Court Strikes Down Trump Administration Rule to Benefit Wage Violators

Recent Trump Administration efforts to chip away at employee protections under federal law faced a setback earlier this month. A federal court in New York struck down a large portion of a January 2020 Department of Labor (“DOL”) rule that changed how to determine whether multiple entities are an individual’s employer under the “joint employer doctrine.” The case is New York v. Scalia.

Non-exempt employees are entitled to a federal minimum wage and overtime under the federal Fair Labor Standards Act (“FLSA”). But sometimes it can be tricky to determine who is supposed to pay these wages when more than one entity directly benefits from the employee’s work—for example, when an employee works at a franchise or is placed by a staffing agency. Prior to the new rule, which took effect in March 2020, the Department of Labor’s guidance instructed that, in circumstances like these, multiple entities could be considered employers of the same individual if that individual economically depended on the multiple entities. The Trump Administration rule scrapped this analysis in favor of an employer-friendly four-factor test based solely on the level of control each possible joint employer exerts over the worker. The factors in the rejected test were whether the possible joint employer:

(i)                Hires or fires the employee;

(ii)              Supervises and controls the employee's work schedule or conditions of employment to a substantial degree;

(iii)           Determines the employee's rate and method of payment; or

(iv)            Maintains the employee's employment records.

This change strongly benefited employers who maintain franchise relationship or rely heavily on contractors or workers staffed by an agency. This corporate windfall would come at the expense of workers, who are far less likely to be able to enforce their FLSA rights under the new standard, if, for example, multiple entities govern their employment so that no one employer meets the new test.

Seventeen states and the District of Columbia sued to block the rule, culminating in the decision striking down much of the rule earlier this month. The Court’s ruling rested on two main reasons. First, the rule improperly relied solely on the FLSA’s definition of “employer,” out of context. The FLSA’s definition of “employer” defines an employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee,” requiring that a court deciding which entities are liable consider the definition of the term, “employee.” The definition of “employee,” in turn, necessitates reference to the definition of “employ.” Accordingly, the Court determined that the DOL should not have taken the word “employer” out-of-context by ignoring the other statutory definitions in crafting its employer-friendly rule. In its analysis, the Court emphasized the background and purpose of the FLSA and noted that the law’s definitions of “employer,” “employ,” and “employee” are intentionally broad in order to provide robust protections for workers.

Second, the Court held that the new rule was too restrictive. The FLSA had intentionally refused to place its focus entirely on control in order to give the law a broader scope. Although control could be sufficient to establish joint employer liability, the Trump Administration rule made control necessary to establish an employer-employee relationship, which was a step too far.

The Court also found procedural deficiencies with the new rule. For one, the rule deviated from past DOL interpretations in 1997, 2014, and 2016 without adequate explanation. In another notable portion of the opinion, the Court observed that the DOL initially did not consider the cost of the new rule to employees when considering the rule—the DOL had merely stated that the rule would not affect wages “assuming that all employers always fulfill their legal obligations,” a position which the Court aptly described as “silly.” Although the DOL ultimately acknowledged that the impact of the new rule on wages before passing the rule, the DOL completely disregarded this impact and ignored an estimate by the Economic Policy Institute that the new rule would cost employees $1,000,000,000 (a billion dollars) per year. This decision laid bare the business community’s bald-faced power grab in passing the new rule, catering to business interests by short-changing their workers.

The ruling was not a complete victory for employees. The court struck down the new rule only as it applies to “vertical” joint employer liability, but not “horizontal” joint employer liability. A “vertical” joint employer relationship involves an employee who has a relationship with both an employer and another business contracting the employee’s services (such as a contractor, subcontractor, staffing agency, or franchise), whereas a “horizontal” relationship involves an employee who employed by two sufficiently related entities (such as a joint venture). The Court left the DOL’s changes to “horizontal” joint employment intact.

If you have been denied minimum wage or overtime due, contact Bryan Schwartz Law.

Are You Employed in Retail? The Administration is Threatening Your Overtime Pay

Recently, the U.S. Department of Labor (“DOL”) issued a final rule that would seek to deprive large numbers of employees overtime wages. The Administration’s action eliminates helpful guidance about the types of employees who are not considered to work in “retail” and would presumably be entitled to overtime under the federal Fair Labor Standards Act (“FLSA”). Employees considered “exempt” from the FLSA do not benefit from its minimum wage and overtime pay requirements. Exempt workers usually include executive, administrative, or professional employees who meet the tests—including the salary-based test—for the exemption. “Retail” workers may also be considered exempt and be paid on a commission-only basis. For nearly 60 years, the DOL had a list of industries presumably excluded from “retail” as having no “retail concept” – like banking. The Administration’s action would seek to short-change these hundreds of thousands or millions of workers of their overtime.

