Authored by Cheryl Luce

Seyfarth Synopsis:  If it becomes law, a new bill will expand the FLSA’s tip provisions into areas traditionally regulated by state law and create new areas of ambiguity that could be a breeding ground for yet more wage-hour litigation.

We have been covering the saga of a controversial 2011 DOL regulation that gave employees the right to receive tips even when they were paid the federal minimum wage of $7.25 per hour. As courts agreed again and again, the rule was contrary to the FLSA’s plain language and inconsistent with its remedies. In late 2017, the DOL proposed to rescind the rule, noting concerns about its scope. But that proposal has been highly politicized and labeled an attack on workers, authorizing employers to pocket employees’ tips (even though federal law never regulated an employee’s right to receipt of tips, even before the rule).

Ultimately, the fallout around the DOL’s 2017 proposal has resulted in a proposed law amending the FLSA called the Tip Income Protection Act of 2018, announced in principle on March 6, 2018 and receiving bipartisan support in Congress as well as from Secretary of Labor Alex Acosta. The bill has been added to the omnibus budget spending bill that the House passed yesterday and the Senate passed this morning. (The Tip Income Protection Act’s text begins on page 2,025 of the bill.) Barring a presidential veto, the bill will become law.

The Tip Income Protection Act amends the FLSA by adding a provision to 29 U.S.C. § 203(m) that states:

An employer may not keep tips received by its employees for any purpose, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.

The Act further creates a remedy for violating this provision “in the amount of the sum of any tip credit taken by the employer and all such tips unlawfully kept by the employer, and an additional equal amount in damages” and imposes a civil penalty of up to $1,000 for each violation.

As currently written, § 203(m) only regulates tips when the employer has taken a tip credit against its minimum wage obligations, and the FLSA only provides a remedy for the unpaid minimum wage (not for the amount of the tips retained). The Tip Income Protection Act thus expands the FLSA’s tipping provisions from ensuring tipped employees are properly notified of any tip credits and paid minimum wage to guaranteeing that employees are paid the tips they receive in full.

The proposed Tip Income Protection Act is a major deviation from the FLSA’s core purpose. Since its enactment in 1936, that purpose has been to: (i) ensure that all employees are paid at least the federal minimum wage, (ii) ensure that employees are paid at a rate of at least 1.5 times their regular rate of pay for all hours worked over 40 in a workweek, unless an exemption applies, and (iii) prohibit unlawful child labor. Never has it been the FLSA’s aim to ensure that employees are paid all of their wages. That historically has been left to the states. Indeed, if an employee makes at least the minimum wage and overtime according to the FLSA’s requirements, the FLSA can provide no further relief. The FLSA’s monetary remedies are currently limited to “unpaid minimum wages, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.” 29 U.S.C. § 216(b). By allowing employees to recover the full amount of tips, the Tip Income Protection Act represents a major departure from the purposes of the FLSA.

Perhaps the bigger concern with the Tip Income Protection Act as written is that it is vague and will leave employers scrambling to understand how the new law applies to them. First, the bill states “managers and supervisors” are prohibited from sharing any portion of employees’ tips and thus cannot participate in a tip pool. But the bill does not define “managers and supervisors,” and there are various ways in which these terms are interpreted in different contexts: does a lead bartender who can’t hire or fire employees, but serves as a manager-on-duty when the owner is not around and who also primarily serves customers, get to share in the tip pool? when he is acting as a manager? or never? Additionally, the bill selects the ambiguous word “to keep” as the operative commanding verb. Restaurants and their agents are not allowed “to keep” employees’ tips. Is “keeping” tips limited to circumstances in which the employer actually uses the tips for its own purposes? Or would it also apply to the distribution of tips to other employees, as appears to be the case for tips distributed to “managers and supervisors”? Would “improper” tip pools be subject to the new standard or the old one?

