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Texas federal judge blocks DOL overtime rule

By Lisa Milam-Perez, J.D.

In a crucial blow to the Obama administration’s labor and employment legacy, a federal district court in Texas has granted an emergency motion for a preliminary injunction barring the Department of Labor from enforcing its revised overtime rule, scheduled to take effect December 1, pending resolution of a consolidated legal challenge (State of Nevada v. U.S. Department of Labor, November 22, 2016, Mazzant, A.).

The final rule was poised to double the salary level required for employees to be deemed exempt from overtime under the FLSA pursuant to the DOL’s executive, administrative, and professional (“white collar”) exemption. However, a coalition of more than 50 business groups and a separate combined effort by 21 states sued to invalidate the regulation, seeking expedited consideration and emergency injunctive relief. The court, ruling on the state plaintiffs’ injunction request, found they demonstrated a substantial likelihood of success on the merits, as well as the prospect of irreparable harm. A nationwide preliminary injunction preserved the status quo while the court ponders whether the DOL had authority to promulgate the final rule and whether the rule itself was legally viable.

Salary—or duties? The rule’s new salary level of $47,476 (up from the current floor of $23,660) was based upon the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage region of the country (currently the South), and it would have rendered 4.2 million formerly exempt workers now overtime-eligible—with no evident change in the duties they perform. In promulgating the latest iteration of the regulation, the DOL was quite deliberate in not tinkering with the vexing “duties” provisions. The thinking was, if the salary level were set sufficiently high, more employees would be exempt, without first having to scrutinize whether they performed duties that were executive, administrative, or professional in nature. Ultimately, though, that may well prove the DOL’s downfall, as the plaintiffs argued convincingly that Congress intended to exempt employees based on the duties they perform—not the salary they earn.

Automatic update. The DOL added a new provision to its white-collar rule: an automatic updating mechanism, which would adjust the salary floor every three years. The court brushed off the DOL’s contention that any challenge to this provision was not yet ripe for review. Nonetheless, since it found the final rule was likely unlawful already, the court said it didn’t need to tackle the legality of this particular provision.

The FLSA applied. In attacking the final rule, the states first argued that imposing the FLSA’s overtime requirements on the states at all coerced them “to adopt wage policy choices” that unduly impact their priorities, budgets, and services, as well as their independence to set employee pay as they see fit—an unconstitutional infringement, in that the Tenth Amendment limited Congress’ power to apply the FLSA’s minimum wage and overtime protections to the states. However, the district court looked to the Supreme Court’s 1985 holding in Garcia v. San Antonio Metropolitan Transit Authority, which held that the Commerce Clause empowered Congress to apply the FLSA’s minimum wage and overtime requirements to state and local employees. While this precedent has taken its licks, the case was controlling absent an express statement from the High Court overruling it, the court noted.

Chevron deference did not. According to the state plaintiffs, the language of the white-collar exemption was unambiguous. It defined precisely what types of employees Congress intended to exclude from the reach of the FLSA’s overtime provisions, and established clear considerations for evaluating those employees. Consequently, step 1 of the Chevron analysis applied: the DOL must give effect to that express intent.

Bona fide executive, administrative, or professional. The court rejected the DOL’s contention that Congress did not define the terms “bona fide executive, administrative, or professional capacity” as set forth in Section 213(a)(1) of the Act, at issue here. While the terms are laden now with legal meaning, the court looked to their plain meaning at the time Congress first enacted the statute and concluded they simply referred to employees who performed actual executive, administrative, and professional duties—without regard to their salary level. For good measure, the court noted, Congress had thrown in the phrase “bona fide,” which it construed as another telltale sign that Congress meant for the exemption to turn on the specific duties one actually performs.

Duties control. The DOL urged that the exemption was intended to include a “status” component as well. But the court was not convinced that the inclusion of this term in the statute meant to impose a salary requirement for the exemption to apply. “The plain meanings of the terms in Section 213(a)(1), as well as Supreme Court precedent, affirms the Court’s conclusion that Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary,” wrote the court.

Moreover, while Congress gave the DOL considerable leeway to “define and delimit” the types of duties that would qualify as executive, administrative, or professional, nothing in the statutory language endowed the agency with authority to define and delimit a minimum salary level. As such, the DOL ran counter to the intent of Congress when it asserted in its final rule that “‘[w]hite collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities.’”

Salary level cannot supplant duties. By raising the salary level to such an extent that it supplants the duties test, the DOL exceeded its authority and ignored Congressional intent. As such, the rule could not clear even the Chevron step one hurdle and was unlawful. As such, there was no need to consider step 2: Whether the DOL’s interpretation of the FLSA amounted to a “permissible construction of the statute” and thus was entitled to deference. But even if the statute were ambiguous, the court said, the final rule would not be entitled to Chevron step 2 deference. The salary level was purposefully set low, simply in order to screen out those employees who were “obviously nonexempt” so as to render a duties analysis unnecessary as to those workers. But the DOL had impermissibly turned that on its head by creating what essentially amounted to “a de facto salary-only test.” This would not withstand Chevron scrutiny at either step.

In a footnote, the court was careful to state it was not ruling on the legality of the salary-level test itself—but only that the DOL was not authorized to utilize the salary-level test as amended under the final rule.

Irreparable harm. The court was satisfied that the state plaintiffs demonstrated irreparable injury absent a preliminary injunction barring the DOL from implementing its rule. The plaintiffs submitted declarations from state officials who contended it would cost millions of dollars in the first year alone to comply with the rule provisions, not to mention the impact on critical government programs and services. For example, more than 50 percent of employees working in the Kansas Department for Children and Families and the Kansas Department of Corrections would be affected by the final rule. The state agencies would be unable to increase salaries to comply, they attested, so the detrimental effect on government services would be palpable.

Moreover, the plaintiffs convinced the court that a judicial remedy would not be able to undo the damage if the state plaintiffs ultimately prevail in their challenge. And, because the DOL could not articulate any countervailing harm resulting from delaying the rule pending a resolution of the case, the balance of hardships weighed in the plaintiffs’ favor. As for the public interest, the states won this point too. Although the DOL insisted that blocking the rule would deny additional pay for those who are misclassified, the state cited the harms to the public resulting from increased state budgets, including layoffs and a disruption in critical public services.

DOL responds. “We strongly disagree with the decision by the court, which has the effect of delaying a fair day’s pay for a long day’s work for millions of hardworking Americans,” the Labor Department asserted in a prepared statement. “The department’s overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule.”

The agency said it was currently mulling its legal options.