More specifically, pursuant to Section 7(i) of the FLSA, certain employees paid primarily on commission in the retail and service industries have long been considered exempt from overtime benefits. To qualify for this exemption, the employee must have been employed by a “retail or service establishment,” which the DOL consistently interpreted as an establishment with a “retail concept.” Such establishments typically “sell[] goods or services to the general public,” “serve[] the everyday needs of the community,” “[are] at the very end of the stream of distribution,” dispose their products and skills “in small quantities,” and “do[] not take part in the manufacturing process.” Implementing this interpretation, the DOL maintained lists of establishments that could not claim the overtime exemption: (1) those that the DOL viewed as having “no retail concept” and were always ineligible to claim the exemption (such as banks, certain dry cleaners, tax preparers, laundries, roofing companies, and travel agencies), and (2) those that “may be recognized as retail” but were potentially ineligible for the exemption on a case-by-case basis (such as auto repair shops, hotels, barber shops, scalp-treatment establishments, taxidermists, and crematoriums).

The DOL’s new rule eliminates these lists that provided helpful guidance for more than half a century of what types of establishments could claim the overtime exemption. Employers that previously fit into these categories may now try to assert that they have a retail concept and may qualify for the overtime exemption.  According to the Administration, this rule provides greater simplicity and flexibility to retail industry employers because the DOL will now apply the same “retail concept” analysis to all businesses. 

We disagree. This rule may be used by employers to attempt to justify paying their workers on commission without overtime, which means employees working longer hours with less pay. Retail workers already have a low median annual income of about $29,000 according the U.S. Bureau of Labor Statistics and are subject to wage and hour abuses. The new rule simply adds confusion around long-standing FLSA guidance for employers and employees about who can and cannot qualify for overtime provisions. The DOL made this decision without a notice and comment period, stating that no such period is required since both lists were interpretive regulations originally issued without notice and comment in 1961. Some attorneys question the propriety of the DOL’s decision. 

Courts may disregard this rule change. The DOL’s interpretations and lists are not binding on courts but can serve as guidance and, in the past, have been afforded some deference. However, when the Administration casts aside tried-and-true guidance to support the political agenda of the moment, seemingly without undergoing any rigorous process or study, such a move will be entitled to no deference under Perez v. Mortgage Bankers Association. 135 S.Ct. 1199, 1208 n.4 (2015) (highlighting that an agency’s interpretation that conflicts with a prior interpretation of a regulation is entitled to considerably less deference than a consistently held agency view). Workers’ rights advocates anticipate that when the Administration changes – hopefully soon – helpful guidance will be restored distinguishing true retail from many other industries that would opportunistically try to claim an exemption where none should exist.

Bryan Schwartz Law has written about the Trump Administration’s antipathy toward workers, DOL shifts, and overtime before and remains committed to protecting workers’ wages. If you were denied overtime pay you believe you were owed, contact Bryan Schwartz Law today.

New (Watered-Down) Overtime Pay Rule Announced By Department of Labor

This week, the U.S. Department of Labor announced a final rule that starting January 1, 2020, 1.3 million more American workers will be eligible for overtime pay under the Fair Labor Standards Act (FLSA). The final rule expands the definition of who “non-exempt” workers are, i.e. workers who are subject to minimum wage and overtime pay requirements. “Exempt” workers are exempt from minimum wage and overtime pay requirements. Exempt workers include, for example, those meeting the tests (including the salary-basis test) for the white-collar exemptions as executive, administrative, or professional employees.

The rule is a watered-down version of an Obama Administration proposal, which would have expanded overtime pay to around 4 million workers by raising the maximum salary for which non-exempt workers are entitled to overtime pay to $47,000 a year for full-time work, a highly-compensated employee (“HCE”) exemption level of $147,000, and (perhaps most importantly) tying future increases to the cost of living. That proposal was met by fierce opposition from various business groups, who teamed up with some Republican-controlled states to take the Obama Administration to court, resulting in the rule being blocked by a conservative federal judge in 2017.

Here are the main changes the new rule makes:

·         raises the “standard salary level” to qualify for a white-collar exemption from the current level of $455 per week (equivalent to $23,660 per year for a full-year worker) to $684 per week (equivalent to $35,568 per year for a full-year worker);

·         raises the total annual compensation level for “HCEs from the current level of $100,000 to $107,432 per year;

·         allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level; and

·         revises the special salary levels for workers in U.S. territories and in the motion picture industry.

