On June 7, 2017, the U.S. Department of Labor withdrew the controversial Administrator Interpretations (“AIs”) issued in 2015 and 2016 regarding its guidance on “independent contractors” and “joint employers.” The announcement reads:
The Department of Labor’s 2015 and 2016 informal guidance on joint employment and independent contractors were withdrawn effective June 7, 2017. Removal of the two administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act or Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the Department’s long-standing regulations and case law. The Department will continue to fully and fairly enforce all laws within its jurisdiction including the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.
While the post-election conventional wisdom has been that the new leaders of the DOL would review these Administrator Interpretations, no one was sure if the anticipated relief to the employer community would be via a rescission or modification, and it was also not expected for any change to occur until after a new Solicitor of Labor and Wage and Hour Administrator took office. (The President has yet to nominate anyone of either of these offices.) Thus, the timing of this announcement – while greatly welcomed by the business community – is also somewhat of a surprise. The two AIs limited the misclassification of workers through a stricter independent contractor test and also expanded the definition joint employer.
THE RESCINDED INTERPRETATIONS
Independent Contractors: The July 2015 AI regarded the issue of misclassifying employees as independent contractors. While claiming to merely summarize existing standards, many viewed the newly proclaimed standards as being based on case law that deviated from the legal mainstream and established an “economic reality” or “dependency” test which minimized the element of control held by the contracting party. The case law up until that point, while weighing economic realities, placed a premium on the extent to which a business controlled the contractor. In contrast, the AI gave the lowest weight to the control factor. The bottom line under this definition emphasizing “dependency”, according to the Wage and Hour Administrator at that time, was that few workers could be properly treated as contractors.
Joint Employers: Under the January 2016 AI, joint employment relationships under the Fair Labor Standards Act could arise under two scenarios: 1) horizontal joint employer relationships; and 2) vertical joint employer relationships. The concept regarding horizontal joint employment (i.e., essentially when related businesses share employees) did not significantly deviate from prior doctrine. Regarding vertical joint employers, however, the DOL again selectively picked among judicial precedent to cobble a newly articulated standard, dramatically altering the doctrine from most courts’ application, , this time favoring emphasis on the “control” factor, e.g., the control a prime contractor may assert over subcontractors, a franchisor may assert over franchisees, and a business may assert over employees supplied by staffing companies. In essence, the AI made it easier for DOL to deem employers doing business together to be joint employers, and thereby make it easier to hold one of the “joint employers” liable for the alleged wrongs solely made by the other “joint employer.”
THE SIGNIFICANCE OF THE RESCISSIONS
After these AIs were published, only a handful of courts had adopted them as being the proper construction of the law. That has not stopped the plaintiffs’ bar from trying to leverage the AIs as support for their cases, nor has it stopped the DOL from applying them in the course of its audits and investigations.
With the rescission of these AIs, the common law as existed prior to 2015 on these issues is again clearly the law of the land. These AIs will no longer serve as a basis for finding liability, and critically, they will not drive the DOL in its investigations going forward. Thus, their rescission signifies is a return to the fairly stable and well established doctrines of the past, which should be welcomed by the business community, although it is likely that the plaintiffs’ bar will still use the arguments contained in the AIs. .
The remaining question is whether this also serves as “writing on the wall” with respect to how the EEOC and the NLRB will address these issues, because under their current composition, they have been heading in the direction now rejected by the DOL. This may also be a sign that other initiatives of the former administration may be rolled-back by the new DOL leadership, but some of those actions will likely await until the other leadership positions within the DOL are filled. For instance, it is anticipated that the new administration will reverse course by no longer issuing formal “Wage and Hour Administrator Opinion Letters,” as well as cease from engaging in the relatively new practice of routinely assessing liquidated damages when resolving pre-suit investigations..
In sum, this withdrawal is a good sign that some of the initiatives of the prior administration which appear hostile to employers may be rolled-back, in part or in whole. However, many of those initiatives, depending on the agency, are still – at least according to those agencies – alive and well. Even if the administration softens the government’s views on these issues, the arguments underlying the AIs and related positions of other agencies will continue to be made by plaintiffs’ counsel in the courts, and these issues will – in the end – be resolved in the courts. Consequently, there is nothing in today’s development which should dramatically alter any employer’s operations in the immediate future.
