This time last year many employers were anxious about the new Department of Labor Rule that raised the minimum salary for exempt employees to $913 per week, more than double the existing minimum of $455. The Rule was scheduled to become effective December 1, 2016. Then, in a surprising stroke of fortune, on November 22, a federal district court in Texas issued a nationwide preliminary injunction barring the new rule from going into effect.
On December 1, 2016, the then Obama administration Department of Labor appealed the district court’s ruling. With a new administration arriving January 20, 2017, and an anticipated new Secretary of Labor, the DOL asked the court of appeals to delay the briefing on the appeal. I and many others expected at that time that the new rule was effectively dead. Either the DOL would withdraw the appeal, the new Congress would override it, or the Department would take action to rescind the rule.
As it has turned out, none of those three things have happened, at least not yet. In the meantime, the Department chose not to request further extensions of the briefing schedule beyond the June 30 deadline the court of appeals had established.
Then, in yet another surprise twist in this saga, in its brief filed on June 30, the Department asked the court to reverse the judgment of the district court. You read that correctly. The Trump DOL seemingly took the same position on the preliminary injunction you would have expected the Obama DOL to take. What gives?
It seems the DOL’s position is driven by a concern about the legal basis of the district court’s injunction. In granting the preliminary injunction, the district court ruled the DOL did not have the legal authority to establish a salary basis test. The court reasoned section 213(a)(1) of the FLSA defines Executive, Administrative, and Professional exemptions only with respect to duties; the law says nothing about a minimum salary. As such, the Department exceeded its statutory authority in making a minimum salary a part of the test for determining whether an employee is exempt. If the injunction stays in place based upon the district court’s reasoning, it will set a precedent the DOL cannot set a salary test at all, regardless of the amount of the salary.
The new Secretary of Labor obviously wants to retain the authority to set a minimum salary for exempt employees, but would prefer a different amount to the $913 per week proposed in the new rule. The Department has, in fact, commenced the process to revise the overtime rule to set the minimum salary at a different level. The DOL requested the court not to address the validity of the $913 per week salary in its ruling.
So, what happens if the court of appeals actually grants the relief the Department requested? In a typical case, reversing the district court’s grant of a preliminary injunction means the injunction is vacated. But, what if that happens before the Department has issued a new rule modifying the salary basis test? The agency has not withdrawn the new rule that was scheduled to go into effect December 1, 2016, so in theory the rules goes into effect if the injunction goes away. If that actually were to happen, another complicating factor is the effective date of the rule. Would it be effective retroactive to December 1, 2016, or would it take effect on the date the injunction was vacated? Retroactive effect would be devastating to those employers that relied on the injunction to avoid implementing changes to salaries or re-classifying employees as non-exempt. An effective date that is only prospective would not be much better, because employers are not expecting it and will have little if any notice. Even if the Department does not take action to enforce the rule, there are certainly plenty of plaintiff side-lawyers willing to bring private wage and hour suits.
It’s possible the court of appeals could find other grounds to leave the injunction in place, or delay the effect of its ruling pending the DOL’s new rule making efforts. But there’s no guarantee that will happen. Given the potentially high stakes impact of the DOL’s approach on employers, it is surprising hardly anyone is talking about it. Attorney Jim Coleman published an excellent analysis of these issues, but otherwise I have not seen much discussion.
I’m interested to know what others think about the potential for the OT rule being resurrected from the dead. Could the sky really be falling, or am I just another Chicken Little?
Image Credits: From Google; Alexander Acosta official photo; From flickr, Creative Commons license, Chicken Little/Dave Walker