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Labor Department’s ‘Drastic Change’ to ‘White Collar’ Overtime Exemption Rule Troubles Court

By Jeffrey W. Brecher
  • November 17, 2016

For more than three hours on November 16, 2016, Obama-appointed Judge Amos L. Mazzant, III, of the U.S. District Court for the Eastern District of Texas – Sherman Division, heard oral argument on the preliminary injunction to block enforcement of the Final Rule. The court peppered both sides with probing questions during the lengthy argument. Based on the argument, whether a preliminary injunction will be issued appears to be a much closer question than earlier predicted.

The Final Rule amends the overtime exemption for executive, administrative, and professional employees (the “white collar” exemptions) under the Fair Labor Standards Act, doubling the salary level required to qualify for the white collar exemptions from $23,660 ($455 per week) to $47,476 ($913 per week). It is to take effect on December 1, 2016.

Procedural Posture

The request for a preliminary injunction was filed by 21 states (“State Plaintiffs”) on October 12, 2016, following the filing of a complaint on September 20, 2016. The U.S. Chamber of Commerce and several business organizations (“Business Plaintiffs”) also had filed a complaint challenging the Final Rule. The court consolidated the two cases, and an expedited summary judgment filed by the Business Plaintiffs on October 14, 2016, also is pending before the court.

Chevron I or Chevron II?

At the crux of the case is whether the DOL exceeded its statutory authority in enacting the Final Rule, with the parties sparring over whether step I or II of the U.S. Supreme Court’s seminal Chevron case should apply.

Under Chevron I, a court must determine whether the statute is ambiguous. “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.” BNSF Railway Co. v. United States, 775 F.3d 743, 751 (5th Cir. 2015) (quoting Chevron v. Natural Resources Defense Council, 467 U.S. 837, 842-43 (1984)). But if “the statute is silent or ambiguous with respect to the specific issue,” the court then applies Chevron II analysis to determine whether the agency’s interpretation “is based on a permissible construction of the statute.” If based on a permissible construction, the agency’s interpretation is afforded deference.

At the hearing, the court, noting the DOL has imposed a salary level for 75 years, pressed the State Plaintiffs to point to the provision in that statute that foreclosed the DOL from establishing a salary level requirement. While acknowledging the DOL has “discretion” in interpreting the FLSA, the State Plaintiffs argued DOL authority is not unlimited and it had exceeded that authority in imposing a salary level and then setting the rate too high. They argued the Final Rule establishes essentially a “salary only” test, excluding millions of workers who otherwise would be exempt based on their duties.

Walk Me Through a Ruling

Interestingly, the court asked the State Plaintiffs to “walk it through” the legal reasoning that would permit it to grant the injunction. The State Plaintiffs quickly explained the court could rule the statute does not permit DOL to impose any salary level requirement or the DOL went too far in adopting a rule that excludes a substantial number of employees who would otherwise be exempt.

Congressional Intent

The court queried the State Plaintiffs on why Congress, despite having many opportunities, did not amend the statute to prohibit the DOL from setting a salary level test. In response, the State Plaintiffs cautioned the court from “interpreting Congressional acquiescence,” stating that there has been no “outcry” because the salary level previously was set so low.

Nationwide Injunction and “Herding Cats”

The court also inquired whether the injunction should be “nationwide” because other states did not care to join the lawsuit. In response, the State Plaintiffs urged the court not to read too much into that fact as getting all of the States together is like “herding cats” and many States who were not parties to the lawsuit desired to join.

Impact of a Trump Administration

The Business Plaintiffs also suggested that granting a preliminary injunction would be appropriate in light of the election. They described the Final Rule as a “midnight regulation” designed to “preserve the legacy of the current administration.” The Court rejected any consideration of politics, stating that it would not “speculate” on what a new administration might do and that it would base its decision on the “on the law” and not “policy.”

A “Drastic Change”

The court’s description of the Final Rule as a “drastic change,” noting that 4.2 million workers who were considered exempt will no longer be considered exempt on December 1, irrespective of their duties, could signal a willingness to grant the request for an injunction.

***

The court stated it will issue a decision on November 22, 2016, potentially giving employers an additional item to be “thankful” for prior to the holiday.

Please contact Jackson Lewis with any questions regarding this case.

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