OT Exemption Rules Lawsuit Will Proceed Despite Appeal

Posted in *New Exemption Rules, Litigation

Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas has decided that he will not halt the lawsuit challenging the U.S. DOL’s new overtime exemption rules pending a ruling from the 5th Circuit Court of Appeals on his earlier order temporarily blocking the rules from taking effect.

Here’s a quick recap of where things stand and what this means:

On November 22, the District Court granted a nationwide preliminary injunction blocking the rules from taking effect on December 1. This was not a final ruling in the case, but in order to grant the injunction, Judge Mazzant had to find that the states and business groups challenging the rules had a “substantial likelihood of success on the merits of their claims.”

On December 1, the DOL appealed the District Court’s ruling to the 5th Circuit Court of Appeals. Briefing in that appeal is scheduled to be completed by the end of January, with oral argument shortly thereafter. Assuming, that is, that the Trump Administration doesn’t direct the DOL to withdraw the appeal upon taking office. If that happens, the AFL-CIO could step in to defend the rules if the court grants its motion to intervene.

Because the ruling on appeal was not a final judgment in the case, the default rule is for the lawsuit to move forward in the District Court even while the preliminary injunction is being challenged on appeal. However, the District Court has discretion to stay the lawsuit until the Court of Appeals rules. The DOL asked the District Court to do just that, hoping that it might fare better in the Court of Appeals than it did in the preliminary injunction ruling. Judge Mazzant rejected that motion, finding that the DOL’s motion failed “present a substantial case on the merits” demonstrating that the preliminary injunction was improperly issued. Once again, this is not a final ruling on the merits, but like the initial ruling on the motion for preliminary injunction, it does seem to signal that the judge does not think highly of the Department of Labor’s position in defense of the new overtime rules.

So now what? The District Court could issue its final ruling on the merits of the lawsuit at any time. If it does so before the 5th Circuit rules on the motion for preliminary injunction, it may re-start the appeal process. Of course, the Trump administration may direct the DOL to withdraw its defense of the new rules before the courts decide the issue (and the court could deny the AFL-CIO’s motion to intervene), or Congress may short-circuit the whole process by taking action to block the rules. In short, not much has changed since before the holidays.

 

Penn Students Seek Rehearing, DOL Files Brief in OT Rules Appeal

Posted in *New Exemption Rules, Higher Education, Litigation

Just a quick update on a couple of our recent stories for you wage and hour litigation junkies:

Back on December 5, a three-judge panel of the 7th Circuit Court of Appeals affirmed dismissal of a case in which two former University of Pennsylvania student athletes claimed that they and other intercollegiate athletes were employees entitled to minimum wage under the FLSA. (Read our prior post on the decision for more information.) Undeterred, the students are now asking the full 7th Circuit to rehear their case. They argue, among other things, that the district court and the appellate panel erred in dismissing their complaint without allowing them to develop a factual record to support their claims.

The litigation over the FLSA overtime exemption rules marches on. (See the *New Exemption Rules section of the blog for the complete history.) The U.S. Department of Labor filed its initial brief yesterday, December 15. Briefing will continue through January, with a decision in late February or early March at the earliest. Assuming, that is, that the Trump administration and Congress don’t pull the plug before then.

AFL-CIO Seeks To Intervene In Overtime Rules Court Fight

Posted in *New Exemption Rules

The pending court fight between the U.S. DOL and a coalition of states and business groups over the new overtime exemption rules will not be resolved before President Obama leaves office in January, even though the 5th Circuit Court of Appeals has now granted the DOL’s motion to set an expedited briefing schedule on its appeal from a preliminary district court order blocking the rules from taking effect. While we don’t know for sure what position the Trump administration will take on the new rules, the nomination of fast-food executive Andy Puzder as Secretary of Labor seems to be a pretty clear sign. Puzder has been a vocal critic of the new rule.

Anticipating that the DOL will be less than vigorous in its defense of the rule once President Trump takes office, the Texas AFL-CIO has filed a motion to intervene in the lawsuit so that it can carry on in the DOL’s place should the administration change its position. The court has yet to rule on the motion, so we don’t know whether the labor organization will be permitted to defend the new rule in court.

For those taking bets, this somewhat increases the odds that the rules may take effect at some point notwithstanding the results of the election. However, there are still multiple ways in which they might be permanently blocked. At this point, the only sure bet is that employers will be stuck in limbo for at least the near term.