Earlier this week, the California Supreme Court issued its opinion in Mendoza v. Nordstrom, clarifying California’s day of rest requirements. These requirements are set forth in California Labor Code sections 551 and 552. Section 551 provides that “every person employed in any occupation of labor is entitled to one day’s rest therefrom in seven,” and Section 552 prohibits employers from “causing their employees to work more than six days in seven.” However, Section 556 exempts employers from the duty to provide a day of rest “when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof.” While these provisions do not appear too complicated or hard to follow at first blush, compliance has been challenged in wage and hour litigation, raising several questions of what these provisions technically mean. Questions that have arisen include the following:
What does it mean to “cause” an employee to work more than six days in seven? Is it enough to “allow” the employee to work seven days in a row, or must the employer require the employee to work more than six days in a row to be found in violation of the statute?
Is the day of rest required for any consecutive seven-day work period on a rolling basis, or is it measured based on the employer’s workweek (the definition of which varies from employer to employer and may not match a calendar week)?
Does the exemption from the day of rest requirement apply where the employee works 6 or less hours on at least one day during the workweek, or must the employee’s hours be 6 or less every day of the workweek (and no more than 30 for the entire week)?
The California Supreme Court agreed to answer these questions at the request of the Ninth Circuit in Mendoza v. Nordstrom. Here’s how the Court ruled on these issues:
A day of rest is guaranteed for each workweek. Periods of more than six consecutive days of work that stretch across more than one workweek are not per se prohibited.
The exemption for employees working shifts of six hours or less applies only to those who never exceed six hours of work on any day of the workweek. If on any one day an employee works more than six hours, a day of rest must be provided during that workweek, subject to whatever other exceptions might apply.
An employer causes its employee to go without a day of rest when it induces the employee to forgo rest to which he or she is entitled. An employer is not, however, forbidden from permitting or allowing an employee, fully apprised of the entitlement to rest, independently to choose not to take a day of rest.
With respect to question (1), the Court held that the seven-day period is based on the workweek as defined by the employer. Thus, if the employer uses a calendar week, then the seven-day period (during which there should be one day of rest) is based on each calendar week. If the employer defines its workweek differently, then the seven-day period designated by the employer controls. However, the one-day-of-rest-in-seven provision does not apply on a rolling basis to every consecutive seven-day period.
With respect to question (2), the Court held that if an employee works more than 6 hours on any day of the workweek, the day of rest provision applies. The Court rejected an interpretation that would exempt employers from providing a day of rest to an employee who works 6 hours or less on just one day of the workweek. Thus, if an employee’s hours exceed 6 on any day of the workweek, the day of rest requirement will apply. You now ask, “What if the employee does not work more than 30 hours per week?” Unfortunately, the Court chose not to clarify whether the day of rest exception for employees working no more than 30 hours per week or 6 hours per day should be read in the conjunctive or disjunctive (because the Ninth Circuit did not expressly ask the Court to answer this particular question). Thus, left for another day (and more litigation) is the issue of whether the day of rest requirement applies to an employee who works more than 6 hours one or two days of the workweek, but whose total hours for the workweek do not exceed 30. The conservative approach of course, it to provide the opportunity for a day of rest to any employee who works more than 30 hours per week and/or more than 6 hours in any one workday.
Finally, with respect to question (3), the Court held that an employer “causes” an employee to work more than six days in seven if it motivates or induces the employee to do so. This does not mean that the employer is liable if it simply permits an employee to work more than six days in seven. “[A]n employer‘s obligation is to apprise employees of their entitlement to a day of rest and thereafter to maintain absolute neutrality as to the exercise of that right. An employer may not encourage its employees to forgo rest or conceal the entitlement to rest, but is not liable simply because an employee chooses to work a seventh day.” Based on this interpretation, an employer generally should not affirmatively schedule or require employees to work more than six days in seven, but it is okay to offer employees the opportunity to work more than six days in seven, so long as they are apprised of their entitlement to one day’s rest each workweek and notified that they will not be penalized for choosing to take a day of rest (nor rewarded, apart from being paid their earned wages, for not taking a day of rest).
While this opinion clarified some issues relating to California’s day of rest requirements, it also left an important one unanswered. Specifically, California Labor Code section 554 provides an exception from the day of rest requirement where the “nature of the employment reasonably requires that the employee work seven or more consecutive days, if in each calendar month the employee receives days of rest equivalent to one day’s rest in seven.” There is a lack of guidance on when the “nature of the employment reasonably requires” seven or more consecutive days of work so as to allow accumulated rest days to be taken at a different time during the month, and today’s opinion does not shed light on that subject.
