The following is a bulletin published by our partners at Constangy, Brooks, Smith & Prophete, LLP.
In a move that reinforces the concept that the only thing predictable about the Trump Administration is its unpredictability, the U.S. Department of Labor filed a reply brief on June 30 asking the U.S. Court of Appeals for the Fifth Circuit to reverse a lower court’s 2016 ruling that enjoined the Obama Administration “overtime rule.”
Many had thought that a Trump-led DOL would have no interest in pursuing the appeal, which was already pending when the Trump Administration took over the reins at the DOL.
The DOL is arguing that the district court’s order was premised on an erroneous legal conclusion, and is asking the Fifth Circuit to reaffirm the Department’s statutory authority to establish a salary level test. However, the DOL asks that the court not address the validity of the specific salary level set by the rule ($913 per week), saying that the DOL intends to revisit the salary threshold through new rulemaking.
The Obama DOL spent the better part of a couple of years engaged in formal rulemaking proceedings to modify the “white-collar exemptions” to the minimum wage and overtime provisions of the Fair Labor Standards Act – the so-called executive, administrative and professional exemptions. Those regulatory changes, which were finalized and set to take effect on December 1, 2016, would have, among other things, more than doubled the minimum weekly salary threshold necessary to qualify for the exemptions, raising it from the current $455 per week to $913 per week, and indexing it to automatically adjust every three years thereafter. Not surprisingly, most employers were shocked at the size of the increase.
On November 22, 2016, a federal judge in Texas preliminarily enjoined the DOL from enforcing the new regulations, only days before they were scheduled to take effect. The rationale for the court’s ruling was that the DOL did not have the legal authority to use salary level as a criterion for determining whether an employee qualifies for one of the white-collar exemptions. In other words, the DOL was limited to using a “duties test” to determine exempt status.
The DOL, in the waning months of the Obama Administration, sought an expedited appeal, but even an expedited appeal could not be completed before the Trump Administration took over.
Lower court decision was wrong, Trump DOL argues
After obtaining multiple extensions on the filing of its reply brief, the Trump DOL has filed a reply that is largely consistent with the opening brief that was filed under the Obama Administration, at least insofar as it asks the Fifth Circuit to reverse the lower court’s ruling and confirm that the DOL does indeed have the legal authority to set a minimum salary level as part of the criteria for determining which employees qualify for the white-collar exemptions.
The only change is that in its reply brief the DOL specifically asks the Court of Appeals to “not address the validity of the specific salary level set by the 2016 final rule ($913 per week), which the Department intends to revisit through new rulemaking.”
If the Fifth Circuit reverses the lower court on its rationale for the injunction, what happens to the injunction? If the injunction is vacated because it was premised upon an erroneous rationale, do the new regulations become effective, and if so, when?
Even though the DOL has said that it intends to open a new rulemaking proceeding, it is unclear exactly when this will occur, or how long it might take. In the meantime, it is also not clear whether the DOL intends to take steps to formally withdraw the Obama Administration’s regulatory changes – a withdrawal that ideally needs to be retroactive to December 1, 2016, to prevent the potential for private litigation through collective action lawsuits. This last piece would be a critically important step, particularly if the Court of Appeals might reverse the lower court’s ruling and the injunction might be vacated. It might not be enough for the DOL to simply say it will not enforce the regulatory changes finalized under the Obama Administration. Notwithstanding the injunction that has remained in place since November 22, 2016, if it is vacated due to a reversal by the appeals court, legal arguments could be made both for and against private enforcement of the higher salary requirements during the pendency of the injunction. Undoubtedly, employers will want no part of having to defend against private lawsuits claiming they should have complied with the higher salary requirements while the injunction was in place.
Complicating matters even further is that the district court case was not stayed pending appeal, so if the Fifth Circuit reverses, it is possible that the Obama regulations could take effect, but a critical question would be what the effective date would be. Meanwhile, in a separate challenge to the regulations that is pending before the same district court judge, the U.S. Chamber of Commerce and other business groups have filed a motion for summary judgment seeking to invalidate the regulatory changes on other grounds. At any time, the district court judge could issue a ruling in that case, addressing whether the $913 salary level is arbitrary and capricious, and that ruling could also be appealed to the Fifth Circuit.
It is interesting that the DOL decided to file a reply brief with the Fifth Circuit instead of seeking another enlargement of time or a stay of the appeal while it moves forward with new rulemaking proceedings. In its appeal of an injunction against the Obama DOL “Persuader Rule,” the Trump DOL requested and obtained a six-month stay while it seeks public comment on whether to rescind the rule. It is unclear why the DOL didn’t take a similar approach in the overtime case. Presumably the DOL perceived the need to obtain a reversal of the lower court’s holding that it lacks the legal authority to set minimum salary levels as part of the criteria for determining exempt status. Unfortunately, given the continued popularity of FLSA collective actions in the plaintiffs’ employment bar, the DOL’s legal maneuvering could be a high-stakes gamble for employers.
We will continue to follow this case and keep you informed.