Seventh Circuit Says Student Athletes Are Not Employees

Posted in Higher Education

iStock_000015026880XSmall.jpgBack in August, the National Labor Relations Board threw the higher education community a curve ball ruling that student assistants at Columbia University were employees under the National Labor Relations Act, and were therefore entitled to organize a union. (For more information see our alert on the case.) An obvious question left unanswered by the Columbia University case was whether and under what circumstances students may also be entitled to minimum wage and overtime under the Fair Labor Standards Act. On Monday, December 5, the Seventh Circuit Court of Appeals weighed in on at least part of that issue, holding that two former University of Pennsylvania athletes were not employees of either the University or the NCAA under the FLSA. Berger v. National Collegiate Athletic Association, et al.

Historical Context

The FLSA itself is distinctly unhelpful in assessing when students might be treated as employees, as it defines “employee” as “any individual employed by an employer,” and “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” The statute goes on to define “employ” as “to suffer or permit to work.”

Taken literally, that exceedingly broad definition would seem to sweep in all students who perform anything one could describe as “work.” That could include, for example, students who build sets in the drama department, run the student radio station, or do research work as part of a graduate program. However, the U.S. Supreme Court long ago rejected such a sweeping interpretation of the FLSA, holding in Walling v. Portland Terminal Cothat the FLSA “cannot be interpreted so as to make a person whose work serves only his own interest an employee of another person who gives him aid and instruction.”   Continue Reading

Exemption Rules Appeal Won't Be Resolved Before Obama Leaves Office

Posted in *New Exemption Rules, Litigation

It looks like the U.S. Department of Labor’s appeal of the order blocking the new overtime exemption rules won’t be decided before President Obama leaves office. Under the Court of Appeals’ regular rules, the DOL’s opening brief would have been due in mid-January, followed by the response brief 30 days later, and the DOL’s reply 14 days after that, likely taking the briefing process into March. Last Friday, December 2, the DOL filed a motion asking the Court of Appeals to set an expedited briefing schedule, under which the DOL would file its initial brief by December 16, and all briefing would be completed by February 7, 2017. The DOL’s motion further asks the Court of Appeals to set a date for oral argument on “the first available date after close of briefing.”

In short, even under the DOL’s proposed expedited schedule, this appeal would not be resolved until well after January 20, 2017, when Donald Trump will be sworn in as President. While we can certainly speculate that President Trump may pull the plug on further efforts to defend the new rules in court, we don’t know what the new administration will do on this issue once it takes office. There are also still other wild cards that could be played before this drama is over. Congress could step in and overrule the DOL, or the District Court could issue its final ruling on the merits of the case, which could re-start the appeals process regardless of which way the decision goes.

For our thoughts on what employers should do while this all plays out, see our prior post here.

 

Not Dead Yet! DOL to Appeal Overtime Exemption Rules Injunction

Posted in *New Exemption Rules, Litigation

Sorry employers, the ride’s not over yet. For those of you keeping track, the U.S. Department of Labor’s new overtime exemption rules were set to go into effect yesterday, December 1, 2016. However, on November 22, 2016, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction blocking the rules from taking effect. It probably should not come as much of a surprise that the DOL is not simply rolling over on this issue. Yesterday, the DOL filed its official Notice of Appeal, taking the case up to the Fifth Circuit Court of Appeals. Our prediction meter is seriously out of calibration after the events of the last month, so we’re not going to attempt to handicap the DOL’s chances on appeal, at least not at this early stage. And let’s not forget, even if the DOL succeeds in its appeal, the forthcoming Trump administration and the Republican-controlled Congress may well take steps to block or change the rules once President Obama leaves office in January.

So, what should employers do now? For the time being, nothing really has changed. The injunction blocking the new rules remains in effect until the District Court or the Court of Appeals says otherwise. However, the injunction could be lifted at any time. If that happens, the rules will take effect. Arguably they will be effective retroactively to December 1, notwithstanding the injunction that is currently in place. This leaves employers who have exempt employees with salaries below $913 per week in an awkward spot. Those who have already implemented changes to comply with the new rules should strongly consider staying the current course at least until the dust settles and the litigation is resolved. Employers who have not implemented changes have to weigh the cost and of doing so now against the risk of having to retroactively pay overtime should the injunction be lifted, even if the result is only a temporary reprieve. At a minimum, employers may wish to minimize any overtime work by potentially affected employees and ensure that they are accurately tracking work hours.

We will report on further developments as they occur.

New Exemption Rules Blocked - Now What?