California employers are advised to review their scheduling and pay practices to ensure compliance with California’s day of rest requirements, as clarified by the California Supreme Court today. Employers are further reminded that California has special overtime compensation rules that apply to work performed on the seventh consecutive day of a workweek (time and one half for the first 8 hours of work performed on the seventh consecutive day of the workweek, and double time for hours in excess of 8).
On May 4, 2017, the Circuit Court for the City of St. Louis, Missouri lifted an injunction that had blocked a St. Louis City ordinance increasing the minimum wage for St. Louis City businesses. This action came after the Missouri Supreme Court ruled that state law did not prohibit the higher local minimum wage.
Now that the injunction has been lifted, the minimum wage for approximately 10,000 businesses in the City of St. Louis will increase to $10 per hour, effective tomorrow, May 5, 2017. The minimum wage will again increase to $11 per hour on January 1, 2018.
Employers that gross less than $500,000 per year, or have fewer than 15 employees, are exempt from the ordinance. Likewise, the ordinance does not apply to employees who work less than 20 hours per calendar year.
While there are legislative efforts underway in Jefferson City to reverse the outcome and avoid the issues raised by the Missouri Supreme Court, these efforts remain in preliminary stages and it is unknown whether they will be successful.
Additionally, the City’s informational website on the new minimum wage is located at www.stlouis-mo.gov/minimum-wage/.
by Frank Neuner
Spencer Fane LLP
The minimum salary to qualify for the traditional “white collar” overtime exemptions (administrative, executive, professional) in California has been higher than that required under federal law for many years. Because California’s exempt salary threshold is tied to the state minimum wage (an exempt employee generally must earn a salary of at least two times the state minimum wage), the salary floor goes up as California’s minimum wage goes up. The current minimum salary for exempt executive, administrative, or professional status in California is $43,680 per year (under the current minimum wage of $10.50).
As most employers know, last year the federal Department of Labor enacted regulations increasing the minimum salary to qualify for exempt status under the federal Fair Labor Standards Act (“FLSA”) to $47,476 per year. California employers would have had to comply with the higher salary threshold under the FLSA, except that the regulations were blocked by a Texas court late last year. The Texas court’s ruling is now on appeal, but at this point most WHDI members believe that the overtime regulations will not be reinstated — at least in current form — under the Trump administration.
California is now seeking to accomplish what the Obama administration could not accomplish at the federal level, by proposing to raise the minimum annual salary to qualify for exempt status in California to $47,472. AB 1565 (Thurmond) recently passed through the California Assembly’s Labor and Employment Committee. Under the bill, the minimum salary for exempt executive, administrative, or professional workers would be $47,472 or twice the state minimum wage, whichever is greater. As California’s minimum wage continues to rise, a salary of twice the state minimum wage eventually will be a number greater than $47,472. Until that time, $47,472 would be the minimum salary for exempt status in California if this bill is enacted. Our California WHDI members certainly believe that this bill has a reasonable chance of being passed and signed by Governor Brown, so employers with California employees should keep an eye on AB 1565.
Earlier this week, the U.S. House of Representatives passed, by a 229-197 margin, passed the Working Families Flexibility Act (HR 1180). The Act, if passed by the Senate and signed by the President, will introduce the concept of “compensatory time” (a/k/a “comp-time”) to the private sector workplace. Under the Fair Labor Standards Act, comp-time has existed in the public sector for many decades, but absent the passage of this Act, it is not permissible in the private sector.
The Comp-Time Concept
The concept of “comp-time” is essentially a way for employees to earn time off with pay in lieu of being paid time and one-half their regular hourly rates for hours worked over 40 during a workweek. This time off is earned at the rate of one and one-half hours for each hour of overtime worked. In the public sector, the FLSA allows employees to accrue 240 hours of comp-time (or 480 hours for public safety employees), to be used or paid per specific federal regulations. The system envisioned by this Act for the private sector is similar to its public sector counterpart, but different in some significant ways. These differences if they survive the passage of the bill may lessen the attractiveness of comp-time programs for private sector employers.
The Comp-Time Structure under the Working Families Flexibility Act
Under the Act as passed by the House, private sector employees could accrue up to 160 hours of comp-time.
- Only employees who have worked at least 1,000 hours during the 12-months preceding the beginning of the comp-time arrangement will be eligible to participate in a comp-time arrangement.
