On March 14, the Department of Labor issued an opinion letter to answer the following two questions about FMLA leave:  1) may an employer delay designating leave as FMLA covered, even if the leave is for a FMLA qualifying reason, to allow the employee to exhaust paid leave first;   2) may an employer expand an employee’s FMLA leave beyond the statutory 12 week entitlement.    In the DOL’s opinion, the answer to both questions is “no.”

The situation the opinion letter addresses is quite common: an employee wants to use available paid leave before starting the clock ticking on the 12 weeks of FMLA leave. By delaying the designation of the leave as FMLA covered until after the paid leave is exhausted, the employer has effectively granted the employee additional weeks of protected leave.

I have always thought the FMLA regulations on this point are fairly clear: the employer is required to designate FMLA qualifying leave as covered by FMLA; to the extent an employee has accrued paid time off, the employer can require it to run concurrently with FMLA. This rule is a great benefit to employers in managing employee leave by ensuring that the FMLA job protected leave lasts no longer than 12 weeks, regardless of how much paid time off the employee has accrued.

Despite the seeming clarity of the regulation, the DOL issued two prior opinion letters (in 1995 and 1996), that took the position that an employer had the right, but was not required, to designate FMLA qualifying leave as FMLA covered (so long as it did not deny employees their rights under FMLA).   The Department reasoned that this permissive approach was consistent with FMLA’s provision that allows employers to extend more leave than FMLA requires.   However, in the March 14 letter, the DOL emphasized that the designation of FMLA qualifying leave as covered leave is mandatory, and the maximum number of weeks of FMLA leave to which an employee is entitled in a year is 12 (or 26 is the case of military caregiver leave).  An employer remains free to grant leave beyond the 12 week requirement, but it cannot be considered FMLA leave.    The March 14 letter expressly withdrew these prior opinion letters.

DOL may have taken a more permissive approach in the past because the practice of allowing an employee to use paid leave before starting the FMLA clock typically causes no harm to the employee.  In fact, it is usually a great benefit to the employee who gets the extra leave.   From that perspective, it’s difficult to discern what harm the Department is trying to remedy with this new opinion.

The answer may be a 2014 ruling on this subject from the Ninth Circuit, Escriba v. Foster Poultry Farms, Inc., 743 F.3d 1246, 1244 (9th Cir. 2014).    The plaintiff in that case, Maria Escriba, sought two weeks of leave to care for her ill father in Guatamala.    She informed her supervisors of the FMLA qualifying reason for the leave, but expressly requested the time be deemed as vacation leave, so she could save FMLA leave for future use.  When Escriba failed to return to work after two weeks, she was terminated.  Escriba filed suit, alleging her termination interfered with her FMLA rights.  She claimed, based upon the regulations, the employer was required to designate her leave as FMLA leave.  Escriba argued she was not allowed to waive her FMLA rights by electing to use vacation leave before FMLA leave commenced, despite the fact that is what she specifically requested.

On appeal, the Ninth Circuit rejected Escriba’s arguments, ruling that the two weeks of vacation leave she requested were not FMLA protected, even though she was on leave for an FMLA qualifying reason.   The court held that, “an employee can affirmatively decline to use FMLA leave, even if the underlying reason for seeking the leave would have invoked FMLA protection.”   Because Escriba’s two weeks of leave was not FMLA protected, the court concluded the employer did not interfere with her FMLA rights by terminating her employment.

Escriba was a win for that particular employer, but ironically was a loss for employers generally.    What was previously a employer granted discretionary benefit (allowing exhaustion of paid leave before starting the FMLA) was transformed into an employee right (entitlement to exhaust paid leave before starting FMLA).   Once the employee has the right to determine when the FMLA clock starts, the employee potentially gains the opportunity of extra leave beyond the 12 week statutory entitlement.   The employer’s ability to effectively manage FMLA leave, granted to it by regulation, was out the window.

The DOL specifically mentioned in footnote 3 of the March 14 letter its disagreement with the holding  Escriba.   While the Department’s opinion letter is not binding authority, courts often defer to the agency’s interpretation of the law.   Perhaps the Department issued this letter as part of an effort to confine to the Ninth Circuit the transformation of an employer managed benefit into an employee entitlement.