What the new rule does not do is tie the standard salary level to the rate of inflation. Adjusted for inflation, the $23,660/year would rise to a current minimum salary level for non-exempt status of $55,000/year. By also allowing employers to take nondiscretionary bonuses and commissions into account in determining how much employees make and therefore if they’re eligible for overtime pay, the rule immediately undercuts the impact of the relatively small increase provided to the standard salary level. That 10% caveat creates room for confusion and discretion on the part of employers that could adversely affect the very workers the rule is supposedly designed to help. The $107,432/year level for HCEs is also laughably low for many parts of the country where such a salary is much closer to the average.

After 15 years of no updates to overtime pay eligibility, any update is welcome. But once again, the Trump Administration does far less than is needed (and far less than was approved by the prior Administration) to help vulnerable workers. The bottom line: If you make less than $35,568 a year for full-time work, starting next year, you’re more likely to be entitled to overtime pay. But, your employer can count up to 10% of your earnings from things like bonuses and commissions to determine if you qualify for overtime. Note that this new rule doesn’t affect the “outside sales exemption.”

Bryan Schwartz Law has written about overtime issues before here. If you believe you were denied overtime pay you were owed, contact Bryan Schwartz Law today.

Epic Fail: U.S. Supreme Court Rules that Employers May Require Employees to Waive Right to Bring a Class Action as a Condition of Employment

On Monday, the Roberts Court took another significant step in its ongoing project to hobble class actions and impose barriers to employees seeking redress against their employers by holding that class action waivers within arbitration agreements do not violate the National Labor Relations Act (“NLRA”). The employees, seeking to recover unpaid wages on behalf of themselves and other employees under the Fair Labor Standards Act (“FLSA”), had argued that the NLRA’s Section 7, which guarantees employees’ “right to self-organization, to form, join, or assist labor organizations, to bargain collectively . . . , and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” prohibits employers from requiring that employees agree to individual, binding arbitration as a condition of continued employment.

The case, Epic Systems Corp. v. Lewis, comes on the heels of series of Roberts Court cases expanding the ability of companies to impose individual arbitration on their employees and customers, thus preventing employees and consumers from filing lawsuits in open court or filing class actions anywhere. Bryan Schwartz Law has written extensively about the Court’s decisions expanding the Federal Arbitration Act (“FAA”) at the expense of the rights of employees and consumers: here, here, here, here, here, and here. In 2001, the Rehnquist Court ruled in Circuit City Stores, Inc. v. Adams that the FAA’s express exclusion of “the contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce,” meant to remove only the employment disputes of transportation workers from binding arbitration, notwithstanding the broad “any other class of workers” language in the Act. Then, in 2011, the Roberts Court approved of class action waivers in consumer arbitration contracts in AT&T Mobility v. Concepcion.

The Court’s opinion in Epic Systems, while hardly a surprise given this Court’s expressed disregard for the rights of workers and consumers in its recent arbitration jurisprudence, is notable for the sheer level of its intellectual dishonesty. Justice Gorsuch, writing for the five-Justice majority, feigns confusion as to why the National Labor Relations Board did not address the apparent conflict between the NLRA (enacted 1935) and the FAA (enacted 1925) until 2012, when the obvious answer is that no one thought that the FAA had anything to do with employment disputes in the late 1930s when Congress passed both the NLRA and the FLSA, which permits employees to bring “collective actions” to recover unpaid wages.

Gorsuch counsels judicial restraint in admonishing the employees for asserting a conflict between the FAA and NLRA – “This Court is not free to substitute its preferred economic policies for those chosen by the people’s representatives” – but fails to mention that the current regime making compulsory, pre-dispute arbitration a ubiquitous requirement for employees and consumers is a recent, judicial invention. Given the low value of most individual employment and consumer claims, the right-wing innovation is tantamount to a get-out-of-jail-free card (or out-of-liability-free card, at least) for companies engaging in wage theft and other insidious business practices, undermining fair competition with companies that play by the rules.

Completely absent from Court’s opinion is any discussion or concern as to how forced individual arbitration undermines the substantive rights enshrined in laws like the FLSA and Title VII of the Civil Rights Act of 1964 (prohibiting employment discrimination). The success of these Acts has depended greatly on the ability to bring group actions challenging policies and practices that injure large numbers of workers. For instance, the landmark 1971 discrimination case Griggs v. Duke Power Co. involved a class of African-American employees who successfully challenged high school diploma and IQ-testing requirements that were unrelated to their jobs, but had the effect of keeping African-Americans out of the most desirable positions. In Gorsuch’s world, these sorts of fundamental statutory protections must give way to the Roberts Court’s arbitration regime, under which its expansive reading of the FAA trumps all.

