A year ago, employers across the country prepared for the implementation of a new overtime rule that would dramatically increase the salary threshold for white-collar exemptions, on the understanding that the new rule would soon go into effect “unless something dramatic happens,” a phrase we and others used repeatedly.

And, of course, something dramatic did happen—a preliminary injunction, followed by a lengthy appeal, which itself took more left turns following the U.S. presidential election than a driver in a NASCAR race. The effect was to put employers in a constant holding pattern as they were left to speculate whether and when the rule would ever go into effect.

The current status of the overtime rule is but one of several prominent issues to reckon with as wage and hour issues, investigations, and litigation remain as prevalent as they have ever been.

The articles in this edition of Take 5 include the following:

  1. The Status of the Department of Labor’s 2016 Overtime Rule
  2. Recent Developments Regarding Tip Pooling
  3. Mandatory Class Action Waivers in Employment Agreements: Is a Final Answer Forthcoming?
  4. “Time Rounding”: The Next Wave of Class and Collective Actions
  5. The Department of Labor, Congress, and the Courts Wrestle with the Definition of “Employee”

Read the full Take 5 online or download the PDF.

As noted in earlier postings, in March of this year, a federal judge in New York handed Chipotle Mexican Grill a significant victory, denying a request by salaried management apprentices alleging misclassification as exempt from overtime to certify claims for class action treatment under the laws of six states, as well as granting Chipotle’s motion to decertify an opt-in class of 516 apprentices under the Fair Labor Standards Act (“FLSA”).  The plaintiffs then sought—and in July 2017 the U.S. Court of Appeals for the Second Circuit granted—a discretionary interlocutory appeal of the ruling concerning the six state-law putative classes, allowing the plaintiffs to obtain immediate review of that decision under Rule 23(f) of the Federal Rules of Civil Procedure rather than waiting until after final judgment in the case to pursue an appeal as of right.

The plaintiffs also asked the district court for permission to appeal the order decertifying the FLSA collective action.  Under the pertinent statute, 28 U.S.C. § 1292(b), a district court may certify a non-final ruling for immediate appeal if the “order involves a controlling question of law as to which there is substantial ground for difference of opinion and … an immediate appeal from the order may materially advance the ultimate termination of the litigation[.]”  The plaintiffs argued that “a conflict exists in this Circuit between Rule 23 standards for class certification and FLSA Section [16(b)] standards for certification of a collective action” and that the court’s rulings regarding the FLSA and the state-law classes reflect uncertainty regarding the differences, if any, between the class certification standard and the FLSA decertification standard.

On September 25, 2017, the district court granted the plaintiffs’ motion for an interlocutory appeal.  Although the court “disagrees with Plaintiffs’ argument that there is a ‘rift’ between” those standards, the court nevertheless concluded that the “Plaintiffs’ assertions do point to controlling questions of law which may have substantial grounds for a difference of opinion.”  (Order at 2.)  The court emphasized that “[t]he Second Circuit will review this Court’s Rule 23 class certification decision pursuant to Rule 23(f)” but that this review “would not likely encompass the portion of this Court’s decision decertifying the . . . collective action.”  (Id.)  Because “Plaintiffs are adamant that the two standards need elucidation and that this Court erred in applying the standards, it seems proper to grant Section 1292(b) relief in order for the Circuit to review the entire” ruling—i.e., both the FLSA and the state-law class aspects of the decision—and thereby “avoid the possibility of conflicting decisions on Plaintiffs’ class motions, promote judicial efficiency, and avoid piecemeal appellate litigation.”  (Id.)  The court also remarked that “the Second Circuit has recognized that class certification decisions have the potential to materially advance the ultimate termination of the litigation which the Second Circuit has held may warrant Section 1292(b) relief.”  (Id. at 3.)

Stepping back from the specific wording of the court’s decision, the ruling reflects a pragmatic approach to the matter: because the Second Circuit has already decided to take up the Rule 23 class certification issue in the case, there is no real harm in allowing the appellate court the opportunity to decide whether it also wants to address the FLSA decertification issue at the same time.  The district court’s decision certifying the matter for interlocutory appeal does not require the Second Circuit to hear the full case at this time; instead, it authorizes the plaintiffs to proceed with a petition for permission to that court to appeal the decertification order.

It remains to be seen to what extent this court and other courts will apply the actual verbiage of this decision even-handedly when employers seek review of orders granting class certification or conditionally certifying FLSA collective actions.  Will being “adamant” that the law needs “elucidation” and that the court “erred” features of nearly every employer-side request for interlocutory review—or the “potential” for class certification decisions “to materially advance the ultimate termination of the litigation” similarly lead to interlocutory review when employers make comparable requests?  Stay tuned for further developments.

On September 5, 2017, the Department of Labor filed with the Fifth Circuit an unopposed motion asking the court to dismiss its appeal of the nationwide preliminary injunction ruling issued last November by a Judge Amos Mazzant in the Eastern District of Texas.  The motion states that DOL’s appeal is moot in light of Judge Mazzant’s entry of final judgment on August 31, 2017.  Barring any unusual further developments, we anticipate that the Fifth Circuit will dismiss the appeal promptly.