What is the takeaway for employers?   First, if you want to protect your prerogative to manage FMLA leave, then you need to exercise it by following the DOL’s guidance in the March 14 opinion letter; namely, you should always designate as FMLA covered leave any leave that is FMLA qualifying.   If the employee has available paid leave, the two can run concurrently.     If you want to be more generous,  make it clear that additional leave is available only after FMLA leave has been exhausted, and does not necessarily come with FMLA protected rights.   Second, it may help employers reinforce the rule to supervisors and HR personnel who may not recognize the employee does not have a choice in determining when the designation of FMLA covered leave occurs.    Finally, while there is no ironclad guarantee that other circuits will follow the DOL’s opinion letter, relying on a DOL Guidance supports an employer’s good faith defense it was trying to comply with the law, even if a court later finds the conduct to violate FMLA.

In a widely publicized move, the U.S. Department of Labor on March 7 proposed an update to the Fair Labor Standards Act (FLSA) regulations governing employees who are exempt from overtime.   The most significant change in the proposal is to raise the minimum salary an employee must earn to qualify as exempt from overtime.  The existing minimum salary is $455 per week; the new proposed minimum salary is $679 per week, a 49 percent increase.    An employee must also satisfy one of the “duties” tests to be exempt from overtime (e.g., executive, administrative, professional), but the proposed rule does not change any of those tests.

Most employers probably remember, with some chagrin, the DOL’s 2016 rule that more than doubled the salary basis to $913 per week.   Businesses were scrambling to adjust their job descriptions and payrolls in anticipation of the new rule’s  December 1, 2016 effective date.   Then, eight days before, on November 22, 2016, a district court in Texas issued a surprise nationwide injunction preventing it from going into effect.   For a refresher on the injunction and its aftermath, see our posts here, here, and here.

On August 21, 2017, the same federal judge, Amos Mazzant, issued a final ruling invalidating the $913 per week salary basis.   Surprising to some, the Department, now with a Trump appointed Secretary, appealed the judge’s final ruling to the U.S. Court of Appeals for the Fifth Circuit.   But, the Court of Appeals agreed to hold the appeal in abeyance while the DOL undertook further rulemaking to consider adjusting the salary basis to something lower than $913 per week in the 2016 Rule, but more than the $455 per week that was previously in effect (and remains in effect today).  Perhaps not coincidentally, the proposed $679 per week proposed salary basis is almost exactly in the middle of $455 and $913.

So, what happens next?   On the rulemaking side, the public will have 60 days to comment on the proposed rule.  The Department will then consider those comments, and issue a final rule, probably sometime in 2020.   More importantly though, what will happen if, as is likely, the DOL’s final rule maintains the $679 per week salary basis?    If challenged, is a court more likely to find a 49 percent increase is valid because it is less of an increase than in the 2016 rule?   Does the validity of the DOL’s rule depend upon something so arbitrary as a federal judge’s opinion about what persons in certain occupations should earn?

Many employers and business advocacy groups agree $455 is probably too low a salary basis given inflation that has occurred since it was established. They can probably also live with the proposed $679 per week (indeed, this salary level was chosen after considerable input from interested parties).   But, despite the DOL’s effort to appease all interested stakeholders, there is a good chance some interest group will file suit to challenge the new rule.   The issue is not so much the amount of the salary threshold, but whether the DOL has the right in the first place to use a minimum salary as part of the test to determine whether an employee is exempt from overtime.    Commenting on Judge Mazzant’s ruling on the Obama era rule, I said in a September 12, 2017 post:

In the ruling on the preliminary injunction, Judge Mazzant questioned whether the DOL has the legal authority to establish a salary basis test.   He reasoned the FLSA itself defines Executive, Administrative, and Professional exemptions only with respect to duties, and says nothing about the employee’s salary.  Therefore, he ruled, Congress did not intend that the amount of an employee’s salary be a factor in determining whether the employee was exempt; only the duties are relevant.   By including a salary basis test in addition to a duties test, Judge Mazzant concluded, at least preliminarily, that the DOL likely exceeded its statutory authority.

It is important to note that, in the final ruling, Judge Mazzant backed away from his initial opinion that questioned the DOL’s authority to use the salary test at all. Instead, he concluded merely that $913 per week too high because it likely would have the effect in many cases of eclipsing the duties test, essentially rendering the duties irrelevant.   In other words, the salary was so high that many employees who satisfied the duties test for one of the executive, administrative, or professional exemptions would still be classified as non-exempt because their salary was less than $913 per week.