The Tip Income Protection Act appears to respond to fears that no federal regulation of tips opens the floodgate to pocketing employee tips. But tips have and will continue to be regulated by state law; indeed, federal law has never regulated wage payment generally and the source of that protection has been state laws. Although its sponsors are characterizing the bill as restoring a right for employees that was created by the Obama DOL, that right never existed in federal law (and apparently has not needed to exist in federal law until now). It only existed in the form of an administrative rule that exceeded agency authority and was largely rejected by courts.

Finally, the bill appears not to disturb the DOL regulations’ definition of a tip and guidance that “a compulsory charge for service, such as 15 percent of the amount of the bill, imposed on a customer by an employer’s establishment, is not a tip.” 29 C.F.R. § 531.55. No new definition of “tip” would be added to the FLSA as a result of the bill, and service charges should be spared from the bill’s new rules.

Co-authored by Alex Passantino and Kevin Young

On Tuesday, the Wage & Hour Division announced a new program for resolving violations of the FLSA without the need for litigation. The Payroll Audit Independent Determination program—or “PAID”—is intended to facilitate the efficient resolution of overtime and minimum wage claims under the FLSA. The program will be conducted for a six-month pilot period, after which time WHD will review the results and determine how best to proceed.

PAID should be welcome news for compliance-minded employers. In the vast majority of cases, FLSA claims must be resolved through litigation or under WHD’s supervision. Given the proliferation of FLSA litigation, many employers have, in recent years, conducted proactive audits with legal counsel to ensure compliance with the Act. Oftentimes, employers who identified past issues through those efforts were reluctant to approach an enforcement-happy WHD to request supervision of back wage payments due to concern that doing so would trigger litigation. Employers were stuck between a rock and a hard place.

By providing a mechanism for proactively resolving wage-hour issues without the need for litigation, the PAID program should increase the incentive for employers to conduct formal audits of their wage-hour practices.

While we expect details on the PAID program, including an official launch date, to crystallize in the weeks to come, the WHD has already provided guidance on the contours of the program. According to WHD, an eligible employer who wishes to participate in the program must:

  • Specifically identify the potential violations,
  • Identify which employees were affected,
  • Identify the timeframes in which each employee was affected, and
  • Calculate the amount of back wages the employer believes are owed to each employee.

The employer must then contact WHD to discuss the issue(s) for which it seeks resolution. Following that discussion, WHD will inform the employer of the manner in which the employer must provide required information, including:

  • Each of the calculations described above—accompanied by evidence and explanation;
  • A concise explanation of the scope of the potential violations for possible inclusion in a release of liability;
  • A certification that the employer reviewed all of the information, terms, and compliance assistance materials;
  • A certification that the employer is not litigating the compensation practices at issue in court, arbitration, or otherwise, and likewise has not received any communications from an employee’s representative or counsel expressing interest in litigating or settling the same issues; and
  • A certification that the employer will adjust its practices to avoid the same potential violations in the future.

At the conclusion of the process, the employer must make back wage payments. That process may look similar to the end of a WHD investigation in which violations are found. If an employee accepts the back wages, she will waive her rights to a private cause of action under the FLSA for the identified issues and timeframe. An employee who chooses not to accept the back wages will not be impacted.

We will share more as additional information becomes available. If you have any questions about the PAID program, the planning or execution of a proactive wage-hour audit, or any related issues, please do not hesitate to contact us.

By Loren Gesinsky and Jacob Oslick

Seyfarth Synopsis: The DOL has reissued 17 opinion letters it withdrew in 2009.  It has also issued two new field assistance bulletins.  The DOL’s new openness to answering employer questions, and providing written guidance, harbors good things for both employers and employees.

Hey-la, hey-la, opinion letters and field assistance bulletins are back!  They’ve been gone for such a long time.  But they’re back, and they’re coming to provide needed clarity on how employers can comply with wage and hour laws.  That’s the message the U.S. Department of Labor’s Wage and Hour Division sent last Friday, January 5th, when it reissued 17 opinion letters that it withdrew in March 2009.