Justice Ginsburg penned a fiery and forceful dissent, joined by Justices Breyer, Sotomayor, and Kagan, in which she blasts the majority opinion for trampling on the ability of employees to exercise their statutory rights. Ginsburg traces the history of the Court’s labor jurisprudence, noting that New Deal legislation like the NLRA and the FLSA arose from an understanding that individual employees lacked the bargaining power to demand fair working conditions, and that only through acting collectively could employees “match their employers’ clout in setting the terms and conditions of employment.” In that sense, the majority’s opinion, premised on the fanciful notion that most employees have any ability to negotiate when their employers demand they sign an arbitration agreement, reflects a return to the pre-New Deal Lochner era, when the Court routinely struck down worker protections as violating the supposed freedom to contract.

Ginsburg further notes that the result of Epic Systems “will be the underenforcement of federal and state statutes designed to advance the well-being of vulnerable workers.” Low-wage employees, especially, may be reluctant to take on their employers alone for fear of retaliation, since the costs and risks of proceeding individually often dwarf the potential recoveries. Of course, this is not an accidental outgrowth of the Roberts Court’s arbitration jurisprudence, but its central design: to insulate companies from liability for harm to their employees and customers.

After Epic Systems, employees, consumers, and those who advocate on their behalf have an increasingly limited toolbox to confront corporate abuse on a class-wide basis, so long as employers can demand individual arbitration. At this point, the only comprehensive solution is likely a legislative one, highlighting the importance of who Americans elect to the next Congress. When most Americans know victims of corporate overreaching – a day we fear is coming soon – the tide will turn, and the Roberts Court will be seen in its true light, on the wrong side of history.

The Supreme Court Denies Certiorari of Ninth Circuit Ruling that Mortgage Underwriters are Non-Exempt Employees

Today, the Supreme Court of the United States summarily denied certiorari to an appeal from a recent Ninth Circuit decision, McKeen-Chaplin v. Provident Savings Bank, 862 F.3d 847 (9th Cir. Jul. 5, 2017), which held that mortgage underwriters did not qualify as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA).

The Ninth Circuit’s ruling in McKeen-Chaplin, clarifies the legal analysis for evaluating whether an employer has met the second prong of the administrative-exemption test. The administrative-exemption test requires administrative employees to have as their primary duty “the performance of office or non-manual work related to the management or general operations of the employer or the employer’s customers.” 29 C.F.R. § 541.200. Notably, the Ninth Circuit utilized the “administrative / production dichotomy” to determine whether the employer met the second prong of the FLSA’s administrative exemption. Under the administrative / production dichotomy framework, “whether [an employee’s] primary duty goes to the heart of internal administration—rather than marketplace offerings” is the crucial test. Thus, if an employee’s duties focus on the core business of a company, e.g., an underwriter working on a bank’s mortgage products, then the employee is not administratively exempt, and is entitled to overtime. Bryan Schwartz Law previously blogged about McKeen-Chaplin here.

In arriving at its decision, the Ninth Circuit relied heavily upon reasoning in Davis. v. J.P. Morgan Chase & Co., 587 F.3d 529 (2nd Cir. 2009) cert. denied sub nom., a Second Circuit ruling which applied the administrative-production dichotomy to find mortgage loan underwriters were production employees. Bryan Schwartz Law previously blogged about Davis, here.

Employees who produce a company’s core products or services, as opposed to performing “work related to the management or general operations of the employer,” should not be denied overtime based on the FLSA’s administrative exemption.

If you believe your employer has incorrectly classified you as an exempt administrative employee and deprived you of overtime pay even though you produce the core goods or services of your employer, then please contact Bryan Schwartz Law.

Ninth Circuit Holds Mortgage Underwriters are Entitled to Overtime Under the Fair Labor Standards Act

Today, the Ninth Circuit held in McKeen-Chaplin v. Provident Savings Bank that mortgage underwriters are entitled to overtime compensation under the federal Fair Labor Standards Act (“FLSA”). The McKeen-Chaplin opinion clarifies the legal analysis for evaluating whether an employer has met the second prong of the administrative exemption test under the FLSA by strongly endorsing the “administrative-production dichotomy.”[1] McKeen-Chaplin, No. 15-16758, 2017 WL 2855084, at *7 (9th Cir. July 5, 2017) (“McKeen-Chaplin”). Under the administrative-production dichotomy framework, “whether [an employee’s] primary duty goes to the heart of internal administration—rather than marketplace offerings” is the key test in determining whether an employer has met the second prong of the FLSA’s administrative exemption. Based upon this important precedent, generally speaking, if an employee’s duties are focused on the core business of a company – like underwriters, working on a bank’s mortgage products – then the employee is not administratively exempt, and is entitled to overtime.