- Participation in a comp-time arrangement must be voluntary (i.e., the employer may not directly or indirectly intimidate, threaten or coerce employees to work under the comp-time arrangement) and initiated only pursuant a collective bargaining agreement, written agreement with the employee or other verifiable record maintained by the employer.
- Any accrued comp-time not used within a designated year must be cashed-out to the employee within 31 days after the year-end at the rate the employee is earning at the time of the payment or when the hours were earned, whichever is higher.
- During the year, the employee also may cash-out any accrued time, at the employee’s discretion.
- During the year, the employee must be allowed to use the comp-time accrued as requested, unless the time-off would unduly disrupt the employer’s operations.
- The employee may also opt-out of the comp-time arrangement at any time by giving the employer written notice. The employer may terminate the comp-time arrangement only by giving the employee 30 days’ prior written notice.
Good News or Bad News?
So is the good for business? It depends. Over the years – beginning in the Clinton era – similar bills have been introduced by both parties in Congress. The premise of the bills has been that allowing employees to earn and use comp-time may be more desirable than earning overtime pay, since the quid pro quo for losing some time with one’s family would be earning the ability to take off even more time at a later date, with pay, to be with one’s family.
To those against the bill, there’s a fear that employees will be coerced to accept comp-time as a condition for working overtime, or that the payment of earned overtime pay will be unfairly deferred. These fears do not appear to be very realistic given the structure of the Act.
Due to the employee’s right to cash-out accrued time at any time and rescind the comp-time arrangement, the advantages of employees working overtime for comp-time in lieu of being paid overtime pay are less clear for employers. Employers like comp-time because they can avoid the out-of-pocket cost of overtime while allowing employees to take off more time during slower times of the year. Under the Act, while these advantages still exist, they can readily lost based on the employee’s whim to cash-out their time and terminated the relationship. Also, by forcing employers to cash-out accrued time not used by the year-end, much of financial savings will be lost to employers while the employees will also lose their ability to bank time for use at later time.
These disadvantages do not exist in the public sector, and it’s unclear as to why the model for the private sector needs to differ than that used in the public sector. Nonetheless, this is the course currently being taken by Congress.
Prospects for Passage?
While the President has endorsed the bill as passed by the House, its future in the Senate is unclear. If the bill moves through committee and to the floor, it is likely that some changes will be made to gather the 60 vote margin needed to avoid a filibuster. If this happens, then what will be shaped in Conference Committee is even more unclear. Time will tell.
Impact on Other Comp-Time Plans
Employers should realize, though, that the concept only applies to overtime worked by non-exempt employees. Under the FLSA, the Act would not apply to permissible comp-time arrangements which may be in place with respect to hours worked beyond a normal workweek of 35 or 37.5 hours, but less than 40, for example, nor does it impact comp-time arrangements in place with respect to exempt employees. Further, as currently drafted, the Act would not apply to public sector employers in any respect.
Last week the California Court of Appeal issued a decision holding that employers must separately compensate commissioned (“inside sales”) employees for legally required rest breaks.
Under California law most employees are entitled to a paid 10-minute rest break for every work period of four hours, or major fraction thereof. California law also provides an overtime exemption for commissioned salespeople, but this “inside sales” exemption does not exempt those employees from minimum wage or meal and rest break requirements. (So-called “outside” salespeople are not subject to minimum wage, overtime, or meal/rest break requirements.)
Stoneledge Furniture compensated its retail sales associates according to a standard commission agreement. The agreement provided for sales associates to be compensated on a commission-only basis, but also guaranteed the associates a minimum income of $12.01 per hour. The minimum income was paid to sales associates as a “draw” against future commissions. If an associate earned commissions that met or exceeded the draw, the associate would be paid the commissions actually earned. But if an associate’s earned commissions were less than the draw, the associate would receive the minimum draw. The agreement did not provide separate compensation for any non-selling time, such as time spent for meetings, training, or rest breaks.
Two sales associates filed a class action against Stoneledge alleging the company failed to provide paid rest breaks. The trial court certified a class but later granted summary judgment to Stoneledge, finding that by guaranteeing sales associates a minimum income of $12.01 per hour, Stoneledge ensured they would be paid for all hours worked, including rest breaks.