The reissued letters include 15 drafted by former DOL Acting Administrator Alex Passantino, now a Seyfarth Partner.  They cover topics such as whether athletic coaches qualify as “teachers” for purposes of the administrative exemption (generally yes, if coaching is their “primary duty”), and whether a per diem “job bonus” could be excluded from a non-exempt employee’s regular rate (in short, “no”).   The reissuances follow on the heels of the DOL’s decision, in June 2017, to once again respond to employer questions regarding wage and hour laws by issuing formal guidance in the form of an opinion letter.  [We previously covered the DOL’s announcement here].   And it was accompanied by the issuance, also on January 5th, of two new field assistance bulletins, with one concerning interns at for-profit employers [see our blog post here].

For employers, the benefits of DOL opinion letters and field assistance bulletins are obvious.  The Fair Labor Standards Act contains a “good faith” defense that allows employers to avoid liability if they can prove the challenged pay practice aligns with the DOL’s written guidance.  Thus, if an employer requests and receives an opinion letter stating that a particular pay practice is compliant, that can protect employers from lawsuits — effectively telling overly zealous plaintiffs’ attorneys to take a permanent vacation from challenging the practice.

What is less well known is how employees also stand to benefit from the DOL’s decision to again issue opinion letters.  To this end, it’s important to remember that the DOL’s job isn’t to give employers a legal beating or make them sorry they were ever born..  It’s to ensure that employers pay their workers properly, and otherwise comply with the law.  And, just as a “positive” opinion letter can help an employer defend a policy in court, a “negative” opinion letter sends an awfully strong warning to the requesting employer and similarly situated employers to change their policies fast.

For employees — although not necessarily plaintiffs’ attorneys — this seems far preferable to simply letting a potentially unlawful pay practice continue indefinitely.  True, at some point, a disgruntled employee may file suit and claim that the employer is cheating him or her.  And, ultimately, that may lead to a jackpot verdict with liquidated damages for the employee or a collective.  But lawsuits are comparatively rare and, when successful, often result in the plaintiffs’ attorneys receiving far more money than the affected employees.  By the time a lawsuit may happen to get filed and a collective is conditionally certified (if conditional certification is granted), employees may have worked for many years under an improper practice — and thus be time-barred from recovering damages for the entire period.   Then the lawsuit may not succeed, or it may take years to recover anything.   Most likely, it will lead to a settlement that will offer employees a fraction of their allegedly lost pay.   Conversely, if an employer changes its pay practices in response to “negative” guidance from the DOL, employees obtain relief immediately.

All that said, the impact of the DOL’s new openness to opinion letters is not yet known.  Opinion letters will take some wage and hour disputes and cut them down to size.  But, historically, the DOL was not able to answer all employer inquiries. Those to which the DOL did respond generally involved highly-detailed, specific fact patterns that did not necessarily afford comfort to anyone other than the employers who posed the questions.  Indeed, although the DOL began accepting requests for opinion letters back in June, and reissued the withdrawn letters from 2009, it has not yet issued a new opinion letter.  Is that a harbinger of little to come?  We hope not.  Now that opinion letters are back, there’s reason to hope that things will be fine. [Cue to “My Boyfriend’s Back”, by the Angels.]

Authored by Robert Whitman

Seyfarth Synopsis: The Department of Labor has scrapped its 2010 Fact Sheet on internship status and adopted the more flexible and employer-friendly test devised by Second Circuit.

In a decision that surprised no one who has followed the litigation of wage hour claims by interns, the US Department of Labor has abandoned its ill-fated six-part test for intern status in for-profit companies and replaced it with a more nuanced set of factors first articulated by the Second Circuit in 2015. The move officially eliminates agency guidance that several appellate courts had explicitly rejected as inconsistent with the FLSA.

