Overtime Rule Under Trump Enters Repeal and Replace Talks

From labor disputes cases to labor and employment publications, for your research, you’ll find solutions on Bloomberg Law®. Protect your clients by developing strategies based on Litigation...

By Ben Penn

The debate over how the Trump administration should handle the Obama Labor Department’s overtime rule offers a couple of likely options: repeal and replace the wage-boosting regulation or drop it altogether.

The future of the rule—intended to make some 4 million workers newly eligible for time-and-a-half pay—is in doubt following a judge’s November decision to temporarily block it. It’s not clear how the White House and labor secretary nominee Alexander Acosta want to proceed, but Justice Department delays of filing briefs in the case suggest the administration is considering dropping its defense of the rule in court.

One increasingly discussed scenario involves the DOL issuing a more modest rule, which could render the pending litigation moot. The signature wage-and-hour regulation of President Barack Obama doubled the salary threshold below which workers qualify for overtime wages to $47,476. Some Republicans and employers have discussed a new level in the $35,000 range as more appropriate.

“I think it would be cleaner just to do a new notice of proposed rulemaking,” Alfred Robinson, acting administrator of the DOL’s Wage and Hour Division under President George W. Bush, told Bloomberg BNA. “It helps the judicial branch and it helps the executive branch.”

Attorneys familiar with Acosta say it’s more likely he would withdraw the rule entirely, without an immediate plan of action for revising the current salary threshold below which workers qualify for overtime wages ($23,660 per year).

“If their litigating position is we don’t want to defend the rule as written, that can become the law, because they can simply publish a notice in the Federal Register saying this rule never became effective and we’re withdrawing it,” Gregory Jacob, DOL solicitor for the final 14 months of the George W. Bush administration, told Bloomberg BNA.

“I think there’s a reasonably good chance” they withdraw the rule and then consider whether to issue a new rule, Jacob said, drawing on his friendships with Acosta and current acting DOL Solicitor Nicholas Geale. “I know the kind of lawyers that both Nick and Alex are; I know it will be a fulsome process but taking the criticism of the district court seriously,” said Jacob, now a partner representing employers with O’Melveny & Myers LLP in Washington.

Can White House Roll Over?

A federal judge in Texas Nov. 22 halted the rule, nine days before it would have become enforceable, arguing the agency exceeded its regulatory authority. Obama’s Justice Department appealed that decision, and the Texas AFL-CIO filed a motion to intervene in the event the next administration reversed course. The AFL-CIO’s motion is still pending.

President Donald Trump’s DOJ now has until May 1 to file a brief stating its position on the appeal, after receiving two filing extensions totaling 90 days.

If Acosta is confirmed and disagrees with the rule as issued under Obama’s DOL, the government’s options generally are to withdraw the appeal before the U.S. Court of Appeals for the Fifth Circuit, settle the case with state attorneys general plaintiffs and promulgate a new rulemaking, or some combination of those scenarios, attorneys monitoring the process told Bloomberg BNA.

The rule was widely opposed in the business community and among Republican lawmakers, who argued it would impose unwieldy costs and time-tracking obligations on employers and make it harder for workers to climb the corporate ladder by eliminating lower-level manager positions. Yet expanding workers’ overtime eligibility polled favorably, including among working-class Trump supporters. There could be political risks if the White House decides to fully revoke the regulation without initiating a compromise.

“A president who campaigned on a promise to help regular Americans you would think would not be eager to take hard-earned overtime away from them, so I’m looking forward to seeing what the new Department of Labor will do with this rule,” Justin Swartz, a partner at plaintiffs’ firm Outten & Golden in New York, told Bloomberg BNA.

“In the end, I think that there will be an increased salary basis because it’s just hard to justify calling a $40,000 a year employee exempt,” said Swartz, who was co-chair of the wage-and-hour practice group at the National Employment Lawyers Association from 2011 to 2016.

Some Employers Began Complying

In addition to political hurdles, some prominent corporations began complying with the rule last fall, before the judge intervened. Wal-Mart Stores Inc., for instance, upped manager salaries to $48,500 and announced after the court injunction that those raises would remain in place.

This only further complicates the decision for the DOL. Many other employers, such as nonprofits and higher education institutions, found relief in the court’s decision halting the rule and maintained their previous overtime exemption protocols.

“Our hopes are that whether” the administration “comes to some settlement or issues a new notice, that they would carefully consider the impact that this has had on all stakeholders, and recognize that the business community and franchisees have never been against providing overtime pay for eligible workers,” Matthew Haller, a senior vice president at the International Franchise Association, told Bloomberg BNA.

Parties Favor Bright-Line Test

Another potential conflict facing the DOL is the unexpected legal reasoning behind the injunction. Judge Amos Mazzant questioned whether the Fair Labor Standards Act empowers the DOL to establish any salary threshold for determining whether someone qualifies as an executive, administrative or professional employee who is ineligible for overtime.

The agency should look more closely at the duties that employees perform, Mazzant said. But the duties test is seen as ambiguous and has been the frequent subject of private litigation, much to employers’ dismay.

Regardless of the overtime litigation result, workers who make more than the threshold amount are still entitled to overtime pay if their job duties don’t qualify as managerial. In issuing the 2016 regulation, the department said raising the threshold was a much easier way to bolster paychecks.

One reason why some management attorneys would prefer the DOL to embark on a new rule is to avoid the risk of Mazzant’s argument becoming precedent. That would potentially strip the agency of long-established authority.

When Acosta, if confirmed, conducts a legal review of the case, he’ll likely have to consider Mazzant’s point of view. But Jacob, the former solicitor, said Mazzant’s argument doesn’t necessarily need to be interpreted to mean the DOL can never lift the salary threshold at all.

“You could read it as saying no salary basis test period, but also you could read it as the salary basis test cannot be the dominant factor,” Jacob said.

Mazzant still hasn’t ruled on a summary judgment motion filed by a group of business plaintiffs seeking to make the temporary injunction permanent. The judge indicated his schedule won’t allow a swift decision, plus he may be waiting on direction from the Fifth Circuit.

Judge Creates Tension

It’s also not a given that the argument Mazzant made in enjoining the rule would be extended to a summary judgment motion. Still, if the administration disagrees with the Obama regulation but doesn’t initiate a new rulemaking to suspend the court activity, it risks incurring a Mazzant interpretation that limits the DOL’s ability to develop a more moderate salary test for overtime eligibility.

“There’s a tension between whatever desire they have to invalidate the rule and accepting a legal theory which going forward reduces their rulemaking authority,” Sachin Pandya, an employment law professor at the University of Connecticut law school, told Bloomberg BNA.

But Pandya, who was counsel of record in a law professor amicus brief filed in support of the rule’s legality, knows that this tension may not persuade the DOL to defeat the judge’s argument.

“On the other hand, they may be perfectly happy to get rid of the rule,” Pandya said.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com; Christopher Opfer at copfer@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Labor & Employment on Bloomberg Law