Texas injunction of overtime exemption

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.

 

Since last November, much of the discussion regarding the Obama-era overtime regulations that, among other things, more than doubled the minimum salary threshold for executive, administrative, and professional employees under the Fair Labor Standards Act (“FLSA”) has focused on the Department of Labor’s appeal of the nationwide preliminary injunction barring implementation and enforcement of the rule.

While everyone is awaiting the oral argument before the Fifth Circuit, currently scheduled for October 3, 2017, Judge Amos Mazzant of the Eastern District of Texas once again issued a bold ruling sure to grab the public’s attention.

On August 31, 2017, Judge Mazzant granted summary judgment in favor of the plaintiffs in the two consolidated cases challenging the overtime rule, holding that the salary level the Department selected in 2016 conflicts with the FLSA, Nevada v. U.S. Department of Labor and Plano Chamber of Commerce, E.D. Tex. No. 4:16-CV-731.

After dealing with preliminary procedural issues including standing, ripeness, and the applicability of the FLSA to the States, Judge Mazzant focused on the substance of the 2016 rule.  Applying the legal framework set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984), the Court determined that the statutory language establishing the exemptions, section 13(a)(1) of the FLSA, 29 U.S.C. § 213(a)(1), “is unambiguous because the plain meanings of the words in the statute indicate Congress’s intent for employees doing ‘bona fide executive, administrative, or professional capacity’ duties to be exempt from overtime pay.”  (Slip Op. at 13.)

In the Court’s words, “the Department does not have the authority to use a salary-level test that will effectively eliminate the duties test as prescribed by” the FLSA.  (Slip Op. at 14.)  “Nor does the Department have the authority to categorically exclude those who perform ‘bona fide executive, administrative, or professional capacity’ duties based on salary level alone.”  (Id.)

In short, “[t]he updated salary-level test under the Final Rule does not give effect to Congress’s unambiguous intent.”  (Slip Op. at 14.)  The Court noted that “[t]he Department estimates 4.2 million workers currently ineligible for overtime, and who fall below the minimum salary level, will automatically become eligible under the Final Rule without a change to their duties.”  (Id. at 16.)

The Court held that “the Department’s Final Rule is not ‘based on a permissible construction’ of Section 213(a)(1)” because by “doubl[ing] the previous minimum salary level” the regulation “eliminates a consideration of whether an employee performs ‘bona fide executive, administrative, or professional capacity’ duties.”  (Slip Op. at 16-17.)  For Judge Mazzant, “[t]he Department has exceeded its authority and gone too far with the Final Rule.  Nothing in Section 213(a)(1) allows the Department to make salary rather than an employee’s duties determinative of whether” an employee “should be exempt from overtime pay.  Accordingly, the Final Rule is not a reasonable interpretation of Section 213(a)(1) and thus is not entitled to Chevron deference.”  (Id. at 17.)

The Court also struck down the regulation’s mechanism for automatically updating the minimum salary threshold every three years.  (Slip Op. at 17.)

In a portion of the decision that may have a direct effect on the pending appeal, the Court “acknowledges its injunction order might have been confusing” insofar as some have read that decision as “invalidat[ing] all versions of the salary-level test that the Department has used for the last seventy-five years.”  (Slip Op. at 4 n.1.)

The Court clarified that “the Department has the authority to implement a salary-level test” and that the summary judgment ruling “is not making any assessments regarding the general lawfulness of the salary-level test or the Department’s authority to implement such a test.  Instead, the Court is evaluating only the salary-level test as amended by the Department’s Final Rule, which is invalid under both steps of Chevron.”  (Id. at 13 n.5.)

As a result of Judge Mazzant’s ruling, the pending appeal may be moot.  The Department’s reply brief before the Fifth Circuit expressly disavowed a defense of the salary level selected in the Final Rule, instead asking the Fifth Circuit to rule only on the question of whether the Department has the authority to implement a salary-level test at all.  Judge Mazzant’s decision acknowledges that the Department has that authority, which appears to address the Department’s concern. In light of the decision, the Department may well withdraw its appeal.

The District Court for the Eastern District of Texas has denied the U.S. Department of Labor’s application to stay the case in which the district court enjoined the DOL’s new overtime regulations. The DOL had asked the court for a stay while the Fifth Circuit Court of Appeals considered an interlocutory appeal of the injunction.

As wage and hour practitioners know:

  • In May 2016, the U.S. Department of Labor announced that it would implement new regulations increasing the salary threshold for the executive, administrative, and professional overtime exemptions to $47,476 ($913 per week);
  • In September 2016, a group of 21 states filed a Complaint in the Eastern District of Texas challenging the new regulations. A similar lawsuit was filed in the same court by several private industry groups, and those plaintiffs moved for summary judgment; and
  • In November 2016, the district court issued a nationwide preliminary injunction against the new regulations. The district court made a preliminary conclusion that, because the FLSA did not reference any salary thresholds, the DOL had exceeded its authority.