The DOL announced the move with little fanfare. In a brief statement posted on its website on January 5, it said:

On Dec. 19, 2017, the U.S. Court of Appeals for the Ninth Circuit became the fourth federal appellate court to expressly reject the U.S. Department of Labor’s six-part test for determining whether interns and students are employees under the Fair Labor Standards Act (FLSA).

The Department of Labor today clarified that going forward, the Department will conform to these appellate court rulings by using the same “primary beneficiary” test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the Division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.

The DOL rolled out the six-part test in 2010 in a Fact Sheet issued by the Wage and Hour Division. The test provided that an unpaid intern at a for-profit company would be deemed an employee under the FLSA unless all six factors—requiring in essence that the internship mirror the type of instruction received in a classroom setting and that the employer “derive[] no immediate advantage from the activities of the intern”—were met. The upshot of the test was that if the company received any economic benefit from the intern’s services, the intern was an employee and therefore entitled to minimum wage, overtime, and other protections of the FLSA.

Spurred by the DOL’s guidance, plaintiffs filed a flurry of lawsuits, especially in the Southern and Eastern Districts of New York. But despite some initial success, their claims were not well received. The critical blow came in 2015 from the Second Circuit, which in Glatt v. Fox Searchlight Picture Searchlight emphatically rejected the DOL’s test, stating, “[W]e do not find it persuasive, and we will not defer to it.” Instead, it said, courts should examine the internship relationship as a whole and determine the “primary beneficiary.” It crafted its own list of seven non-exhaustive factors designed to answer that question. Other courts soon followed the Second Circuit’s lead, capped off by the Ninth Circuit’s ruling in late December.

For the new leadership at the DOL, that was the final blow. In the wake of the Ninth Circuit’s decision, the agency not only scrapped the six-factor test entirely, but adopted the seven-factor Glatt test verbatim in a new Fact Sheet.

While the DOL’s action marks the official end of the short-lived six factors, the history books will note that the Glatt decision itself was the more significant event in the brief shelf-life of internship litigation. As we have noted previously in this space, the Glatt court not only adopted a more employer-friendly test than the DOL and the plaintiffs’ bar had advocated; it also expressed grave doubts about whether lawsuits by interns would be suitable for class or collective action treatment. The DOL’s new Fact Sheet reiterates those doubts, stating, “Courts have described the ‘primary beneficiary test’ as a flexible test, and no single factor is determinative. Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”

That aspect of the ruling, more than its resolution of the merits, was likely the beginning of the end for internship lawsuits. In the months and years since Glatt was decided, the number of internship lawsuits has dropped precipitously.

At this point, only the college student depicted recently in The Onion  seems to be holding out hope. But as we’ve advised many times, employers should not get complacent. Unpaid interns, no matter how willing they are to work for free, are not a substitute for paid employees and should not be treated as glorified volunteer coffee-fetchers. As the new DOL factors make clear, internship experiences still must be predominantly educational in character. If not, it will be the interns (and their lawyers) giving employers a harsh lesson in wage and hour compliance.

Authored By Alex Passantino

As we’ve reported previously, among the items the Department of Labor identified earlier this year in its Regulatory Agenda was a Notice of Proposed Rulemaking (NPRM) seeking to rescind portions of a 2011 rule that restricted tip pooling for employers who do not use the tip credit to satisfy their minimum wage obligations. On October 24, 2017, that NPRM was sent to the White House Office of Information and Regulatory Affairs (OIRA) for review and approval. One of the cases challenging the validity of the 2011 rulemaking may be on its way to the Supreme Court, with the Administration’s response to a cert petition due on November 7. With that deadline looming, it’s possible that the Administration is seeking to moot the issue before the Supreme Court has the chance to address some of the issues related to agency deference.

After OIRA clears the NPRM, it will be sent to the Federal Register for the public to provide comments in response to the Department’s proposal. At that time, we’ll know the specifics of the proposal and will be able to provide more guidance on what this means for employers. Stay tuned.