All employees are guaranteed minimum and overtime compensation under the FLSA unless their job duties fall under a specific exemption, such as the administrative exemption. McKeen-Chaplin, at *2. The burden is on the employer to show that a particular exemption defense “plainly and unmistakably” applies to a particular job position. Id. For the administrative exemption to apply, an employee must:

(1) be compensated not less than $455 per week;

(2) perform as her primary duty office or non-manual work related to the management or general business operations of the employer or the employer’s customers; and

(3) have as her primary duty the exercise of discretion and independent judgment with respect to matters of significance.

McKeen-Chaplin, at *3. An employer must completely satisfy all three prongs of this test for the administrative exemption to apply (i.e., for an employer to avoid paying overtime and minimum wage compensation by claiming the administrative exemption applies to its workers). Id.

In McKeen-Chaplin, the Ninth Circuit held that mortgage underwriters are entitled to overtime under the FLSA. In so holding, the Court summarized the operative facts as follows:

Provident’s mortgage underwriters do not decide if Provident should take on risk, but instead assess whether, given the guidelines provided to them from above, the particular loan at issue falls within the range of risk Provident has determined it is willing to take. Assessing the loan’s riskiness according to relevant guidelines is quite distinct from assessing or determining Provident’s business interests. Mortgage underwriters are told what is in Provident’s best interest, and then asked to ensure that the product being sold fits within criteria set by others.

Id. at *4.

In other words, because mortgage underwriters follow their employer’s policies to produce their employer’s products and do not set the employer’s policies or determine their employer’s business objectives, the employer failed to meet the second prong of the three-part administrative exemption test. Because the employer failed to meet all three prongs of the administrative exemption test, and no other exemption applied, the Ninth Circuit held that mortgage underwriters are entitled to overtime compensation.

The Ninth Circuit rejected the lower court’s reasoning that mortgage underwriters performed “quality control” work as a basis to assert that they engaged in work directly related to the company’s management or general business operations. Id. at **6-7. The Ninth Circuit noted, as a factual matter, that the employer maintains a separate, multi-step quality control process which “is not staffed by mortgage underwriters.” Id. at *6.

To drive home the point that merely because a “role bears a resemblance to quality control” does not make such a position exempt from overtime/minimum wage protections, the Ninth Circuit analogized the duties of mortgage underwriters to the undisputedly non-exempt “assembly line worker who checks whether a particular part was assembled properly.” Id. at *7. Even though an assembly line worker inspects a widget on the assembly line to ensure it meets the standards of the employer, the assembly line worker – like the underwriters in McKeen-Chaplin - nevertheless is bound by the product quality standards set by the employer.

Unless employees’ job duties “plainly and unmistakably” make them “administrators or corporate executives” responsible for the employer’s “internal administration,” employers may not avoid paying overtime by classifying them as exempt using the administrative exemption. Id. at **2, 7.

***

If you have concerns that you may have been incorrectly classified as an exempt employee and deprived of overtime pay, then please contact Bryan Schwartz Law.

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[1] The Ninth Circuit was careful to acknowledge that “the [administrative-production] dichotomy is only determinative if the work falls squarely on the production side of the line.” McKeen-Chaplin, at * 4 (citing 69 Fed. Reg. 22122, 22141 (Apr. 23, 2004).

In addition, because the Ninth Circuit decided this case solely with respect to the second prong of the administrative exemption test, it did not need to address prong (3), i.e., whether mortgage underwriters have as their primary duty the exercise of discretion and independent judgment with respect to matters of significance. McKeen-Chaplin, at *1 n. 1.

Defeating Chindarah v. Pick Up Stix Releases

California employers sometimes seek to nip wage and hour class actions in the bud by buying off individual class members for nominal payments. At least one poorly-reasoned California appellate decision, Chindarah v. Pick Up Stix, 171 Cal. App. 4th 796 (2009), seems to permit it. In a recent independent contractor misclassification class action brought by Bryan Schwartz Law, Marino v. CAcafe, the primary defendant tried just such a tactic, mere weeks after the case was filed late last year. The corporate manager asked each employee-former employee to sign a release based upon a supposed “restructuring” but failed to disclose the existence of the workers’ just-filed lawsuit. The U.S. District Court for the Northern District of California issued a strongly-worded opinion, invalidating all releases improperly obtained from putative class members by the defendants, despite Chindarah, and ordering related relief because the employer’s “communications with the putative class members concealed material information and were misleading.” Marino v. CAcafe, Inc. et al., Case No. 4:16-cv-06291-YGR, slip op. at 3 (filed Apr. 28, 2017) (full opinion available here).

