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The Fate of the Department of Labor’s New Overtime Rule is in Limbo, and its Prospects are Dim

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The Fate of the Department of Labor’s New Overtime Rule is in Limbo, and its Prospects are Dim

The Fate of the Department of Labor’s New Overtime Rule is in Limbo, and its Prospects are Dim

Recent developments in the judicial and executive branches of the federal government make it unlikely that a key effort by the Obama Administration to raise the wages of American workers will come to fruition.

I. Overtime Final Rule

Earlier this year, the Department of Labor announced a new rule which would have increased the salary threshold for the executive, administrative, and professional exemptions to the Fair Labor Standards Act (FLSA). The rule was expected to extend the FLSA’s overtime protections to an estimated 4.2 million additional white-collar employees around the country, including managers in the restaurant, retail, and hospitality industries. (Bryan Schwartz Law wrote about the overtime final rule announcement here). The overtime final rule was anticipated to go into effect on December 1, 2016.

The final rule would:

· increase the salary level required for the white collar exemptions to apply, from $23,660 to $47,476;

· increase the compensation level required for the highly compensated employee exemption to apply, from $100,000 to $134,004; and,

· provide automatic increases to these salary levels every three years based on data reported by the Bureau of Labor Statistics, without requiring a separate rulemaking.

II. Final Rule Imperiled by the Courts

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted an emergency motion to preliminarily enjoin the Department of Labor from implementing and enforcing the overtime final rule. Nevada, et al. v. U.S. Dept. of Labor, et al., No: 4:16-CV-00731, Docket No. 60 (E.D. Tex). The court applied the analytical framework set forth in Chevron U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984), to conclude that the Department of Labor’s interpretation of the FLSA’s white collar exemptions, set forth in 29 U.S.C. § 213(a)(1), was not entitled to deference, and was contrary to the language and intent of the statute.

Courts apply a two-step analytical framework to determine whether an agency’s interpretation of a statue is entitled to judicial deference. First, the court determines “whether Congress has directly spoken to the precise question at issue.” Id. at 842. “If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842-43. Second, if Congress’s intent is ambiguous regarding the precise question at issue, then the court will defer to the agency’s interpretation unless it is “arbitrary, capricious, or manifestly contrary to the statute.” Id. at 844.

In Nevada, the court concluded that the final rule was not entitled to Chevron deference. At the first step of analysis, the court interpreted the language of the FLSA’s white collar exemptions as describing employee job duties, not employee salaries. Slip. Op. at 11. The Department of Labor added regulations shortly after the FLSA was enacted in 1938 which added salary basis and minimum salary requirements. The court concluded that by significantly raising the salary level required for the white collar exemption to apply, the Department of Labor exceeded its delegated authority because it allowed minimum salary level to supplant the duties test. Slip. Op. at 13.

The court went on to explain that the final rule would also fail at the second stage of the Chevron analysis, because it was not “based on a permissible construction of the statute. Id. (quoting Chevron, 467 U.S. at 843). The court interpreted the final rule as creating a de facto salary-only test. The court concluded that by doing so, the final rule was “contrary to the statutory text and Congress’s intent,” and not entitled to deference on that basis. Slip. Op. at 14.

In a statement released on the agency’s website, the Department of Labor states that it “strongly disagrees with the decision by the court,” explaining that,

Since 1940, the Department’s regulations have generally required each of three tests to be met for the FLSA’s executive, administrative, and professional (EAP) exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”). The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees. The Department has updated the salary level requirements seven times since 1938.

III. Final Rule Imperiled by the President-Elect

The overtime final rule is likely to die during the presidency of Donald Trump.

On December 1, 2016, the Department of Labor filed a notice of appeal to the Fifth Circuit Court of Appeals – home of some of the most conservative appeals judges in the country. Given the high stakes of this case, the non-prevailing party on appeal will probably seek certiorari before a Supreme Court containing one or more nominee selected by president-elect Trump. If Trump’s selection for the Supreme Court is anything like his recent pick to head the Department of Labor, the High Court will have an additional vote in support of the district court’s ruling.

On December 8, 2016, President-elect Trump named Andy Puzder, a fast-food executive, as his pick to head the Department of Labor. Mr. Puzder is vocal opponent of recent efforts to raise the minimum wage, and government regulation of the workplace generally. In a May 18, 2016 Forbes Op-Ed, Mr. Puzder criticized the overtime final rule as “another barrier to the middle class, rather than a springboard.” If confirmed, Mr. Puzder can be expected to impose additional barriers to implementation of the overtime final rule.

In an economy where middle-class workers’ wages have stagnated, President Obama’s Administration sought to lift white-collar wages through the overtime final rule. The court’s wrong decision, and president-elect Trump’s signaled direction, will allow the wealthy few to continue to pocket the economy’s profits while middle-class workers watch their standards of living decline. This is an existing trend that will likely grow throughout the Trump presidency. For the next four years, at least, the movement to raise minimum wages should not expect gains at the federal level. In the meantime, the movement should continue to seek victories where possible – on the state and local levels.

IV. Possible Silver Lining? Some Employers May be Contractually Obligated to Raise Wages

Because the preliminary injunction issued just one week before the overtime final rule was supposed to take effect, by that time, many employers may have taken steps toward raising their employees’ wages. Even without the rule, some employers may already have contractually obligated themselves to raise their employees’ wages.

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