 

Co-authored by Abigail Cahak and Noah Finkel

Seyfarth Synopsis: The Ninth Circuit has created a circuit split by rejecting the DOL’s interpretation of FLSA regulations on use of the tip credit to pay regularly tipped employees, finding that the interpretation is both inconsistent with the regulation and attempts to create a de facto new regulation.

The Ninth Circuit Court of Appeals issued an important and restaurant-friendly decision rejecting the Department of Labor’s interpretation of FLSA regulations on the use of the tip credit when paying regularly tipped employees.

In Marsh v. J. Alexander’s, the Ninth Circuit addressed a number of actions brought by servers and bartenders who alleged that their employers improperly used the tip credit and thus failed to pay them the required minimum wage. Relying on DOL interpretive guidance, the plaintiffs asserted that their non-tip generating duties took up more than 20% of their work hours, that they were employed in dual occupations, and that they were thus owed the regular minimum wage for that time. The district court dismissed the case, holding that Marsh had not alleged a dual occupation and that deference to the DOL guidance underpinning his theory of the case was unwarranted. Marsh appealed.

Under the FLSA’s regulations, an individual employed in dual occupations–one tipped and one not–cannot be paid using the tip credit for hours worked in the non-tipped occupation. The regulations clarify, however, that “[s]uch a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee[,] and occasionally washing dishes or glasses. . . . Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.” Yet, current DOL guidance imposes time and duty-based limitations not present in the regulations: the tip credit may not be used if an employee spends over 20% of hours in a workweek performing duties related to the tipped occupation but not themselves tip-generating. The guidance goes on to state that an employer also may not take the tip credit for time spent on duties not related to the tipped occupation because such an employee is “effectively employed in dual jobs.” That guidance had been followed by the Eighth Circuit Court of Appeals and several lower courts. It created a feeding frenzy among some plaintiffs’ lawyers, causing restaurant employers to ask servers and bartenders to track their time spent on various activities down to the minute, or risk facing a collective action lawsuit in which they have to try to rebut a servers’ claims that they had spent excessive time on activities that arguably were not tip producing.

The Ninth Circuit, however, concluded in Marsh that the DOL’s guidance was both inconsistent with the FLSA regulations and attempted to create a de facto new regulation such that it did not merit deference. In particular, the court noted the regulations’ focus on dual occupations or jobs as contrasted with the DOL guidance: “[i]nstead of providing further guidance on what constitutes a distinct job, [the DOL] takes an entirely different approach; it . . . disallows tip credits on a minute-by-minute basis based on the type and quantity of tasks performed. Because the dual jobs regulation is concerned with when an employee has two jobs, not with differentiating between tasks within a job, the [DOL’s] approach is inapposite and inconsistent with the dual jobs regulation.” Moreover, the DOL guidance “creates an alternative regulatory approach with new substantive rules . . . [and] ‘is de facto a new regulation’ masquerading as an interpretation.”

In so holding, the Ninth Circuit broke with the Eighth Circuit’s 2011 decision in Fast v. Applebee’s International, Inc. and explicitly rejected the Eighth Circuit’s analysis in that case. We previously blogged about the Fast decision here.

Marsh creates a circuit split and is particularly notable coming from the frequently employee-friendly Ninth Circuit. There remains, however, contrary authority in many parts of the country, and the decision has no bearing on state laws, some of which may nonetheless follow the DOL’s reasoning. It’s also likely that this Ninth Circuit panel does not have the last word on this issue. This opinion could receive further review by the full Ninth Circuit or by the Supreme Court, and if the Supreme Court does not resolve the circuit split, other appellate courts are likely to weigh in. Regardless, the decision points out the absurdities of the DOL’s current position and demonstrates the need for guidance on the issue from the DOL once its’ appointees are in place.

