Seyfarth Synopsis: On June 30, the Department of Labor filed its reply brief to support its appeal from a preliminary injunction that enjoined the DOL from implementing its 2016 revisions to the salary-level tests for determining applicability of the FLSA’s executive, administrative, and professional exemptions. In its reply, the government argues it had the authority to make those revisions. How the Fifth Circuit handles the appeal, now that it is fully briefed, will affect what happens from here in the lower court in ways that are difficult to predict.

As we reported last week, the Department of Labor finally filed a reply brief in its appeal of the preliminary injunction prohibiting it from implementing or enforcing its 2016 “Final Rule”—that is, its revisions to the FLSA regulation governing the executive, administrative, and professional (“EAP”) exemptions.

Over the last few days, we’ve been fielding lots of questions about what might happen next. Let’s try to game it out.

But first, we should set the stage. The plaintiffs asserted three main challenges to the Final Rule:

  1. The plaintiffs contested the DOL’s very authority to implement the rule’s salary-level requirement in the first place. The district court accepted this argument—at least with respect to the 2016 Final Rule—and found it unlawful in its entirety.
  2. The plaintiffs argued that the Final Rule’s new “indexing” feature violates the Administrative Procedures Act (“APA”) because it would automatically adjust the minimum salary requirements without any notice or comment period. The district court found the indexing feature unlawful, but only because it had already struck down the entire Final Rule; it expressly bypassed the APA arguments.
  3. The plaintiffs asserted a Tenth Amendment challenge claiming that the Final Rule cannot apply to state governments. The district court rejected this position.

On appeal, the DOL initially defended the Final Rule in all respects, including its $913 weekly minimum salary. Now working under the new administration, the DOL has narrowed its approach in its reply. Rather than continuing a full-throated defense of the previous administration’s Final Rule, the DOL has now limited its argument to one (and only one) issue; it also announced its intention to revisit the $913 minimum:

The Department has decided not to advocate for the specific salary level ($913 per week) set in the final rule at this time and intends to undertake further rulemaking to determine what the salary level should be. Accordingly, the Department requests that the Fifth Circuit address only the threshold legal question of the DOL’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule.

This is definitely a plot twist, and our readers understandably want to know how it might affect the outcome of this appeal.

We won’t try to predict how the Fifth Circuit will rule on the basic “authority” question. But if it agrees with the district court’s reasoning, the path forward is clear: It will affirm, and the DOL may seek rehearing and/or Supreme Court review if it believes it necessary to preserve its long-asserted authority to set a salary level.

Things will get much more complicated if the Fifth Circuit overrules the district court and finds that the DOL acted within its authority. Here are a few thoughts on what might happen in that case:

  • On the current record, it is unlikely that the court would reach the plaintiffs’ APA challenge to the new “indexing” feature, since the parties’ appellate briefs expressly avoided that issue. That said, the court could request additional briefing on the issue, or could remand the case and instruct the district court to perform an APA analysis.
  • This raises the possibility that the court could find a middle ground. That is, it could find that the DOL generally has the authority to impose a salary-level test, but that the Final Rule exceeded that authority. In that case, the court would affirm the result while disagreeing with the district court’s reasoning.
  • The court might also consider the plaintiffs’ alternative argument that the Final Rule cannot apply to state governments under the Tenth Amendment. A victory on this point, though, would apply only to the 21 State Attorneys General plaintiffs, not the other plaintiffs (a coalition of non-governmental business groups) whose case has been intermingled with that filed by the Attorneys General.
  • If the Fifth Circuit sides with the DOL on all issues, it will reverse. The question will then become whether any of the plaintiffs’ claims can survive in the wake of whatever legal conclusions the court reaches. Various stakeholders have asked us whether the Fifth Circuit would render a defense judgment if it sides entirely with DOL. We wouldn’t expect such an outcome here, because this appeal involves a preliminary injunction, and certain issues are likely to remain (thus requiring further action by the district court). For example, one of the issues raised below (but not in the appeal) is whether the Final Rule is arbitrary and capricious; the Fifth Circuit’s ruling may not resolve that question. (The business plaintiffs have raised the issue in a motion for summary judgment, which is pending in the district court.)
  • We should also note that the Texas AFL-CIO has filed a motion to intervene, which has yet to be decided. The union wants to more strenuously defend the Final Rule than it believes the Trump Administration will. This may present additional loose ends that will have to be resolved in a remand

As we ponder the possible scenarios, we should also consider a few wildcards:

  • In its reply, the DOL expresses its intention to revisit the Final Rule in a new rulemaking. Indeed, as we reported last month, the agency has announced a plan to issue a Request for Information—a “pre-rulemaking”—related to the EAP exemption. There are no guarantees on what the DOL would do with the information it receives. It might help DOL defend its authority to set a salary level; it may also help DOL develop the basis for a future rulemaking. Depending on what the DOL does, it is possible that the case could become moot altogether—for example, if it proposes and finalizes a new rule before the case concludes.
  • The Fifth Circuit may conduct oral argument and/or request additional briefing. If it does, expect us to refine our views based on what unfolds.
  • The plaintiffs could seek to file a surreply in light of the DOL’s new, more limited position. Such a brief, if filed, might be instructive.
  • A settlement may be possible. It is unclear, however, where the plaintiffs come down on the “no authority” argument versus the argument that DOL exceeded its authority in 2016. This would be a critical sticking point in any negotiated resolution.

As we try to read these tea leaves, we hasten to repeat what we said last week: “What is certain at this time is that the future of the 2016 revisions remains uncertain.” Rest assured, we’ll be watching this appeal closely. As more information comes in, we’ll continue to post updates here. Stay tuned.