In addition to questioning the legal basis for the minimum salary, there are practical reasons the salary basis test should be abandoned.   First, the salary basis applies to the entire country, and does not take into account regional and local economic conditions.   A $679 per week salary means something different in Des Moines than it does in San Francisco or New York.    Second, in the modern era the salary basis has become a political weapon used to benefit favored constituencies, depending upon the party in power.   Third, the proposed rule contains a provision that allows the Department to change the salary basis every three years.   But, the rulemaking process is so slow that it takes at least two years for a rule to get from the proposal to the final stage.  Moreover, once the new salary basis is in place, it could once again be subject to legal challenge.    Lawyers and lobbyists love this process, but whether it actually benefits ordinary employees is questionable.  Finally, lawyer and blogger Jon Hyman makes an excellent point that I have not seen elsewhere, but is important:  that is, the salary basis test simply does not matter.   If an employer pays someone less than $679 per week, that person is probably not the sort of employee who exercises the type of discretion and judgment required to satisfy the duties part of the test.  It is the duties test that employers should really be worried about.

So what’s the takeaway from all this?  Employers, get ready for the new salary basis in 2020, but don’t be surprised if it never goes into effect.

 

On August 31, 2017, Judge Amos Mazzant in the Eastern District of Texas issued a final ruling invalidating the Obama Department of Labor’s increase in the minimum salary for exempt employees under the Fair Labor Standards Act.  This is the same judge that issued the preliminary injunction on November 22, 2016 that prevented the rule from going into effect as scheduled on December 1, 2016.  Even though the DOL appealed the preliminary injunction to the Fifth Circuit, the Court of Appeals did not stay the proceedings in the trial court while the appeal was pending.  Thus, Judge Mazzant issued his final ruling before the Court of Appeals had the opportunity to weigh in on the validity of his preliminary injunction.

You may recall the Trump DOL took the surprising position on appeal that Judge Mazzant erred in issuing the preliminary injunction, and requested that it be reversed.  If the DOL had succeeded it obtaining the relief it requested, the new overtime rules could have gone into effect, which would have caused all kinds of havoc.  Fortunately, on September 5, after Judge Mazzant’s ruling, the Department withdrew its appeal of the preliminary injunction.  At least for the moment, the uncertainty surrounding the status of the minimum salary has been settled.    The fanfare with which the DOL announced the rule last year, the thousands of lawyers hours spent educating our clients about it, and the dread with which employers anticipated its effective date, ended with a relative whimper.

For now, the minimum salary an employer must pay to exempt employees remains $455 per week.   But, it may not stay that way for very long.   The Department of Labor recently requested comments from the public whether it should raise the minimum salary to something more than $455 per week, but less than $913 per week in the now invalid rule.  As of today, the DOL has received over 138,000 comments in response to its request, so there is obviously significant interest in further changes.  The comment period remains open until September 25, so you still have the chance to weigh in if you haven’t already.

All the controversy about the new overtime rule raised an important question that warrants more attention:  that is, should there even be a minimum salary as part of the test for determining whether an employee is exempt from overtime?    In the ruling on the preliminary injunction, Judge Mazzant questioned whether the DOL has the legal authority to establish a salary basis test.   He reasoned the FLSA itself defines Executive, Administrative, and Professional exemptions only with respect to duties, and says nothing about the employee’s salary.  Therefore, he ruled, Congress did not intend that the amount of an employee’s salary be a factor in determining whether the employee was exempt; only the duties are relevant.   By including a salary basis test in addition to a duties test, Judge Mazzant concluded, at least preliminarily, that the DOL likely exceeded its statutory authority.

In his final ruling, Judge Mazzant again cited Congress’ intent that only duties matter.  But, he backed off his preliminary ruling that the DOL lacked legal authority to use salary test at all.  Instead, he concluded merely that the minimum salary in the Obama era rule was too high because it likely would have the effect in many cases of eclipsing the duties test, essentially rendering the duties irrelevant.   In other words, the salary was so high that many employees who satisfied the duties test for one of the executive, administrative, or professional exemptions would still be classified as non-exempt because their salary was less than $913 per week.    So, in the end, the concept of some minimum salary apparently satisfies Congress’ intent, but the amount must still pass Judge Mazzant’s (or some other judge’s) sensibilities to be valid.

Notably, the reason the Department requested the Court of Appeals to reverse Judge Mazzant’s preliminary injunction was this very issue: the DOL did not want to lose the right to establish a minimum salary as part of the test for determining who is an exempt employee.   It appears Judge Mazzant read the Department’s brief and perhaps decided to back off of what seemed to be the logical conclusion of his preliminary injunction ruling.   On the other hand, it appears the Department may still be open to an exemption test that does not include a minimum salary.   One of the questions (No. 7) on which the DOL is seeking public comment is whether an exemption test that relies solely on duties without regard to the employee’s salary be preferable to the current test, and if so, what elements should be included in such a test.

