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Item of Interest

Last week, we learned of the federal court's delaying of the fast approaching overtime rule that is scheduled to go into effect on Dec. 1. One of our allies has prepared for his clients a summary of the judge's order and the possible next steps in terms of timing and appeals, which follows. The issue of the timing of an appeal is of note because, should the 5th Circuit overturn the injunction, it would be most advantageous for small businesses if that occurs after President-elect Trump is sworn in so his administration would have time to act to block or delay the rule.

Judge Amos Mazzant of the US District Court for the Eastern District of Texas issued a preliminary injunction postponing the effective date of the U.S. Department of Labor's overtime rule, which was scheduled to go into effect on December 1. Law firms have received questions from clients with respect to the potential process going forward. Most importantly, many of have asked as to whether the injunction will last into the next administration. Right now, that is not entirely clear, and we are working to get as definitive an answer as possible to that question.

The DOL has a right to immediately appeal the preliminary injunction to the US Court of Appeals for the Fifth Circuit, and we suspect DOL will exercise that right (Alex Passantino's recent blog post goes through the appeals steps in some detail). One of the lawyers close to the suit said that while "it is theoretically possible" the 5th Circuit could rule "in advance of the inauguration… there are many reasons why that is unlikely." That said, another attorney noted that "there was a significant abortion decision in the 5th Cir [where a federal district court in Louisiana] granted an injunction on January 26, 2016. Defendants moved to stay the injunction in the 5th Cir, and it granted that stay on February 24, 2016. 29 days later."

In short, the best answer lawyers can give right now is that the injunction could be overturned before inauguration, but DOL and the 5th Circuit would need to move very quickly for that to happen. In the meantime, a quick summary of the decision.

  • The preliminary injunction (PI) was requested by the 21 states that challenged the rule — not the business plaintiffs, who filed a motion for summary judgement, which is pending.
  • The PI is just preliminary — holding the rule in abeyance — giving the judge additional time to decide whether or not the rule is valid. That said, the court's ruling on the preliminary injunction strongly suggests he feels the rule is invalid and will issue a permanent injunction sometime in the near future.
  • The states requested the PI on the grounds that (1) the FLSA did not apply to the states under the Tenth Amendment and (2) DOL exceeded its authority under the FLSA.
  • The court rejected the Tenth Amendment argument based on a 1985 Supreme Court ruling that Congress had the authority to impose the FLSA's minimum wage and overtime requirements on states and localities.
  • The court found, however, DOL did not have the authority under the FLSA to issue a rule that made the exemption significantly dependent on salary level.
  • The relevant part of the FLSA states exemptions from OT include "any employee employed in a bona fide executive, administrative, or professional capacity...as such terms are defined or delimited from time to time by regulations of the Secretary."
  • The court said, "While this explicit delegation would give the Department significant leeway to establish the types of duties that might qualify an employee for the exemption, nothing in the EAP exemption indicates that Congress intended the Department to define and delimit with respect to salary level."
  • What this means for the salary-level test moving forward is a bit unclear. In a footnote, the court said, "The Court is not making a general statement on the lawfulness of the salary-level test for the EAP exemption. The Court is evaluating only the salary-level test as amended under the Department's Final Rule." Later in the decision the court quoted a 1949 report on the regulations stating, "The salary level was purposefully set low to 'screen[] out the obviously nonexempt employees, making an analysis of the duties in such cases unnecessary,'" and then the court said, "Congress did not intend salary to categorically exclude an employee with EAP duties from the exemption." So it seems that the court is ok with a salary level, but not one that would exclude any employees that would otherwise meet the duties of a exempt position. I don’t have a good sense of what salary level would meet that criteria; maybe the court will provide us more guidance on its decision on the motion for summary judgement.
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