The Court of Appeal reversed, holding that Stoneledge violated California law by not separately compensating sales associates for rest breaks. The court relied on the applicable wage order, which provides, “authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.” The court reasoned that since the minimum pay guarantee was a draw against commissions, it was simply an advance subject to clawback, or deduction, from future commissions. As a result, when a sales associate earned commissions that exceeded the draw, the only pay the associate received consisted of commissions, which did not account for rest breaks. The court held that to comply with California law, commission-based compensation plans must provide for separate pay for legally required rest breaks. In reaching its conclusion, the court relied on previous cases holding that piece-rate employees must be separately compensated for rest breaks, a requirement the state legislature later codified at California Labor Code section 226.2, which took effect in 2016.
Although this decision focused on rest breaks, its reasoning applies equally to other compensable yet “non-productive” time that is not accounted for and compensated under commission or piece-rate compensation plans. Employers with California-based commissioned (inside) salespeople, or employees paid on a piece-rate basis, should review their compensation plans to ensure those employees are separately paid at least the minimum wage for rest breaks and other non-productive yet compensable time, and that this pay does not operate as a “draw” subject to deduction. In other words, pay for all non-productive compensable time must be guaranteed and independent from compensation tied to sales commissions or piece-rate production.
As the last post illustrates, states are adopting disparate rules concerning meal and rest breaks, and so employers need to pay attention to the laws of the each relevant jurisdiction. Massachusetts is no exception, as a recent case demonstrates.
In Devito v. Longwood Security Services, Inc., a Massachusetts Superior Court judge held that, under state law, employers must pay their employees for meal breaks unless the employees are relieved of all work-related duties during that time. In so holding, the Court rejected the application of the federal “predominant test,” which provides that meal breaks need only be paid when the employee’s meal break time is spent predominantly for the benefit of the employer. The decision holds that the standard Massachusetts employers must meet to avoid paying employees for meal breaks is much stricter than the federal standard.
The Court based its conclusion on the language of the Massachusetts Department of Labor Standards’ regulations, which the Court held to be a source of authority for determining whether certain hours worked should be counted for the purpose of a Wage Act claim. Those regulations provide that “Working Time” does not include “meal times during which an employee is relieved of all work-related duties.” Further, they state that all on-call time is compensable unless the employee is not required to be on work premises and is “effectively free to use his or her time for his or her own purposes.” Taken together, the Court found that meal breaks are compensable hours worked under the Wage Act unless employees are relieved of all work-related duties during the meal breaks.
The Court rejected authorities that applied the “predominant test” used under the federal Fair Labor Standards Act. It ruled that there was no reason to look to interpretations of the FLSA for guidance in interpreting the governing Massachusetts law and regulations because the law and regulations are unambiguous.
While this trial court decision is not binding on other courts, the decision demonstrates the risks that employers face when providing meal breaks to employees without relieving them of all duties. Prudent Massachusetts employers should review their meal break policies and pay employees for any meal breaks during which employees are expected to be available for work-related matters. Only if an employee is truly relieved of all work responsibilities during the meal break can a Massachusetts employer avoid paying employees for break time without risking a potential Wage Act claim.
Jonathan Keselenko, Foley Hoag LLP, Boston, MA
Last week the California Supreme Court issued a decision holding that employers cannot require employees to remain “on-call” during legally required rest breaks. The ruling reversed a January 2015 appellate court decision.
California law has long required employers to provide most employees with a paid, uninterrupted 10-minute rest break for every work period of four hours or major fraction thereof, during which employees may not be required to work. California also requires employers to provide most employees with unpaid, uninterrupted 30-minute meal periods for work periods exceeding five hours, during which employees must be relieved of all duty.
Three security guards filed putative class actions against their employer, ABM Security Services, Inc., claiming the rest breaks provided to them were rendered invalid by ABM’s requirement that they keep their radios and pagers on, remain vigilant, and respond to calls if necessary. ABM argued that the mere requirement to stay “on-call” did not render the rest breaks invalid. The trial court agreed with the security guards and awarded $89.7 million in damages to a class of more than 14,000 security guards. ABM appealed.
The Court of Appeal analyzed the issue by turning to Industrial Welfare Commission Wage Order 4, which governs the working conditions of ABM’s security guards. Although Wage Order 4 requires employees to be “relieved of all duty” during meal periods, it contains no similar language as to rest periods. The absence of any explicit language requiring employees to be relieved of all duty during rest periods led the Court of Appeal to conclude that no such requirement was intended.
