to perform an APA analysis.
  • This raises the possibility that the court could find a middle ground. That is, it could find that the DOL generally has the authority to impose a salary-level test, but that the Final Rule exceeded that authority. In that case, the court would affirm the result while disagreeing with the district court’s reasoning.
  • The court might also consider the plaintiffs’ alternative argument that the Final Rule cannot apply to state governments under the Tenth Amendment. A victory on this point, though, would apply only to the 21 State Attorneys General plaintiffs, not the other plaintiffs (a coalition of non-governmental business groups) whose case has been intermingled with that filed by the Attorneys General.
  • If the Fifth Circuit sides with the DOL on all issues, it will reverse. The question will then become whether any of the plaintiffs’ claims can survive in the wake of whatever legal conclusions the court reaches. Various stakeholders have asked us whether the Fifth Circuit would render a defense judgment if it sides entirely with DOL. We wouldn’t expect such an outcome here, because this appeal involves a preliminary injunction, and certain issues are likely to remain (thus requiring further action by the district court). For example, one of the issues raised below (but not in the appeal) is whether the Final Rule is arbitrary and capricious; the Fifth Circuit’s ruling may not resolve that question. (The business plaintiffs have raised the issue in a motion for summary judgment, which is pending in the district court.)
  • We should also note that the Texas AFL-CIO has filed a motion to intervene, which has yet to be decided. The union wants to more strenuously defend the Final Rule than it believes the Trump Administration will. This may present additional loose ends that will have to be resolved in a remand

As we ponder the possible scenarios, we should also consider a few wildcards:

  • In its reply, the DOL expresses its intention to revisit the Final Rule in a new rulemaking. Indeed, as we reported last month, the agency has announced a plan to issue a Request for Information—a “pre-rulemaking”—related to the EAP exemption. There are no guarantees on what the DOL would do with the information it receives. It might help DOL defend its authority to set a salary level; it may also help DOL develop the basis for a future rulemaking. Depending on what the DOL does, it is possible that the case could become moot altogether—for example, if it proposes and finalizes a new rule before the case concludes.
  • The Fifth Circuit may conduct oral argument and/or request additional briefing. If it does, expect us to refine our views based on what unfolds.
  • The plaintiffs could seek to file a surreply in light of the DOL’s new, more limited position. Such a brief, if filed, might be instructive.
  • A settlement may be possible. It is unclear, however, where the plaintiffs come down on the “no authority” argument versus the argument that DOL exceeded its authority in 2016. This would be a critical sticking point in any negotiated resolution.

As we try to read these tea leaves, we hasten to repeat what we said last week: “What is certain at this time is that the future of the 2016 revisions remains uncertain.” Rest assured, we’ll be watching this appeal closely. As more information comes in, we’ll continue to post updates here. Stay tuned.

Co-authored by Brett Bartlett, Alex Passantino, and Kevin Young

At last, the federal government has filed its reply brief in the Fifth Circuit concerning its appeal from a Texas district court’s order preliminarily enjoining the 2016 revisions to the FLSA’s executive, administrative, and professional exemptions. Because of the substantive and procedural complexities facing the Department of Labor (and its newly seated Secretary, Alex Acosta), we would not have been surprised to see another request for more time to file this reply—though given the number of prior extensions, there was reason to wonder whether the Fifth Circuit would grant such a request.

The complexities, in a nutshell, revolved around several points:

  1. The fact that the lower court that issued the preliminary injunction justified its order, in part, with reasoning that would suggest that the DOL does not have and has never had the authority to set a salary level test for the EAP exemptions.
  2. Although the new Secretary of Labor and the Trump administration might not want the 2016 revisions to become effective with the $913/week salary level requirement, it would be difficult to argue against the revisions without supporting the lower court’s rescission of DOL rulemaking authority.
  3. If the DOL argued against the preliminary injunction (i.e., for its reversal), the Fifth Circuit might order that the 2016 revisions become effective, whether retrospectively or at some point in the future, in connection with a holding that the district court’s order was entirely unsalvageable.

Tough stuff. And we now know the DOL made a hard choice. The Department chose to argue that it absolutely has, and always has had, the authority to set a salary level test—it chose to argue that the lower court erred in enjoining the revised exemptions from going into effect.