The court explained that “[w]hile the evidence does not indicate the high degree of coercion present in other cases, the fact remains that [the defendants] communicated with putative class members after the lawsuit was filed, but before they had received any formal notice and before plaintiff’s counsel had been given an opportunity to communicate with them.” Id. at 3. Importantly, the defendants’ “communications did not inform putative class members that there was a lawsuit pending that concerned their legal rights, the nature of the claims, plaintiff’s counsel’s contact information, the status of the case, or any other information that might have permitted them to allow them to make an informed decision about the waiver of their rights.” Id. at 4. This conduct “undermine[d] the purposes of Rule 23 and require[d] curative action by the court.” Id. at 3. To correct the harmful effects of defendants’ improper communications, the court:

·     invalidated all releases obtained from putative class members,

·     prohibited the defendants from requesting any reimbursement of payments made,

·    ordered curative notice be issued to all putative class members regarding their rights and the court’s intervention on their behalf (paid for by the defendants),

·    enjoined the defendants responsible for making the communications from engaging in any further ex parte communications with putative class members regarding the litigation or any release of claims until the court has the opportunity to rule on the issue of conditional certification of the FLSA collective action, and

·   ruled that class members who signed releases in exchange for payments could keep those payments, regardless of the outcome of the case.

Id. at 5.

Workers’ advocates should not hesitate to bring motions for corrective action when defendants attempt to subvert the rights of workers and Federal Rule of Civil Procedure 23 (governing class actions) by embarking on a Chindarah campaign. A court need not find a high degree of coercive conduct on the part of an employer to warrant invalidation of releases obtained from putative class members. If the employer uses misleading tactics to obtain releases from putative class action members – like omitting the fact that a class action has been filed against the defendant for wage violations, and failing to disclose contact information of the plaintiffs’ lawyers – then you may have strong grounds to remedy the defendant’s misconduct. See generally Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981); Retiree Support Grp. of Contra Costa Cty. v. Contra Costa Cty., 2016 WL 4080294, at *6 (N.D. Cal. July 29, 2016) (collecting 8 cases).

Contact Bryan Schwartz Law with any questions about questionable releases of wage and hour claims.

The Fate of the Department of Labor's New Overtime Rule is in Limbo, and its Prospects are Dim

Recent developments in the judicial and executive branches of the federal government make it unlikely that a key effort by the Obama Administration to raise the wages of American workers will come to fruition. 

            I.                   Overtime Final Rule

Earlier this year, the Department of Labor announced a new rule which would have increased the salary threshold for the executive, administrative, and professional exemptions to the Fair Labor Standards Act (FLSA). The rule was expected to extend the FLSA’s overtime protections to an estimated 4.2 million additional white-collar employees around the country, including managers in the restaurant, retail, and hospitality industries. (Bryan Schwartz Law wrote about the overtime final rule announcement here). The overtime final rule was anticipated to go into effect on December 1, 2016. 

The final rule would:

• increase the salary level required for the white collar exemptions to apply, from $23,660 to $47,476;
• increase the compensation level required for the highly compensated employee exemption to apply, from $100,000 to $134,004; and,
• provide automatic increases to these salary levels every three years based on data reported by the Bureau of Labor Statistics, without requiring a separate rulemaking. 

II.                Final Rule Imperiled by the Courts

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted an emergency motion to preliminarily enjoin the Department of Labor from implementing and enforcing the overtime final rule. Nevada, et al. v. U.S. Dept. of Labor, et al., No: 4:16-CV-00731, Docket No. 60 (E.D. Tex). The court applied the analytical framework set forth in Chevron U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837 (1984), to conclude that the Department of Labor’s interpretation of the FLSA’s white collar exemptions, set forth in 29 U.S.C. § 213(a)(1), was not entitled to deference, and was contrary to the language and intent of the statute.

Courts apply a two-step analytical framework to determine whether an agency's interpretation of a statue is entitled to judicial deference. First, the court determines “whether Congress has directly spoken to the precise question at issue.” Id. at 842. “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.” Id. at 842-43. Second, if Congress’s intent is ambiguous regarding the precise question at issue, then the court will defer to the agency’s interpretation unless it is “arbitrary, capricious, or manifestly contrary to the statute.” Id. at 844.

In Nevada, the court concluded that the final rule was not entitled to Chevron deference. At the first step of analysis, the court interpreted the language of the FLSA's white collar exemptions as describing employee job duties, not employee salaries. Slip. Op. at 11. The Department of Labor added regulations shortly after the FLSA was enacted in 1938 which added salary basis and minimum salary requirements. The court concluded that by significantly raising the salary level required for the white collar exemption to apply, the Department of Labor exceeded its delegated authority because it allowed minimum salary level to supplant the duties test. Slip. Op. at 13.