What do you think?  Would exempt employees be harmed if there was no minimum salary as part of the test for determining who is exempt from overtime?   If a minimum salary is essential, what should it be, who should make the determination, and by what criteria?   Is it appropriate that federal judges are the final arbiter of what is or is not an acceptable minimum salary?  Hopefully the Department will be thoughtful in its considerations of these important questions.  Stay tuned…

We posted on November 23 about the surprising temporary injunction issued to stop the new overtime rules from going into effect on December 1.    Many employers breathed a sigh of relief, but still wondered if this injunction was only a short term reprieve that could be taken away next year.  Here are a few things that have happened since the injunction that might shed some light on the future over the new rules:

  • On December 1, the Department of Labor filed an appeal of the district court’s injunction to the U.S. Court of Appeals for the Fifth Circuit.   The court of appeals granted the DOL’s request to fast-track the appeal, which means all briefs must be submitted by January 31, 2017.  That is about 60-90 days sooner than would occur with a normal schedule.   It is likely the court will schedule an argument in February and could have a ruling soon thereafter.
  • On December 8,  President-elect Trump announced Andy Puzder as his nominee for Secretary of Labor.  Puzder is the CEO of the company that owns the Hardee’s and Carls, Jr. restaurant chains, and has been a vocal critic of the DOL’s new rules.
  • The new overtime rules are on the list of 200 regulations that many members of Congress propose eliminating during the first 100 days of the Trump administration.

Dept of LaborWhile we are not making a prediction, employers have every reason to be optimistic the new rules will at least be modified if not eliminated altogether.   It is quite possible the DOL’s appeal will never see the light of day; once Trump is sworn in as president, he can order the DOL to withdraw its appeal and stop defending the underlying litigation, which would effectively make the injunction permanent.   As noted previously, Congress may pass a law to overturn the rule.    If neither of those occur, the new Secretary of Labor could start the process to rescind or rewrite the rule.   The last option would take the longest, as it would first require the Senate to confirm the new Labor Secretary, and then he would have to start the rule-making process.    Whatever course the process takes, if you have not taken action to implement the new overtime rules, there is no reason to do so now.

On the Friday before Thanksgiving, Vice-President Biden announced at a Middle Class Task Force event the creation of a collaboration between the U.S. Department of Labor and the American Bar Association.   According to the press release associated with the event, the purpose the collaboration is to “help workers resolve complaints received by DOL’s wage and hour division.

Beginning December 13, 2010, people with unresolved complaints under the Fair Labor Standards Act (FLSA) or Family and Medical Leave Act (FMLA) will be sent a letter explaining their rights, and providing a toll-fee number that will connect them with an ABA approved lawyer referral service in their area. These are complaints that the Department of Labor is otherwise charged with investigating but apparently cannot because of what the Secretary of Labor described as the Department’s “limited capacity.”

While this collaboration may be good for the business of lawyers, it is doubtful it will be good for anyone else, most especially the business community and the middle class employees the program purports to help.   The unspoken assumption of programs like this one is that lots of employers are violating employment laws and short changing their employees.   Indeed, Labor Secretary Solis’ statement that “our nation’s workers deserve full and fair compensation” implies that they are not.  

Contrary to the assumptions underlying this program, in my experience and that of other employer side lawyers I know, the lion’s share of companies are conscientious about complying with the employment laws. The high cost of defending employee claims and the risk of an adverse outcome, regardless of the merits of the suit, give employers an economic incentive to comply with the law.   Nor is the federal government and the ABA encouraging more employment litigation likely increase the income of middle class employees. In fact, it may have the opposite result, as more and more resources are devoted to defending and settling these cases rather than increasing wages and benefits of employees generally.    In a 2008 study by Estreicher and Yost, the median gross settlement in 179 collective or class action employment lawsuits studied was $8,500,000.   This does not include the thousands of individual claims and settlements every year. 

Remarkably, the ABA touts this program as an opportunity to improve the image of lawyers. I don’t know who the ABA thinks this will impress, but it is not likely to be the business community or the majority of the general public who are cynical about lawyers.  If the Department of Labor believes employer compliance with FLSA and FMLA is lacking, there are more constructive ways to address the problem than increasing their litigation risk.

For a thoughtful view on the other side of this issue, see Dan Schwartz’s post at the Connecticut Employment Law Blog.