By withdrawing the appeal, the Department is signaling that it intends to abandon the 2016 Final rule and, instead, to proceed with a new rulemaking in line with the Request for Information (“RFI”) the Department issued on July 26, 2017.  That RFI seeks public input regarding what salary level or levels, if any, the Department should use in place of the 2016 figures in order to update the $455 weekly / $23,660 annual salary requirement for the executive, administrative, and professional exemptions implemented in the Department’s 2004 rulemaking, as well as the $100,000 annual compensation threshold for the highly-compensated variant of these exemptions.

The comment period for the RFI currently ends on September 25, 2017.  To date, regulations.gov has received more than 138,000 comments in response to the RFI, though most of the comments appear to be identical submissions by numerous different commenters, as is common for this type of rulemaking.  Watch for a Notice of Proposed Rulemaking announcing a new salary level for the executive, administrative, and professional exemptions in the next few months.

 

Featured on Employment Law This Week: A Texas federal court ruled that the U.S. Department of Labor (DOL) does not have the authority to implement new salary thresholds for overtime.

The district judge issued a nationwide preliminary injunction on the DOL’s new rules and the department appealed. The DOL has now asked for an expedited briefing on its appeal to be completed by February 7, followed by oral arguments as soon as possible. But the Trump administration will be in place by then, and that could change the DOL’s position.

Watch the segment below and read our recent post.

Overtime Clock Faces - Abstract PhotoWe have written more than a few times here about the new Fair Labor Standards Act (“FLSA”) overtime rules that were scheduled to go into effect on December 1, 2016, dramatically increasing the salary threshold for white collar exemptions.

Most recently, we wrote about the November 22, 2016 nationwide injunction entered by a federal judge in Texas, enjoining the Department of Labor (“DOL”) from enforcing those new rules on the grounds that the DOL had overstepped its bounds.

The injunction threw the new rules into a state of limbo, as employers and employees alike were left to wonder whether the DOL would appeal that decision to the Fifth Circuit Court of Appeals.

Under normal circumstances, one would assume that the DOL would appeal that ruling.  However, normal circumstances do not exist.  With a new President set to be sworn in shortly, and with a new Secretary of Labor presumably to be appointed thereafter, there was much speculation about what the DOL would do.

The question has now been answered – at least for the short term.

On December 1, 2016 – perhaps not coincidentally, the same day the rules were to go into effect – the Department of Justice (“DOJ”) filed an appeal on behalf of the DOL. 

The DOL has issued a brief statement about its position, which may be found here: https://www.dol.gov/whd/overtime/final2016/litigation.htm

In short, it is the DOL’s position that the salary basis test has been part of the FLSA overtime rules since 1940, and that the new rules were the result of a comprehensive rule-making process that complied with the law.

While the notice of appeal has been filed, it remains difficult to predict whether or how long the appeal will in fact proceed.  Unless the President-elect should indicate otherwise, it is certainly possible that the new Secretary of Labor will pull the plug on the appeal shortly after he or she assumes the role.

We will continue to monitor the case and share any significant developments. In the meantime, it would appear safe to say that employers should feel comfortable that they need not comply with the new rules, and that those who already implemented or announced changes prior to the injunction should seek guidance on how best to proceed if they intend to rescind those changes.

Stop SignWe have written often in the past several months about the new FLSA overtime rules that were scheduled to go into effect in little more than a week, dramatically increasing the salary thresholds for “white collar” exemptions and also providing for automatic increases for those thresholds.

In our most recent piece about the important decisions employers had to make by the effective date of December 1, 2016, careful readers noticed a couple of peculiar words — “barring … a last-minute injunction.”

On November 22, 2016, a federal judge in the Eastern District of Texas entered just such an injunction, enjoining the Department of Labor from implementing the new rules on a nationwide basis.

“The court determines that the state plaintiffs have satisfied all prerequisites for a preliminary injunction,” wrote United States District Court Judge Amos Mazzant III. “The state plaintiffs have established a prima facie case that the Department’s salary level under the final rule and the automatic updating mechanism are without statutory authority.”

The state plaintiffs had argued that the Department of Labor usurped Congress’ authority in establishing new salary thresholds. Finding that the Department had overstepped its bounds, Judge Mazzant wrote, “If Congress intended the salary requirement to supplant the duties test, then Congress and not the department, should make that change.”

The injunction could leave employers in a state of limbo for weeks, months and perhaps longer as injunctions often do not resolve cases and, instead, lead to lengthy appeals. Here, though, the injunction could spell the quick death to the new rules should the Department choose not to appeal the decision in light of the impending Donald Trump presidency. We will continue to monitor this matter as it develops.

To the extent that employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will at the very least allow employers to postpone those changes. And, depending on the final resolution of this issue, it is possible they may never need to implement them.

The last-minute injunction puts some employers in a difficult position, though — those that already implemented changes in anticipation of the new rules or that informed employees that they will receive salary increases or will be converted to non-exempt status effective December 1, 2016.

Whether employers can reverse salary increases they have already implemented is an issue that should be addressed carefully with legal guidance.

As for those employers that informed employees of changes that would go into effect on December 1, 2016, they, too, should seek legal guidance as to how to communicate with employees that those announced changes will not go into effect at that time.

While the FLSA rules are now enjoined, employers must now be mindful not only of morale issues that might result from not providing employees with raises that were implemented or announced, but also of potential breach of contract claims.