The DOL’s argument is more nuanced than that, however. In the simplest of terms, it attempts to walk a tight line by urging the Fifth Circuit to find that the lower court erred by concluding that the DOL did not have the authority to set a salary level test at all, but to stop short of finding that the 2016 revisions are valid as written. Somewhat subtly, the DOL suggests that the appellate court should bless the Department’s ability to reconsider what the appropriate salary level should be. Here is what the DOL writes about that:

The district court did not determine whether the salary level set by the 2016 final rule is arbitrary and capricious or unsupported by the administrative record. Because the preliminary injunction rested on the legal conclusion that the Department lacks authority to set a salary level, it may be reversed on the ground that that legal ruling was erroneous. The Department has decided not to advocate for the specific salary level ($913 per week) set in the final rule at this time and intends to undertake further rulemaking to determine what the salary level should be. Accordingly, the Department requests that this Court address only the threshold legal question of the Department’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule. In light of this litigation contesting the Department’s authority to establish any salary level test, the Department has decided not to proceed immediately with issuance of a notice of proposed rulemaking to address the appropriate salary level. The rulemaking process imposes significant burdens on both the promulgating agency and the public, and the Department is reluctant to issue a proposal predicated on its authority to establish a salary level test while this litigation remains pending. Instead, the Department soon will publish a request for information seeking public input on several questions that will aid in the development of a proposal.

So where does this leave us? It is hard to predict what the Fifth Circuit will do with these arguments. The appellate court might hold oral argument. It doesn’t have to. We do not know, at this time, who the judges would be to hear the appeal. We cannot read the tea leaves based on the personal tendencies of the jurists, as a result. The court might find that the parties have provided sufficient information to allow an order based on the briefing alone. Even if it were to do that, we’d be looking at months, most likely, before we see a ruling.

And what then? The appeals court might find, as noted above, that the lower court’s order cannot stand in any way. That would create a chain of events that we all would hope to avoid. The court might, however, do as the DOL asks, reversing the preliminary injunction and giving instructions to the trial court about how to proceed. Perhaps that would open the door to some sort of compromise, which would bring its own complexities and challenges.

What is certain at this time is that the future of the 2016 revisions remains uncertain.

We will continue to monitor the situation.

Authored by Alex Passantino

Today, the DOL’s Wage & Hour Division (WHD) sent its anticipated Request for Information (RFI) on the overtime rule to the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). Review of the RFI by OIRA is one of the final steps before publication in the Federal Register.

The RFI is expected to ask the regulated community for information regarding the impact of last year’s final rule increasing the salary level for exemption to $913/week. As our readers know, that rule was enjoined and the injunction is now before the Fifth Circuit Court of Appeals, with the Department’s reply brief due later this week. The RFI is likely to ask employers that made adjustments to their pay or operations in anticipation of the expected salary increase what the economic consequences of those adjustments have been thus far. Similarly, for employers that did not implement planned changes, the RFI likely will inquire as to what the expected consequences would have been.

Employer responses to the RFI will be critical in assisting WHD in determining next steps in the regulatory process (e.g., withdrawing the final rule, making a new proposal with a different salary level, maintaining the status quo). Be on the lookout for additional information on how to participate.

Co-authored by Noah Finkel and Andrew Scroggins

Employers have faced questions about the enforceability of arbitration agreements with class and collective action waivers since the NLRB’s highly controversial D.R. Horton decision in 2012, which held that the waivers violate employees’ right to engage in protected concerted activity. The Fifth Circuit refused to enforce the decision, and other courts followed, but the NLRB refused to change course. In 2016, the Seventh and Ninth Circuits also adopted the NLRB’s view, as has the Sixth Circuit in 2017.

In January 2017, the U.S. Supreme Court agreed to hear the issue, consolidating cases from the Fifth, Seventh, and Ninth Circuits. Oral argument is scheduled to take place during its Fall 2017 term.

The tea leaves at the Supreme Court give many reason to believe that the NLRB’s position will be struck down. Newly-appointed Justice Neal Gorsuch is considered by many observers to be likely to follow the pro-arbitration stance of his predecessor, Justice Scalia. The Office of the Solicitor General recently reversed its position, filing an amicus brief in support of the employers that details the flaws it sees in the NLRB’s position and leaving the NLRB on its own to argue the case before the Court. And the appointment of new Board members and the end of the NLRB General Counsel Richard Griffin’s term in November 2017 raise the possibility the agency may revisit its position, thus eliminating any argument that courts should defer to the NLRB’s current position on the legality of class waivers.

Some, from both sides of the bar, speculate that if the Supreme Court rejects the D.R. Horton theory nearly all well-advised employers seeking to minimize their risks will adopt mandatory arbitration programs with class waivers, and that wage-hour litigation as we know it will be over. That hope/fear, however, may be overstated.