Authored by Alex Passantino

The White House announced its intent to nominate Cheryl Stanton to serve as the Administrator of the U.S. Department of Labor’s Wage & Hour Division. Stanton currently serves as the Executive Director for the South Carolina Department of Employment and Workforce. Prior to that, she worked in private practice as a management-side labor and employment attorney. She also previously served as Associate White House Counsel for President George W. Bush, where she was the administration’s principal liaison to the U.S. Department of Labor, the National Labor Relations Board, and the Equal Employment Opportunity Commission.

Ms. Stanton is nominated to join a Labor Department in which only Secretary of Labor Alexander Acosta has successfully navigated the Senate confirmation process. Deputy Secretary nominee Patrick Pizzella was formally nominated in June 2017; his nomination remains pending in the Senate. With a full Fall agenda including Hurricane Harvey (and likely Irma) relief, the debt ceiling, tax reform, border wall funding, and potential immigration-related issues, it is unclear when the Senate might confirm Ms. Stanton. It would not be surprising to see her nomination linger until the end of the year–or even into 2018.

When she does arrive at WHD, she’ll be facing a full plate of issues as the agency tackles a new rulemaking process increasing the salary level required for exemption under the FLSA’s white-collar exemptions, a proposal revising the rules surrounding tipped employees and the use of tip credit, and, presumably, filling the vacuum left by the Department’s withdrawal of the Administrator Interpretations on independent contractors and joint employment. In addition, with the Department’s announcement that it would once again be issuing opinion letters, there’s likely to be quite a queue of requests awaiting Ms. Stanton’s review.

We’ll keep you posted as Ms. Stanton’s nomination works its way through the confirmation process.

 

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.

Authored by Alex Passantino

Seyfarth Synopsis: On July 26, 2017, the U.S. Department of Labor will publish its anticipated Request for Information on the White-Collar Overtime Exemption in the Federal Register. The RFI will give the regulated community 60 days to provide its comments in response.

The RFI seeks input on a wide variety of topics, many of which involve issues that have been raised since the Department published its final rule increasing the salary level over a year ago. With the salary level on hold, the Department has the opportunity to revisit the level–or at least to take the temperature of the regulated community.

The issues on which the Department seeks comment are:

  • Should the 2004 salary test be updated based on inflation? If so, which measure of inflation?
  • Would duties test changes be necessary if the increase was based on inflation?
  • Should there be multiple salary levels in the regulations? Would differences in salary level based on employer size or locality be useful and/or viable?
  • Should the Department return to its pre-2004 standard of having different salary levels based on whether the exemption asserted was the executive/administrative vs. the professional?
  • Is the appropriate salary level based on the pre-2004 short test, the pre-2004 long test, or something different? Regardless of answer, would changes to the duties test be necessary to properly “line up” the exemption with the salary level?
  • Was the salary level set in 2016 so high as to effectively supplant the duties test? At what level does that happen?
  • What was the impact of the 2016 rule? Did employers make changes in anticipation of the rule? Were there salary increases, hourly rate changes, reductions in schedule, changes in policy?  Did the injunction change that? Did employers revert back when the injunction was issued?
  • Would a duties-only test be preferable to the current model?
  • Were there specific industries/positions impacted? Which ones?
  • What about the 2016 provision that would permit up to 10% of the salary level to be satisfied with bonuses? Should the Department keep that? Is 10% the right amount?
  • Should the highly compensated employee exemption salary level be indexed/how? Should it differ based on locality/employer size?
  • Should the salary levels be automatically updated? If so, how?

Of course, the value of these responses ultimately is dependent on the Fifth Circuit’s decision on whether the salary test is permissible to begin with. Should the Fifth Circuit rule in the Department’s favor on that issue, the RFI responses will provide the Department with the information it needs to proceed on a new rulemaking adjusting the salary level…assuming the employer community responds.

For additional information on how to respond to the RFI, please contact OTRuleHelp@seyfarth.com or Alex Passantino at apassantino@seyfarth.com. We’ll continue to update you as additional information becomes available.

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.