The court went on to explain that the final rule would also fail at the second stage of the Chevron analysis, because it was not “based on a permissible construction of the statute. Id. (quoting Chevron, 467 U.S. at 843). The court interpreted the final rule as creating a de facto salary-only test. The court concluded that by doing so, the final rule was “contrary to the statutory text and Congress’s intent,” and not entitled to deference on that basis. Slip. Op. at 14.

In a statement released on the agency’s website, the Department of Labor states that it “strongly disagrees with the decision by the court,” explaining that, 

Since 1940, the Department's regulations have generally required each of three tests to be met for the FLSA's executive, administrative, and professional (EAP) exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee's job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”). The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees. The Department has updated the salary level requirements seven times since 1938.

III.             Final Rule Imperiled by the President-Elect

The overtime final rule is likely to die during the presidency of Donald Trump.

On December 1, 2016, the Department of Labor filed a notice of appeal to the Fifth Circuit Court of Appeals – home of some of the most conservative appeals judges in the country. Given the high stakes of this case, the non-prevailing party on appeal will probably seek certiorari before a Supreme Court containing one or more nominee selected by president-elect Trump. If Trump’s selection for the Supreme Court is anything like his recent pick to head the Department of Labor, the High Court will have an additional vote in support of the district court’s ruling.

On December 8, 2016, President-elect Trump named Andy Puzder, a fast-food executive, as his pick to head the Department of Labor. Mr. Puzder is vocal opponent of recent efforts to raise the minimum wage, and government regulation of the workplace generally. In a May 18, 2016 Forbes Op-Ed, Mr. Puzder criticized the overtime final rule as “another barrier to the middle class, rather than a springboard.” If confirmed, Mr. Puzder can be expected to impose additional barriers to implementation of the overtime final rule.

In an economy where middle-class workers’ wages have stagnated, President Obama's Administration sought to lift white-collar wages through the overtime final rule. The court’s wrong decision, and president-elect Trump’s signaled direction, will allow the wealthy few to continue to pocket the economy’s profits while middle-class workers watch their standards of living decline. This is an existing trend that will likely grow throughout the Trump presidency. For the next four years, at least, the movement to raise minimum wages should not expect gains at the federal level. In the meantime, the movement should continue to seek victories where possible – on the state and local levels.  

IV.       Possible Silver Lining? Some Employers May be Contractually Obligated to Raise Wages

Because the preliminary injunction issued just one week before the overtime final rule was supposed to take effect, by that time, many employers may have taken steps toward raising their employees’ wages. Even without the rule, some employers may already have contractually obligated themselves to raise their employees’ wages. 

Class Actions Appear Poised to Survive to Fight Another Day at High Court

At least five justices of the U.S. Supreme Court suggested at Tuesday’s oral argument in Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146, that they would not impose further restrictions on class action litigation in that case.

The case involves pork-processing workers seeking overtime pay under the Fair Labor Standards Act (FLSA) for time spent donning and doffing protective gear beyond 40 hours per week, time for which Tyson Foods also failed to keep FLSA-mandated records. More than 3,300 former and current employees who held 400 different jobs on the plant floor were certified as a class in the trial court in Iowa. That decision relied on statistical modeling by the employees’ expert showing that, despite some differences in the protective gear required for the various jobs, most employees took between 17 and 22 minutes donning and doffing. The case went to trial and a jury awarded the class a verdict worth approximately $5.8 million.

Tyson unsuccessfully appealed the class certification decision to the U.S. Court of Appeals for the Eighth Circuit. At the Supreme Court, Tyson contended, first, that the statistical models could not sufficiently account for the different amounts of donning-and-doffing time spent by employees with different job duties and, second, that the certified class contained hundreds of members who had not worked more than 40 hours in a week.

For groups of employees or consumers who suffer injuries which are comparatively small but widespread, class actions are an essential tool to vindicate individual rights and ensure large corporations comply with existing law. Because the costs of bringing individual lawsuits may be prohibitive, class actions level the playing field for employees and consumers.

The Roberts Court showed its hostility toward class actions in two infamous 2011 decisions penned by Justice Scalia and reflecting a now-familiar 5-4 split along ideological lines: AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, and Wal-Mart Stores Inc. v. Dukes (2011) 131 S. Ct. 2541. In the latter case, Justice Scalia decried class actions which rely on the use of statistics to calculate and apportion damages as “Trial by Formula” and reversed the lower courts’ certification of a class of female Wal-Mart employees who alleged sex discrimination. Two years later, in Comcast Corp. v. Behrend (2013) 133 S. Ct. 1426, Justice Scalia–writing for the same 5-4 majority–again reversed the lower courts’ class certification decision (in a case challenging the cable company’s anticompetitive practices) on grounds that the consumers’ statistical model did not sufficiently support the alleged damages suffered across the proposed class.

