Wage and Hour Division

Co-authored by Noah Finkel and Cheryl Luce

Seyfarth Synopsis: On Monday, the DOL issued a Notice of Proposed Rulemaking announcing rescission of a rule that regulates tip pooling by employers who do not take the tip credit.

The DOL has issued a Notice of Proposed Rulemaking regarding the tip pooling regulations of the Fair Labor Standards Act. The FLSA allows employers to take a tip credit toward their minimum wage obligations, and employee tips may be pooled together, but pooling of tips is allowed only “among employees who customarily and regularly receive tips.” 29 U.S.C. § 203(m). The DOL took the tip pooling law a step further in 2011 when it promulgated a regulation that prohibits employers from operating tip pools even when they do not take the tip credit. The regulation states: “Tips are the property of the employee whether or not the employer has taken a tip credit under section 3(m) of the FLSA.” 29 C.F.R. § 531.52.

The DOL’s tip pooling rule has been unpopular with courts—and for good reason, as we have previously noted. Indeed, several federal courts have found that it is overbroad and invalid, excluding the Ninth Circuit. In the Notice of Proposed Rulemaking, the DOL agrees with the holdings of most courts and, while not outright stamping the rule as “overbroad” or beyond the DOL’s authority, states that the DOL is concerned “about the scope of its current tip regulations” and “is also seriously concerned that it incorrectly construed the statute in promulgating the tip regulations that apply to” employers who do not take the tip credit. The DOL’s about-face is also motivated by policy concerns. The Notice explains that removing the rule “provides such employers and employees greater flexibility in determining the pay policies for tipped and non-tipped workers [and] allows them to reduce wage disparities among employees who all contribute to the customers’ experience and to incentivize all employees to improve that experience regardless of their position.” Finally, the DOL notes that the increase in state laws prohibiting tip credits and the volume of litigation over this issue contributed to its decision to put the rule on the chopping block.

The end of the rule does not come as a surprise as both the DOL and courts have sounded the death knell this year. On July 20, 2017, the DOL issued a nonenforcement policy to not enforce the rule with respect to employees who are paid at least minimum wage. Additionally, the National Restaurant Association filed a petition for certiorari with the Supreme Court asking for review of the Ninth Circuit’s decision, which is still pending.

The DOL announced that if the rule is finalized as proposed, the rule would qualify as an “EO 13771 deregulatory action” under the Trump administration’s “two-for-one” executive order that requires federal agencies to cut two existing regulations for every new regulation they implement. Once the proposal is published in the Federal Register, interested parties will have the opportunity to provide comments regarding the Department’s proposal within 30 days. Only after these steps is the rule made final.

Co-authored by: Steve Shardonofsky and John P. Phillips

Seyfarth Synopsis: On November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act. If passed by the Senate, the bill would overturn Obama-era decisions and agency guidance broadly defining and holding separate, unrelated companies liable as “joint employers” under federal wage & hour and labor law. Perhaps more importantly, the bill signifies a broader trend to provide more clear guidance and roll-back various Obama-era rules on wage & hour issues.

The Broad Approach to “Joint Employment” Under the Obama Administration

Under the prior Administration, and particularly during the later years, employers who had traditionally relied on contract labor, temporary workers, staffing agencies, subcontractors, and franchise arrangements found themselves in the crosshairs of federal agencies and regulators. Traditionally, joint employer status was found where separate, unrelated entities shared responsibility and exercised direct control over the employment relationship, including decisions affecting the terms and conditions of employment. In that case, both entities could be held jointly liable for violations of wage & hour and other employment laws. The Obama Administration upended this traditional test, however.

In August 2015, the NLRB issued its much-discussed Browning-Ferris decision (addressed here), where the Board adopted an expansive definition of joint employment focusing on the right to control the terms and conditions of employment and the indirect exercise of those rights. (Seyfarth Shaw LLP is leading the appeal of Browning-Ferris to the D.C. Circuit Court of Appeals.) In 2015 and 2016, then-WHD Administrator Dr. David Weil issued two separate Administrator’s Interpretations (“AIs”) concerning independent contractors and joint employment. In 2015, in an effort to reduce the classification of workers as independent contractors and increase the number of workers subject to the FLSA’s minimum wage and overtime requirements, Dr. Weil issued guidance espousing a broad interpretation of who qualifies as an “employee” under the FLSA and highlighting the DOL’s position that almost all workers are employees. In 2016, Dr. Weil followed-up with guidance emphasizing the DOL’s position that joint employment must be determined based on the economic realities instead of (in their view) artificial corporate or contractual arrangements, including situations involving “horizontal” and “vertical” joint employment (discussed here). This guidance focused on the economic realities of a business’s relationship with a given worker, especially noting that indirect control (e.g., control excised solely through a staffing company) can be sufficient for a finding of joint employment. While the AIs were not entitled to judicial deference, we anticipated that some judges would treat Dr. Weil’s words as gospel.

As we previously reported, the broader tests espoused by the NLRB and the WHD exposed employers to a myriad of new wage and hour liabilities, investigations, and enforcement actions, and were especially relevant to companies that outsource work, utilize staffing agencies and contractors, or employ a franchisor/franchisee business model. If recent activity by Trump’s DOL and Congress is any indication, a shift in regulatory enforcement and focus is well underway.

The Winds of “Joint Employment” Are Shifting

As we reported here and here, this summer the DOL withdrew its AIs on joint employment and independent contractors. More recently, on November 7, 2017, the U.S. House of Representatives passed the Save Local Businesses Act by a vote of 242-181, including yes votes from eight Democrats. The bill clarifies the standard for “joint employer” status under the FLSA and the NLRA, and returns to a traditional test that requires “direct, actual, immediate,” and “significant” control over the essential terms and conditions of employment, such as hiring, discharging employees, determining rates of pay and benefits, day-to-day supervision, and administering employee discipline.

Implications for Employers

The DOL’s decision to withdraw its AIs and the passage of the Save Local Businesses Act are welcome changes for employers who faced significant liability and uncertainty under the Obama-era rules. Although the bill itself still faces a tough road in the Senate—where it will require Democratic support to reach 60 votes and avoid a filibuster—it would represent a significant shift in the federal government’s focus. Even if the bill stalls, it nevertheless solidifies a broader regulatory and enforcement trend that may prompt federal courts to return to the traditional and more predictable joint employer test under the FLSA.

Full passage of the Save Local Businesses Act in Congress and signature by the President, however, will not be a panacea for these thorny joint-employer issues. Many states, such as California, still have broad joint-employer tests under their respective wage-hour laws. Courts will also continue to grapple with the proper application and interpretation of these rules, as evidenced by a recent decision from the Fourth Circuit Court of Appeals purporting to define joint employment even more broadly than the Obama Administration. Furthermore, the plaintiffs’ bar will continue to push the outer contours of the law in their search to apply joint employer principles more broadly and thereby reach the “deep pockets” of franchisors and other principals. Regardless of what happens to the Save Local Businesses Act, we foresee continued potential exposure and litigation in this arena. Employers—and particularly those in industries that make heavy use of franchises, subcontractors, and staffing agencies—should remain engaged and focused on these issues, and continue to scrutinize their independent contractor relationships, staffing arrangements with third parties, and related contracts.

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.

 

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 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 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.

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.

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.