This post is the first of several that will consider what the future may hold if employers find themselves confident that they will be able to issue enforceable, mandatory arbitration programs containing class and collective waivers. To what extent will the wage-hour class and collective action landscape change?

A recent Sixth Circuit decision, Taylor v. Pilot Corporation, et al., provides a glimpse into one part of the future. The employer had in place an arbitration agreement with a collective action waiver that applied to most, but not all, of its 50,000 hourly employees. One of the employees who was not bound by the agreement filed an FLSA collective action alleging that she had not been paid for all of her overtime hours. She asked the court to authorize sending notice of conditional certification to those “similarly situated” to her, which she contended included all 50,000 hourly employees.

The employer protested that the plaintiff was not similarly situated to the tens of thousands of employees bound by the arbitration agreement. After all, even if those employees opted in to the suit, the court would lack subject matter jurisdiction, and their claims would be dismissed and sent to arbitration. The district court disagreed, reasoning that it would determine whether the arbitration agreements were enforceable only after learning who had opted-in to the litigation. Notice to all 50,000 hourly employees was approved. The decision was affirmed on appeal, with the Sixth Circuit concluding it did not have jurisdiction to consider questions about the enforceability of the arbitration agreement at this stage.

The decision illustrates how even carefully prepared arbitration agreements can have unintended consequences if not carefully rolled out. Suppose that notice to 50,000 employees results in just 1,000 opt-in plaintiffs, and all of them have signed enforceable arbitration agreements with a collective action waiver. While those employees ultimately may not be able to participate in the collective action for which they received notice, they nonetheless have now been in touch with a lawyer or group of lawyers who can file individual arbitration demands on behalf of all 1,000 employees who had filed consents to join the lawsuit for which they received a collective action notice after conditional certification.

And it gets worse. Consider that most third-party arbitration services require that the employer pay an initial fee when the employee’s claim is filed. The American Arbitration Association, for example, imposes a non-refundable fee of at least $1,500 on the employer for cases filed by an employee. Continuing with the example from above, the employer could be hit with $1,500,000 in costs just as the price to play. Costs begin to rise exponentially when it comes time to mount a defense and arbitrator and hearing fees begin.

In other words, employers should not expect that a Supreme Court endorsement of arbitration agreements with class and collective action waivers will act as a complete bar to collective claims. After all, to adopt a famous movie phrase, plaintiffs’ lawyers “find a way.” The Taylor decision shows the potential power of finding the “unicorn” plaintiff who is not bound by the same agreement as her co-workers, and shows that employers will have to ensure that each and every one of their employees will have to be bound by an arbitration program to maximize a class waiver’s protection. But even then, the unicorn for a plaintiff’s lawyer may merely be someone who had been employed by the defendant-employer within the last three years (the longest of the FLSA’s potential limitations periods), but whose employment had ended before the arbitration program had been enacted. Other novel workarounds are sure to arise if new rules about arbitration force plaintiffs to get more creative.

Opportunity AheadAuthored by Alex Passantino

During his Wednesday hearing before a House Appropriations Subcommittee, in which he addressed the Trump Administration’s proposed budget for DOL, Secretary Alexander Acosta informed the committee that the Department planned to issue a Request for Information (RFI) regarding the currently enjoined overtime rules. The anticipated timetable is 2-3 weeks, but it is unclear whether that represents the timetable before the RFI is submitted to the Office of Management and Budget for review and approval or actual publication.

An RFI is a “pre-rulemaking” procedure during which an administrative agency, such as DOL, asks the regulated community for input on a topic or topics. For example, in 2006, the Wage and Hour Division published an RFI on the Family and Medical Leave Act. The results of the employer and employee responses were published in a report in 2007. The responses also were used to inform the Department’s proposed regulation in 2008, which became effective in 2009.

An RFI on the overtime rule likely would ask questions about the economic (or anticipated) impact of the Department’s increase to the minimum salary level required for exemption. Although it undoubtedly will solicit input from all affected employers and employees, it may ask specific questions about the rule’s impact on not-for profits, state and local governments, and small businesses (or at least the impact it was expected to have). The responses to the Department’s RFI will provide it with real-world data points regarding the actual impact of the rule, which will allow it to better determine how to proceed—in the pending litigation as well as in any rulemaking efforts.

It will, therefore, be critical for employer voices to be heard. We will provide additional information on the RFI—including how best to respond—as it becomes available.