A divided California Supreme Court disagreed, holding that a “rest period” means just that―a period of rest in which an employee must be relieved of all duties. The court noted its interpretation is consistent with Labor Code section 226.7, which prohibits employers from requiring “any employee to work during any meal or rest period . . . .” In other words, the court determined an employer’s responsibilities are the same for meal and rest periods: to relieve employees of all work. Therefore, the court held that state law requires employers to relieve employees of all work-related duties during a required rest break, including the duty to remain on-call.
The practical effect of the decision is that employees must be allowed to turn off radios and mobile phones during rest breaks because requiring an employee to leave them on would mean the employee is on-call and available for work.
Keep in mind the court did not hold that rest periods may never be interrupted; it simply said employees cannot be required to remain on-call or readily available for interruption. If a rest break is interrupted or not provided, the employer must either provide a new, uninterrupted rest period within the required time frame, or pay the employee a penalty equal to one hour of pay at the employee’s regular rate.
The court did not disturb the longstanding rule that employees may be required to remain onsite or nearby during rest breaks.
Employers should immediately review their policies and practices to ensure they are not requiring California employees to remain on-call or in contact during rest breaks. This means employees must be allowed to turn off radios, mobile phones and other communication devices.
Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA
Late Tuesday afternoon, the United States District Court for the Eastern District of Texas granted a motion brought on behalf of 21 states and supported by business groups led by the United States Chamber of Commerce to preliminarily enjoin the new overtime exemption regulations set to go into effect on December 1, 2016. Those new regulations were announced in May by the United States Department of Labor (“DOL”) and, if they had gone into effect, would have increased the minimum salary threshold for most executive, administrative and professional employees from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year). The new rules would have jeopardized the exempt status of 4.6 million employees.
The Elements for Preliminary Relief Were Satisfied by the States
At the outset, the court had to determine if the states will “likely succeed on the merits” as the case is further litigated, and if a permanent injunction is on the horizon. The states’ case was premised on both constitutional and statutory grounds. The court concluded that while the states’ constitutional claims were unlikely to succeed, their statutory arguments appeared strong and likely to succeed.
The court noted that the Fair Labor Standards Act (“FLSA”) provides that “‘any employee employed in a bona fide executive, administrative, or professional capacity… as such terms are defined and delimited from time to time by regulations of the Secretary, shall be exempt from minimum wage and overtime requirements.” According to the court, the issue boiled down to what Congress meant by “executive, administrative and professional.” The court concluded that Congress’ focus when the FLSA was enacted was on what these employees actually do, i.e., what are their duties, which, the court concluded, “does not include a minimum salary level.” That is, while the law generally grants administrative agencies great deference as they interpret statutes, “nothing… indicates that Congress intended the Department to define and delimit a salary level.”
Consequently, the court held that the DOL exceeded its authority by imposing a salary level requirement in the tests for these white collar exemptions. Further, the court stated: “Congress did not intend salary to categorically exclude an employee with [exempt] duties from the exemption,” but such an outcome, the court stressed, would happen under the new regulations. Indeed, this outcome was expressly admitted to by the DOL in the preamble to the new regulations, i.e., that the significant salary level increase would, in and of itself, make otherwise exempt employees non-exempt.
The court also held that absent an injunction, the states would be irreparably harmed. That harm would not only include the cost of paying higher salaries, but it would also entail the cost spent on compliance and the redirection of resources from other critical services of the state governments.
Finally, the court found that the public interest would be best served by it issuing an injunction. On this point, the court noted that more time would be needed for it to make a final ruling on the case, and that by issuing an injunction, the only harm to the DOL would be a delay in the implementation of the new regulation. Thus, the court concluded that preserving the status quo while the case continues on the merits is appropriate.
The Injunction’s Scope Is National
In light of the above, the court determined that an injunction was appropriate. The remaining issue regarded its scope. The DOL argued that it should only apply to those states that participated in the case, and established the potential of irreparable harm. The states argued that the injunction should apply nationwide. After noting that injunctions are dictated by the nature of the violation at issue and not its geographical scope, the court agreed with the states and applied its injunction nationwide.
Consequently, the court granted the motion of the preliminary injunction and enjoined the DOL from implementing and enforcing the new salary level regulations on December 1, 2016.
At this time, the new regulations are essentially on hold, subject to further litigation. The current regulations are not enjoined in the meantime. Those may later become an issue as the litigation proceeds, but for now, employers must continue to comply with the regulations currently in effect. Employers operating in states with their own laws and regulations must continue to comply with their states’ laws; nothing in Tuesday’s injunction affects state laws.
