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01
December
2016

Changes to the Department of Labor Regulations--Part II

AUTHOR; TWIN CITIES BUSINESS AND LITIGATION ATTORNEY JEFF THONE

Changes to the Department of Labor Regulations--Part II

Updated Overtime Eligibility Regulations are now on hold.

Our October 25, 2016 blog post was intended to be a last minute reminder that new Department of Labor regulations were scheduled to take effect on December 1, 2016.  The practical effect of those regulations would have been that over 4 million employees would have had new rights to overtime payments or salaries of at least $47,476.  In a November 22, 2016 decision, however, a preliminary injunction was entered prohibiting the Department of Labor from enforcing those new requirements.  The quick takeaway is that employers can now continue to follow the old overtime requirements until there are further developments.

BACKGROUND

On May 23, 2016 the Department of Labor issued the new regulations and announced their December 1 effective date.  Since that announcement, employers (and their attorneys) have spent countless hours determining how they would have to pay their employees beginning in December. 

Two groups filed suit to oppose the new regulations in the US District Court of the Eastern District of Texas.  The first group of Plaintiffs is composed of 21 different States (not including Minnesota).  The second group of Plaintiffs includes more than 50 Texas business organizations.  The two law suits were consolidated by Judge Amos L. Mazzant (appointed in 2014 by President Obama) and on October 12, 2016 the State Plaintiffs moved for emergency preliminary injunctive relief.

A preliminary injunction is a temporary order preventing a party from taking an action.  To prevail on a request for a preliminary injunction in Federal Court, a party needs to show that 1) it has a substantial chance of succeeding on the merits of its claim when the law suit goes to trial or is resolved by summary judgment; 2) there is a substantial threat that the party asking for the injunction will  be irreparably harmed if the injunction is not granted; 3) the threatened injury outweighs any damage that the injunction might cause the other party; and 4) the injunction will not disserve the public interest.      

As in most cases where an injunction is sought, in this case the argument turned on the question of whether the States were likely to prevail at trial on their argument that the new regulations are not enforceable.  In the States’ legal brief supporting their motion they first argued that applying the new regulations to them was an unconstitutional violation of their sovereignty.  Judge Mazzant rejected that argument.

The States’ next argument was that Congress had not authorized the Department of Labor to issue the regulations.  29 U.S.C. 213 provides in part that “any employee employed in a bona fide executive, administrative, or professional capacity … as such terms are defined and delimited from time to time by regulations of the Secretary” shall be exempt from minimum wage and overtime requirements.  In their legal brief the States argued that the statutory language prohibited the new regulations:

            Simply put, a federal statute requires an overtime exemption for employees working in a“bona fide executive, administrative, or professional capacity,” with no reference at all to a minimum salary, yet the DOL’s new rule disallows any overtime exemption for such employees, unless they make more than $47,476 a year.

The Department of Labor responded with several arguments. It described the new regulations as simply an updating of the salary level test that had been used for more than 75 years as part of the test to determine who was entitled to overtime.  It pointed out that Congress had “left undisturbed” the broad grant of authority that the Department of Labor had been granted in this area despite the fact that a salary level test had been included throughout and Congress had amended the other provisions of the statute repeatedly since 1938.  The Department of Labor also relied on other cases saying that its decisions were entitled to broad deference unless those decisions were arbitrary, capricious, or manifestly contrary to the statute.

After hearing the parties’ arguments, Judge Mazzant found that the “precise question at issue here” was what “constitutes an employee employed in an executive, administrative, or professional capacity?”  In determining the answer to that question Judge Mazzant looked to the statutory language and stated that he needed to assume Congress’s intent from the plain meaning of the language.  He then looked at dictionary definitions of the terms executive, administrative and professional before concluding that those “words relate to a person’s performance, conduct, or function without suggesting salary.”  As a result Judge Mazzant concluded that Congress defined the overtime exemption with regard to duties—which did not include a minimum salary level.  Accordingly Judge Mazzant found that the Department of Labor exceeded its delegated authority, ignored Congress’s intent by raising the minimum salary level such that it supplanted the duties test and found the new regulations to be unlawful.

Having reached that conclusion, Judge Mazzant went on to analyze the other elements of an injunction, determined that the States had satisfied all prerequisites for a preliminary injunction, determined that he had the authority to enjoin the application of the new rules on a nationwide basis, and did so.

Judge Mazzant’s order will now bar the enforcement of the new regulations until there is a further judicial order.  That order could come through an additional order from Judge Mazzant after a ruling on a summary judgment motion or the conclusion of a trial.  This decision certainly could also find its way to the Supreme Court.  Politics will also almost certainly come directly into play with the new administration and the possibility that the new Congress may want to address the issue legislatively.

The overtime question is one that employers and business attorneys will need to continue to watch over the upcoming months.  As in-house counsel from the outside for closely held companies, Sanford, Pierson, Thone & Strean, PLC, provides creative and personalized solutions  to help our clients navigate regulatory requirements such as these.  Follow our firm at www.ssmnlaw.com and watch for updates as there are new developments on this and other issues.

 

 

Author; Twin Cities Business and LitigatION ATTORNEY Jeff Thone

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