Posted in *New Exemption Rules

Yesterday, the United States District Court for the Eastern District of Texas dealt employers yet another surprise in this season of upsets with its decision in State of Nevada v. U.S. Department of Labor, halting the implementation of the DOL’s new FLSA overtime exemption rules, which were set to take effect December 1, 2016. The rules would have increased the minimum salary for exempt executive, administrative and professional employees from $455 per week to $913 per week, or about $47,476 per year. The court issued a nationwide injunction prohibiting the enforcement of the new salary threshold for exempt employees. As a result of the court’s ruling, the new rules will not take effect on December 1, the prior rules will remain in effect, and the timing of a change in the rules, if any, is completely up in the air.

While the new rules already faced an uncertain future under the Trump administration and the Republican-controlled congress, most legal observers gave this lawsuit a low probability of success. The complaint, filed on September 19, 2016 by a coalition of 21 states, claims that the DOL exceeded its authority under the FLSA and unlawfully infringed upon states’ budgets by enacting the new rules. A coalition of business groups led by the U.S. Chamber of Commerce also filed a parallel lawsuit, which was later consolidated with the states’ case. The states asked the court to grant a preliminary injunction blocking the rules from taking effect until a final ruling in the case. For their part the business groups asked the court to skip the preliminaries and expedite its final ruling on the merits.

Although the court declined to issue a final decision for the time being, it granted the states’ motion for a temporary nationwide injunction blocking the new rules from taking effect and prohibiting the DOL from expending any resources to enforce them. The court found that Congress intended for the executive, administrative, and professional exemptions to be based on an employee’s actual duties and responsibilities, rather than the employee’s salary. By issuing a rule that “categorically excluded” employees who performed exempt job duties from exemption based on a “de facto salary-only test,” the court determined that the DOL exceeded its authority and violated the unambiguous intent of Congress to exempt employees based upon the type of work they perform. While the Court’s ruling seems to suggest that the low $455 per week salary threshold in the existing rules might be permissible because it screens out only “obviously non-exempt employees,” the court did not address whether a smaller increase in the current minimum might have been permissible. It also did not rule on whether that lower minimum salary threshold could be subject to automatic increases as the DOL had proposed, finding instead that “because the Final Rule is unlawful, the Court concludes the Department also lacks the authority to implement the automatic updating mechanism.”

Importantly, this ruling is not limited to the States that filed the lawsuit. The Court’s ruling is nationwide in scope and applies to all employers covered by the FLSA. However, much uncertainty remains. Rulings on preliminary injunctions are subject to immediate appeal. While it is rare for the Fifth Circuit Court of Appeals to overturn a preliminary injunction, this is an unusual and unexpected decision, and the Obama Administration may well try its luck in a bid to preserve the new rules. While its ruling on the preliminary injunction likely forecasts the district court’s final ruling on the merits of the case, it is also possible that the court may reach a different result upon final review and lift the injunction.

We also do not know at this time exactly what President-elect Trump will do on this issue when he takes office in January. He may well simply order a halt to further government efforts to defend the Obama administration rules, in which case the current injunction will likely remain in effect and the rules will be dead. But the President-elect is nothing if not unpredictable, and it is at least possible (if unlikely) that his populist side may win out over business interests and lead him to defend the new rules. It is also possible that Congress may step into the fray, either by voting to block the new rules under the Congressional Review Act, or by enacting legislation that either does away with the salary increase or phases it in over several years.

This leaves employers with a difficult question: What now? Unfortunately we are still waiting for a definitive answer.

Employers who are contemplating changes to comply with the new rules but have not yet announced them should consider waiting to see what happens before they act. Employers that have already announced or implemented adjustments will need to decide whether to roll them back, and if so whether to do that now or wait for the dust to clear. Employers who do announce further changes based on this ruling should be clear with employees that further changes might follow depending on the final resolution of the lawsuit and the response of Congress and the new administration. Obviously those communications will need to be handled carefully, particularly if they mean rescinding pay increases or other changes that employees may have seen as favorable.

Finally, as employers plan to respond to these issues, they should watch not only the courthouse in Texas and politicians in Washington D.C., but their state legislatures and city councils. New York already has a higher minimum salary for exempt white collar employees ($675 per week), and has recently proposed increases even greater than those in the now blocked federal rules. If the federal rules are declared dead, other state and local governments may be inspired to take similar action.

DOL Exemption Rules Enjoined

Posted in *New Exemption Rules

Well folks, looks like all that work we did to get ready for the new exemption rules taking effect 12/1 was just for fun. A federal court just blocked the rules from taking effect nationwide. This is just in so we haven’t had a chance to digest the opinion yet, but here it is if you want to read it for yourself. We will provide more analysis soon.

Order Enjoining Exemption Rule

What Will The Trump Administration Mean for Wage and Hour Law?

