By Jim Coleman
Constangy, Brooks, Smith, & Prophete, LLP
Washington DC Metro Office
Constangy, Brooks, Smith, & Prophete, LLP
The new regulations that would have more than doubled the salary threshold for Administrative, Executive, and Professional exemptions from the minimum wage and overtime requirements of the Fair Labor Standards Act – due to take effect on Thursday, December 1 – have been preliminarily enjoined nationwide by a federal court in Texas.
This means that the regulations will not take effect on December 1, although it is possible that they could be revived at some later date.
Ellen Kearns has a comprehensive summary of the Rule here. Some months after the regulations were issued in May 2016, two lawsuits were filed challenging the validity of the new regulations: One, Nevada v. U.S. Department of Labor, by a group of 21 states, and the other, Chamber of Commerce of Plano v. Perez, by the U.S. Chamber of Commerce, local chambers, and a number of other business groups. Both cases were pending in federal court in Sherman, Texas.
The “state plaintiffs” filed a motion for the court to preliminarily enjoin (block) the regulations from taking effect. The “business plaintiffs” filed an emergency motion for summary judgment.
Judge Amos Mazzant heard arguments in the consolidated cases on November 16 and said he would try to have a decision issued yesterday.
And he certainly did.
The state plaintiffs had argued that the Tenth Amendment to the U.S. Constitution deprived the U.S. Department of Labor of the authority to impose these regulations on states. Judge Mazzant rejected that argument, and found that the DOL did have such authority.
However, Judge Mazzant found that the plaintiffs were likely to succeed in their argument that the DOL lacked authority under 29 U.S.C. Section 213(a)(1) to use a salary threshold to determine whether an employee qualified for the so-called “EAP” exemptions. Rather, he ruled, the DOL had authority only to adjust the “duties” components of the exemptions as they might evolve over time. As most employers know by now, the regulations made no changes to the existing duties tests but only raised the salary and compensation thresholds. Indeed, the DOL said that, with limited exceptions, an employee would not qualify for exemption if he or she was not paid the new minimum salary, regardless of his or her job duties. According to Judge Mazzant, this creates “essentially a de facto salary-only test,” which conflicts with Congressional intent: “If Congress intended the salary requirement to supplant the duties test, then Congress, and not the [DOL], should make that change.”
Thus, he concluded, the regulations were “contrary to the statutory text [of the FLSA] and Congress’s intent.”
The plaintiffs had also challenged the automatic indexing of the thresholds, which would have begun on January 1, 2020. Because he found that the entire Final Rule was unlawful, Judge Mazzant found that the indexing was unlawful, as well.
The Judge also found that the plaintiffs had shown that they would suffer irreparable harm if the regulations were allowed to go into effect on schedule, noting that compliance would cost the states millions of dollars, which might require state agencies to reduce services to be able to comply. (According to the decision, approximately 50 percent of the employees in the Kansas Department for Children and Families and Kansas Department of Correction would have been affected by the new regulations.)
Given the above, it is not surprising that he also found that the balance of hardships and the public interest favored the plaintiffs.
As already noted, this is a preliminary injunction, which means that Judge Mazzant will have to make a final determination in the future. It is possible that the final outcome could be different. Even if it is not, the DOL can be expected to appeal to the U.S. Court of Appeals for the Fifth Circuit, which may or may not agree with Judge Mazzant.
Complicating matters even further, on January 20, President-Elect Donald Trump will take office, presumably with a Department of Labor whose new senior leadership will not view this issue the same way that the Obama Administration did. It is possible that a Trump Administration will simply decide to abide by Judge Mazzant’s decision and let the matter drop, or use the delay to open a new rulemaking proceeding to further revise the regulations. It is also possible that the delay will allow a new Congress to pass legislation that will effectively override the regulations.
Given all of the above, the big question most employers will have is whether to put their plans on hold to make changes to comply with the new regulations on December 1. We cannot say that Judge Mazzant may not later change his preliminary ruling, or that the Fifth Circuit may not reverse his ruling. Either situation could result in the potential for exposure to back wage and liquidated damage claims in individual or collective action lawsuits brought by private parties. However, the risks would appear to be fairly low if the Trump DOL or Congress takes action before the regulations could become effective due to subsequent court rulings.
However the story ends, Constangy’s Wage and Hour Compliance and Litigation Practice Group will keep you informed and is ready to assist you with all of your wage-hour compliance issues.
Source: Constangy, Brooks, Smith & Prophete, LLP