A recent investigation and an editorial in The New York Times (articles available here, here, here, and here) documented and discussed the push by credit card companies and other large corporations to weaken class actions through class-action bans in consumer and employment contracts. As noted in the Times, Chief Justice John Roberts advocated in favor of class-action bans in consumer contracts as a private lawyer for Discover Bank before voting to uphold them in AT&T Mobility LLC v. Concepcion and American Express v. Italian Colors (2013) 133 S. Ct. 2304. The latter was a case in which the Supreme Court held that, even if an arbitration clause with a class waiver has the effect of preventing meaningful relief, it must generally still be upheld – severely undermining the enforcement of numerous statutes designed to protect the public from corporate abuses.

Thus, consumer and employee advocates were rightfully concerned when the Court granted certiorari in Tyson Foods. However, at oral argument, Tyson Foods’ advocate faced sharp questioning from several Justices, including Justice Kennedy (who had joined the majority in the three above-described class cases). Multiple Justices took issue with the fact that Tyson Foods was essentially asking the Court to resolve in their favor an avoidable problem of its own making: at trial, Tyson Foods opposed the plaintiffs’ efforts to bifurcate the trial, which would have allowed for a determination of the hours worked by each employee after the jury awarded aggregate damages. Justice Kennedy told counsel for Tyson: “you suggest in your brief that uninjured plaintiffs are included in aggregate damages, but you were the one that objected to the bifurcated trial.” Similarly, Justice Kagan stated: “it really was your decision not to have a bifurcated proceeding, where it would have been clear–it would have been proved separately in a highly ministerial way which employees worked over 40 hours.” Several Justices further noted that the trial court would address such concerns when apportioning the jury award on remand.

As to Tyson’s objection to the statistical model which supported class certification, five Justices appeared to agree that the question raised did not implicate Federal Rule of Civil Procedure 23 (governing class actions); instead, that question could be resolved under Anderson v. Mt. Clemens Pottery Co. (1946) 328 U.S. 680, an old FLSA case. That case held that where an employer fails to keep adequate records (as the FLSA requires), employees need not prove the exact hours worked and are entitled to a just and reasonable inference as to those hours. Put simply, an employer who fails to keep adequate time records as required by law cannot then use the absence of those records as grounds to escape liability for minimum wages or overtime premiums. Here, Tyson had not kept records of the time employees spent donning and doffing protective gear, and thus the employees were entitled to use statistical models based on video footage at the plant to determine the average time spent on those activities. Thus, Mt. Clemens gives the Court an opportunity to uphold the class determination based on existing substantive law rather than looking to Rule 23’s procedures. Justice Kennedy did not hold back in showing his cards, telling Tyson’s counsel: “it seems to me Justice Kagan is precisely right. You said, well, I want to start first with class action. She said, no, no. The point is we start with Mt. Clemens. That’s the substantive law for FLSA.”

Although predicting the outcome of Supreme Court decisions based on the Justices’ questions at oral argument is often a futile exercise, consumer and employee advocates were cautiously optimistic after argument on Tuesday. Reinforcing the Mt. Clemens precedent would be critical for workers seeking to prove the hours they worked when an employer has misclassified employees as exempt from overtime, kept imprecise records, or required off-the-clock work. However, despite what may turn out to be a rare victory before the Roberts Court for those who protect workers’ and consumers’ rights, the warning signs for the imposition of further restrictions on class litigation were apparent in the questions asked by several Justices, notably Justice Kennedy.

He probed both the advocates for the plaintiffs and the government (which intervened on behalf of plaintiffs in the case) as to whether the case would be “much closer” if decided solely under Rule 23, without the Mt. Clemens inference, asking counsel for plaintiffs: “do you concede that there is a strong possibility you might not be–have this class certified under section–under Rule 23, absent Mt. Clemens?” In doing so he signaled that, even if he sides with the Tyson Foods plaintiffs, he has no plans to abandon the majority from the AT&T Mobility, Wal-Mart Stores, Comcast, and Italian Colors cases.

Chief Justice Roberts expressed skepticism as to whether Mt. Clemens could even resolve the class certification question, arguing that Mt. Clemens addressed the amount of damages owed to a worker shown to have worked more than 40 hours in week, not a situation where the records failed to establish the employer’s liability for overtime in the first instance. Both Justices Scalia and Alito expressed their grave concern–as did Tyson’s counsel–that some of the class members might have worked less than 40 hours, notwithstanding that such concerns could be addressed by the trial court on remand, as discussed above.

In other words, employees and consumers may win in Tyson Foods, but the current Roberts Court majority at oral argument offered little assurance that they will preserve the safety of the public policy interests protected by consumer and employment class actions going forward