Posted in *New Exemption Rules, Trump Administration

This is a post I certainly didn’t expect to be writing even 12 hours ago, but now that the results of the election are clear, it’s time to give some thought to what lies ahead under the forthcoming Trump administration. Details will of course start to emerge over the next couple of months, but I have a few early predictions about what employers should and should not expect.

  1. An eventual repeal of the new FLSA overtime rules just became much more likely. While it would take time for President Trump’s labor department to go through the process of issuing new regulations to replace those set to take effect December 1, it is highly likely that Congress will address the issue through legislation now that the likelihood of a veto by a Democratic president has been removed. The real question is whether such legislation would simply roll back to the old minimum salary level of $455 per week, or, as some in Congress have proposed, phase in a more gradual increase over the next few years.
  2. We don’t know what will happen with the new exemption rules between now and January when Trump takes office. There are a few different possibilities. One is that the Obama administration will stay the course and move forward with the rules as if nothing has changed. Employers (at least, those who want to be in compliance with the law) will have to move forward with reclassifying employees and making other necessary changes to their compensation structures and payroll practices by December 1. If the law later changes, those employers will need to make some decisions about whether to roll any changes back or just leave well enough alone. A second possibility is that the Obama administration might delay any DOL enforcement actions under the new rules in anticipation of legislation under the new administration. I have no inside knowledge here, but that seems unlikely. The current DOL is strongly committed to the new rules and likely wants to see employers implement changes in the hopes that they will stick even if Congress enacts legislation lowering the salary level once again. Also, even if the DOL does not itself take action to enforce the new rules, the rules remain law unless they’re overturned either by a new rule (which must go through an extensive rulemaking process, just as the current rule did) or by an act of Congress. So even if the DOL does not go after employers who are not in compliance with the new rules, that does not stop private litigants, or for that matter state labor departments in states that (like Illinois) mirror the federal rules in their state overtime laws. There are a couple of other outside possibilities. One is that the current Congress strikes a deal with the lame-duck Obama administration to enact legislation preserving some increase in the minimum salary but phasing it in over time. If done quickly this might save employers from having to make changes now and reverse course later. While that might be the sensible approach to the problem, I’m not holding my breath. The other wild card here is the pending lawsuits seeking to overturn the new rules. While most legal experts don’t give them a high likelihood of success, stranger things have happened.
  3. The DOL’s posture toward employers is likely to change – eventually. Under the Obama administration, it seems fair to say that the U.S. Department of Labor has become much more aggressive in pursuing enforcement action against employers and in using administrative action to impose new restrictions on employers. The DOL has hired more investigators and field staff, and anecdotally I can certainly report that more of our clients are being visited by DOL agents in the last couple of years than was previously the case. But that did not happen overnight when President Obama took office. The federal government is a huge ship, and it takes a long time to change direction. It seems likely that the Trump administration will seek to rein in the Department of Labor, particularly in its more aggressive initiatives to change (or, as the DOL would probably put it, fill in the gaps) in existing law through “Administrator Interpretations” and rulemaking. It’s also likely that the DOL will see its enforcement budgets cut, meaning fewer audits. However, just as it took time for the Obama administration to change the DOL’s course from the relatively business-friendly one set under President Bush, employers should not expect to see these changes until the new administration has had time to put its own team in place, establish budget priorities, and make the other policy changes needed to effect their vision for the agency.
  4. State and local governments will continue to ramp up their regulations. While employers may welcome some of the changes that they are likely to see at the federal level under the new Trump administration, those changes are likely to accelerate the recent trend of state and local governments enacting their own regulations on employers, at least in the remaining “blue” strongholds around the country. This may further complicate the lives of HR professionals whose organizations operate across multiple jurisdictions.

Of course employers should take all of these predictions with a very large grain of salt because, frankly, we don’t know what is going happen now. For the time being, the best advice that we can give to employers is to stay the course, keep preparing for the new FLSA exemption rules set to take effect on December 1, and wait to see where the dust settles. But also be prepared for further changes that may well be on their way.

Thirty Days to Go – Are Your Employee Classifications In Order?

Posted in DOL News, Exemptions, Overtime

As we have reported over the last couple of months, there have been recent attempts by business groups and states to block the U.S. DOL’s new overtime exemption rule from taking effect on December 1, 2016. Despite these efforts, no court has yet to issue any ruling.  With just 30 days to go, employers should not pin all of their hopes on a last minute reprieve from the new minimum salary threshold requirement.  Instead, employers must continue to prepare to comply with the new rule.  With states having various state notification requirements, please keep in mind that a change in classification may require advance notice to employees before December 1.  Employers should consult their applicable state laws and plan accordingly.

We will continue to provide updates on this pressing issue.

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