To be sure, many employers have already made or announced changes to conform to the regulations set to go into effect in just over one week. Those employers may consider cancelling those changes or retaining some of them. How to proceed will depend on the circumstances and each employer’s assessment of the likelihood that the injunction will become permanent. Another unknown factor is the stance the Trump Administration will take on this matter. The incoming administration could continue to fight for the new DOL regulations, or could simply let the injunction stand so that it can chart its own path in 2017. Time will tell.
Over the course of the last year, the U.S. Department of Labor promulgated two controversial regulations triggering court challenges. One rule – known as the “Persuader Rule” – was set to require employer consultants and lawyers to file disclosure reports of any union avoidance activities they engage in, even if that activity was purely advisory in nature and did not involve direct contact with employees. The other rule regards the changes to the overtime exemption regulations, which are set to increase the salary threshold for exempt status from $455 per week to $913 per week, and then to automatically adjust that threshold every three years.
THE PERSUADER RULE
This past spring a Texas court issued a preliminary injunction on the eve of “persuader” rules’ effective date. If not enjoined, the new persuader rules would have substantially broadened the definition of “persuader” activity and required greater disclosure by law firms regarding their relationships with their clients. Under the current rules, lawyers may give advice to employers regarding union avoidance issues and, so long as they don’t meet with employees directly, their work is not disclosable. The new rules would have made the mere giving of advice reportable. This week, the court made the preliminary injunction enjoining the implementation of the new rules permanent. The only option for the DOL at this point is for it to appeal that ruling to the Court of Appeals. Given the outcome of last week’s election, even if it does appeal the case, the conventional wisdom is that the Trump Administration will abandon the rule and the appeal.
THE STATUS OF THE OVERTIME REGULATIONS
The new FLSA exemption regulations are set to go into effect on December 1, 2016. A few months ago, two lawsuits were filed in another Texas federal court, one by 21 state attorneys general, and the other by a coalition of business groups spearheaded by the U.S. Chamber of Commerce (of which Dykema is a member and serves on its Labor and Employment Committee). The claims in the cases are not identical, but they do overlap and basically contain two themes.
One theme is that the dramatic increase to the salary level jeopardizes the exempt status of 4.6 million workers, employees on November 30 considered to be exempt, but on December 1 would no longer be exempt despite their duties remaining the same. The magnitude of this change is unprecedented and is claimed to run afoul of the statute making these employees exempt based on their duties and not their salaries.
The second theme regards the triennial indexing of the salary level threshold. Both lawsuits assert that the DOL cannot create automatic adjustments to the regulations because the FLSA states that the DOL is only empowered to issue regulations on this matter “from time to time.” The automatic indexing, the plaintiffs claim, serves to change the rules without the “notice and comments” required before administrative agencies may change a rule.
On Wednesday, November 16, 2016, the court heard arguments on the states’ motion for an injunction to stop the December 1 implementation of the new regulations. During the arguments, the court stressed that it would not base its decision on the prospects of the incoming Trump Administration’s disfavoring the new regulations. Rather, the court said it would limit its review to the merits of the new regulations as they currently stand. In that regard, though, the court’s exchanges with counsel from both sides revealed some skepticism on the court’s part, mostly pertaining to the unprecedented loss of exempt status by so many employees and whether the DOL has the right to preclude exempt status as to employees who clearly meet the duties tests for their exemptions. That said, the DOL strongly argued that its right to set a salary level test has been unchallenged in the courts or by Congress for 70 years, and that defining the exemption as it has done was therefore well within its authority.
The court concluded the hearing by stating that it will issue its decision by November 22, 2016. The conventional wisdom is still that there is a high likelihood that the regulations will not be enjoined. Further, if enjoined, the injunction may only apply to state (and local) governments. More importantly, given the perceived skepticism of the court (which may be encouraging to employers), employers should not “take their foot of the pedal” towards complying with the new regulations, but instead, should continue to act with the assumption that the regulations will go into effect on December 1.
Should the court deny the injunction, though, on November 28th the court will hear arguments on the pending motion for summary judgment brought by the business groups. The prospects of success by the business groups on that motion may be better assessed after reading the court’s decision on the injunction.
Dykema and other WHDI firms will continue to monitor these cases and related developments.