Over the course of the last year, the U.S. Department of Labor promulgated two controversial regulations triggering court challenges. One rule–known as the “Persuader Rule”–was set to require employer consultants and lawyers to file disclosure reports of any union avoidance activities they engage in, even if that activity was purely advisory in nature and did not involve direct contact with employees. The other rule regards the changes to the overtime exemption regulations, which are set to increase the salary threshold for exempt status from $455 per week to $913 per week, and then to automatically adjust that threshold every three years.
The Persuader Rule
This past spring, a Texas court issued a preliminary injunction on the eve of “persuader” rules’ effective date. If not enjoined, the new persuader rules would have substantially broadened the definition of “persuader” activity and required greater disclosure by law firms regarding their relationships with their clients. Under the current rules, lawyers may give advice to employers regarding union avoidance issues and, so long as they don’t meet with employees directly, their work is not disclosable. The new rules would have made the mere giving of advice reportable. This week, the court made the preliminary injunction enjoining the implementation of the new rules permanent. The only option for the DOL at this point is for it to appeal that ruling to the Court of Appeals. Given the outcome of last week’s election, even if it does appeal the case, the conventional wisdom is that the Trump Administration will abandon the rule and the appeal.
The Status of the Overtime Regulations
The new FLSA exemption regulations are set to go into effect on December 1, 2016. A few months ago, two lawsuits were filed in another Texas federal court, one by 21 state attorneys general, and the other by a coalition of business groups spearheaded by the U.S. Chamber of Commerce (of which Dykema is a member and serves on its Labor and Employment Committee). The claims in the cases are not identical, but they do overlap and basically contain two themes.
One theme is that the dramatic increase to the salary level jeopardizes the exempt status of 4.6 million workers, employees on November 30 considered to be exempt, but on December 1 would no longer be exempt despite their duties remaining the same. The magnitude of this change is unprecedented and is claimed to run afoul of the statute making these employees exempt based on their duties and not their salaries.
The second theme regards the triennial indexing of the salary level threshold. Both lawsuits assert that the DOL cannot create automatic adjustments to the regulations because the FLSA states that the DOL is only empowered to issue regulations on this matter “from time to time.” The automatic indexing, the plaintiffs claim, serves to change the rules without the “notice and comments” required before administrative agencies may change a rule.
On Wednesday, November 16, 2016, the court heard arguments on the states’ motion for an injunction to stop the December 1 implementation of the new regulations. During the arguments, the court stressed that it would not base its decision on the prospects of the incoming Trump Administration’s disfavoring the new regulations. Rather, the court said it would limit its review to the merits of the new regulations as they currently stand. In that regard, though, the court’s exchanges with counsel from both sides revealed some skepticism on the court’s part, mostly pertaining to the unprecedented loss of exempt status by so many employees and whether the DOL has the right to preclude exempt status as to employees who clearly meet the duties tests for their exemptions. That said, the DOL strongly argued that its right to set a salary level test has been unchallenged in the courts or by Congress for 70 years, and that defining the exemption as it has done was therefore well within its authority.
The court concluded the hearing by stating that it will issue its decision by November 22, 2016. The conventional wisdom is still that there is a high likelihood that the regulations will not be enjoined. Further, if enjoined, the injunction may only apply to state (and local) governments. More importantly, given the perceived skepticism of the court (which may be encouraging to employers), employers should not “take their foot of the pedal” towards complying with the new regulations, but instead, should continue to act with the assumption that the regulations will go into effect on December 1.
Should the court deny the injunction, though, on November 28th the court will hear arguments on the pending motion for summary judgment brought by the business groups. The prospects of success by the business groups on that motion may be better assessed after reading the court’s decision on the injunction.