For the past seven months, employers throughout the country have been wondering what the future would hold with respect to the revised overtime regulations that were supposed to become effective last December and what position the U.S. Department of Labor (DOL) under President Trump would take with respect to those regulations.

We now know the answer to the latter question based on a reply brief filed on June 30, 2017, with the U.S. Court of Appeals for the Fifth Circuit. However, the status of the regulations remains just as murky, and perhaps murkier, as a result of that filing.

In its reply brief, the DOL is asking the court of appeals to affirm its continued ability to include a salary level test as part of the requirements for the major white collar exemptions under the Fair Labor Standards Act (FLSA) and to rule that a temporary injunction issued last November by a federal court judge in Texas be reversed because it was premised on an erroneous legal conclusion concerning the DOL’s authority.

However, the DOL also is asking the Fifth Circuit not to address the validity of the specific salary level of $913 per week set by the 2016 final rule because the DOL intends to revisit that salary threshold through new rulemaking. If the Fifth Circuit does take this approach, it leaves open the question as to what the status of the 2016 rule would be prior to new rulemaking becoming effective.

Background

To recap the situation, the DOL under President Obama had issued final regulations in May 2016 that would have more than doubled the minimum salary requirement for the major white-collar exemptions under the Fair Labor Standards Act (FLSA) from $455 per week to $913 per week. Annualized, that would have been an increase in the salary threshold from $23,660 per year to $47,476 per year. 

The final regulations were scheduled to become effective on December 1, 2016, but Judge Amos L. Mazzant III, a federal judge for the Eastern District of Texas, issued a temporary injunction blocking their implementation just before Thanksgiving. At that point, some employers had already gone ahead with making changes in anticipation of the effective date.

The DOL filed its appeal of the preliminary injunction to the U.S. Court of Appeals for the Fifth Circuit while President Obama was still in office. However, the Trump administration took office prior to the filing of the DOL’s reply brief. The federal government then filed multiple motions requesting and receiving enlargements of time to file its reply brief, with the most recent enlargement setting the due date for June 30, 2017.

In issuing the injunction, Judge Mazzant found that the DOL exceeded its authority by increasing the minimum salary level to $913 per week, as the use of the new threshold would supplant the duties tests and thereby exclude from exemption many bona fide executive, administrative, and professional employees under Section 13(a)(1) of the FLSA.

The DOL’s Arguments on Appeal

On appeal, the DOL argued in its opening brief that Judge Mazzant’s decision is foreclosed by a Fifth Circuit decision from 1966, Wirtz v. Mississippi Publishers Corp., and is in considerable tension with the 1997 decision by the Supreme Court of the United States in Auer v. Robbins. The DOL also emphasized in its opening brief that, for the past 75 years, it has been issuing regulations that require employees to meet a combination of three tests—a salary level test, a salary basis test, and a duties test—to be treated as exempt executive, administrative, or professional (EAP) employees. The DOL asserted that Judge Mazzant’s reasoning would invalidate all versions of the salary-level test that have been used for the past 75 years. The agency also argued that the salary level test always has excluded from exemption some individuals who pass the duties test.

During his confirmation hearing and in other statements, President Trump’s recently-appointed Labor Secretary, Alexander Acosta, has indicated that he does think the salary level should be higher than $23,660, but not $47,476, and that a more reasonable level would be between $30,000 and $35,000. Secretary Acosta also expressed concern that Judge Mazzant's decision could be interpreted as limiting the DOL’s ability to set any salary threshold. The DOL’s reply brief filed on June 30 is consistent with addressing that concern.

The DOL’s Reply Brief

In its reply brief, the DOL continues to argue that Wirtz is controlling, and it notes that every federal circuit to consider this issue has upheld the salary level test as a permissible component of the EAP regulations. The DOL also re-asserts its position that the position taken by the plaintiffs in this case cannot be reconciled with Auer.

The DOL further states in its reply:

The district court did not determine whether the salary level set by the 2016 final rule is arbitrary and capricious or unsupported by the administrative record. Because the preliminary injunction rested on the legal conclusion that the Department lacks authority to set a salary level, it may be reversed on the ground that that legal ruling was erroneous. 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 this Court address only the threshold legal question of the Department’s statutory authority to set a salary level, without addressing the specific salary level set by the 2016 final rule. In light of this litigation contesting the Department’s authority to establish any salary level test, the Department has decided not to proceed immediately with issuance of a notice of proposed rulemaking to address the appropriate salary level. The rulemaking process imposes significant burdens on both the promulgating agency and the public, and the Department is reluctant to issue a proposal predicated on its authority to establish a salary level test while this litigation remains pending. Instead, the Department soon will publish a request for information seeking public input on several questions that will aid in the development of a proposal. 

What’s Next?

If the Fifth Circuit does accept the DOL’s request and reverses the preliminary injunction without ruling on the validity of the $913 salary level, it leaves open the question as to the status of the Obama DOL’s final regulations pending new rulemaking. The case in front of Judge Mazzant has not been stayed on appeal, and a motion for summary judgment remains pending before him. Thus, it is possible that Judge Mazzant could issue another ruling addressing whether the $913 salary level is arbitrary and capricious.

The fact that the federal government decided to file a reply brief with the Fifth Circuit instead of seeking another enlargement of time or a stay of the appeal also is interesting because it differs from the approach the DOL is taking with respect to an appeal of the so-called “persuader regulations” issued by the DOL under the Obama administration. In that case, the Fifth Circuit recently granted a six-month stay requested by the DOL. As with the overtime case, the DOL is seeking public input regarding the persuader regulations through a Request for Information (RFI). In the persuader context, however, the DOL is seeking comments on whether to rescind the regulation. 

The RFI concerning the overtime regulations is currently under review by the Office of Information and Regulatory Affairs and has not yet been released for publication.