The Fifth Circuit Court of Appeals granted the DOL’s application for interlocutory review, and ordered that briefing be concluded by January 31, 2017.

The DOL then sought a stay of the proceedings before the district court.

In denying the DOL’s motion, the district court stated that the decision to grant or deny a discretionary stay pending an interlocutory appeal depends on: (1) whether the application is likely to succeed on the merits; (2) whether the applicant will be irreparably injured without a stay; (3) whether a stay will substantially injure other parties; and (4) where the public interest lies.

The district court stated that the DOL’s application argued only that the outcome of the case “will likely be controlled in large part by the Fifth Circuit’s decision on appeal.” Because the DOL did not “present a substantial case on the merits,” its application for a stay was denied.

Accordingly, the proceedings before the Fifth Circuit and the district court will proceed concurrently. We will continue to monitor each of these matters, and share any significant developments.

Abstract Image - Business TimeAs we recently reported on our Wage & Hour Defense Blog, on November 22, 2016, a federal judge in the Eastern District of Texas issued a nationwide preliminary injunction enjoining the U.S. Department of Labor from implementing its new overtime exemption rule that would have more than doubled the current salary threshold for the executive, administrative, and professional exemptions and was scheduled to take effect on December 1, 2016. To the extent employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will, at the very least, appear to allow many employers to postpone those changes—but likely not in the case of employees who work in New York State.

On October 19, 2016, the New York State Department of Labor (“NYSDOL”) announced proposed amendments to the state’s minimum wage orders (“Proposed Amendments”) to increase the salary basis threshold for executive and administrative employees under the state’s wage and hour laws (New York does not impose a minimum salary threshold for exempt “professional” employees).  The current salary threshold for the administrative and executive exemptions under New York law is $675 per week ($35,100 annually) throughout the state.  The NYSDOL has proposed the following increases to New York’s salary threshold for the executive and administrative exemptions:

Employers in New York City

Large employers (11 or more employees)

—$825.00 per week ($42,900 annually) on and after 12/31/16

—$975.00 per week ($50,700 annually) on and after 12/31/17

—$1,125.00 per week ($58,500 annually) on and after 12/31/18

Small employers (10 or fewer employees)

—$787.50 per week ($40,950 annually) on and after 12/31/16

—$900.00 per week ($46,800 annually) on and after 12/31/17

—$1,012.50 per week ($52,650 annually) on and after 12/31/18

—$1,125.00 per week ($58,500 annually) on and after 12/31/19

Employers in Nassau, Suffolk, and Westchester Counties

—$750.00 per week ($39,000 annually) on and after 12/31/16

—$825.00 per week ($42,900 annually) on and after 12/31/17

—$900.00 per week ($46,800 annually) on and after 12/31/18

—$975.00 per week ($50,700 annually) on and after 12/31/19

—$1,050.00 per week ($54,600 annually) on and after 12/31/20

—$1,125.00 per week ($58,500 annually) on and after 12/31/21

Employers Outside of New York City, Nassau, Suffolk, and Westchester Counties

—$727.50 per week ($37,830 annually) on and after 12/31/16

—$780.00 per week ($40,560 annually) on and after 12/31/17

—$832.00 per week ($43,264  annually) on and after 12/31/18

—$885.00 per week ($46,020 annually) on and after 12/31/19

—$937.50 per week ($48,750 annually) on and after 12/31/20

The publication of the NYSDOL’s Proposed Amendments opened a 45-day public comment period. During this period, the NYSDOL will accept comments on the Proposed Amendments until December 3, 2016. The NYSDOL will then review any comments and publish new wage orders. The Proposed Amendments, if finalized by the NYSDOL, would become effective on December 31, 2016.

While New York employers may not, at this moment, be required to increase exempt employees’ salaries to $913 under the currently enjoined federal rule, they would still be required to comply with NYSDOL regulations, which, in all likelihood, will result in an increase to the current $675 weekly salary threshold for exempt executive and administrative employees.  Employers should also keep in mind that the salary threshold for the executive and administrative exemptions under the NYSDOL’s regulations will, if the Proposed Amendments are adopted, increase on December 31 of each year until, at least for many counties, the threshold reaches $1,125 per week.  Employers should consider these systematic annual salary increases when deciding by how much to increase exempt executive and administrative employees’ salaries this year, and whether surpassing this year’s proposed minimum threshold is economically and operationally prudent. Employers in other states should also examine whether there are similar state law requirements that will require changes such as these.