Overtime Rule to Be Walked Back by Labor Department

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By Chris Opfer and Ben Penn

Government lawyers told a federal appeals court June 30 that the Labor Department plans to revise its pending Obama era overtime rule. They also asked the court to affirm the DOL’s right to use salary levels to determine eligibility for time-and-a-half pay in the future.

“The Department requests that this Court not address the validity of the specific salary level set by the 2016 final rule ($913 per week), which the Department intends to revisit through new rulemaking,” attorneys for the Justice Department and the DOL told the U.S. Court of Appeals for the Fifth Circuit. Instead, the DOL wants the court to affirm that the department has the authority to set a salary threshold under which workers are automatically eligible for overtime pay for hours worked beyond 40 per week.

The pending rule, which was a centerpiece of the Obama administration’s worker agenda, was expected to make some 4 million workers newly eligible for overtime pay. The rule would have doubled the salary threshold—to $47,000 per year—under which workers are automatically eligible. Critics said it would force employers to shed jobs to cover rising payroll costs.

Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas last year put the rule on hold, saying the department focused too much on workers’ salaries, rather than their job duties, in updating the existing regulation. Labor Secretary Alexander Acosta, who was nominated by President Donald Trump and confirmed by the Senate in late April, acknowledged during his March confirmation hearing that Mazzant’s decision also seemed to call into question whether the DOL can set any salary threshold.

The Obama administration appealed the injunction to the Fifth Circuit in December, but Trump-appointed attorneys had yet to weigh in. Since Inauguration Day, the appeals court has granted the new administration’s requests for three separate extensions for filing the government’s reply.

New Rule on Hold

The department’s lawyers told the Fifth Circuit that the DOL wouldn’t initiate a new rulemaking until the appeals court affirms the right to set a salary level. That means it could be a while before businesses and employees get any clarity on overtime requirements.

“They’re abandoning our rule and they’re not going to move forward with rulemaking” to revise overtime eligibility “until the salary threshold issue is decided by the Fifth Circuit,” Sharon Block, who ran the DOL’s policy office under Obama, told Bloomberg BNA. “It sounds like there is no sense of urgency around getting a fair deal for middle-class workers,” Block said.

The DOL on June 27 sent a request for information on the overtime rule to the Office of Management and Budget. Observers told Bloomberg BNA that the details of the request, which have not yet been made public, are likely to signal the specific aspects of the rule the DOL wants to tweak.

Acosta implied during his confirmation hearing that he might support raising the salary threshold from about $24,000 currently to somewhere in the low $30,000 range to account for inflation. Business groups and mostly Republican lawmakers would also like to see the department scrap a provision that would automatically update the salary threshold every three years.

‘Fine Line’

The Trump administration’s new approach puts government lawyers in a tight spot. They don’t want the appeals court to lift a preliminary injunction blocking the rule, but they do want the panel to resolve any uncertainty Mazzant may have created about using salaries to help determine overtime eligibility.

“That is the cloud hanging over employers’ heads—what happens if the decision is reversed,” Jeffrey Brecher, a management-side attorney who leads Jackson Lewis’ wage and hour practice, told Bloomberg BNA. “I think at the oral argument it will be very important to listen to exactly what the Department of Justice is asking the court to issue as far as an order, and if they are going to try to walk that fine line where they ask the court to reaffirm the DOL’s right to impose a salary level requirement, but not ask the court to lift the injunction.”

The Fair Labor Standards Act generally requires employers to pay workers time-and-a-half wages for all hours worked beyond 40 per week. The law also delegates to the labor secretary the power to determine which workers should be removed from overtime requirements under the law’s white-collar exemption for workers in “bona fide executive, administrative, or professional” (EAP) positions.

The Labor Department told the appeals court that it has been using a salary test to help determine overtime eligibility “for more than 75 years.”

The current overtime rule, which the DOL published during George W. Bush’s administration in 2004, makes workers who earn less than the $24,000 threshold automatically eligible for overtime. Those who make more than that amount can still be eligible if their work isn’t considered managerial under a “duties test.”

The Obama rule would have retained the duties test for workers earning more than about $47,000 per year. Mazzant left unclear whether he meant to block any salary threshold or instead agreed with critics that the proposed increase was too much too soon.

“Nothing in the EAP exemption indicates that Congress intended the Department to define and delimit with respect to a minimum salary level,” Mazzant wrote. He later clarified that position in a footnote.

“The Court is not making a general statement on the lawfulness of the salary-level test for the EAP exemption,” Mazzant added. “The Court is evaluating only the salary-level test as amended under the Department’s Final Rule.”

Business Groups Cited

The Trump DOJ maintains the prior administration’s assertion that the DOL has the authority to set a salary-basis test. Government attorneys departed from the prior administration, however, by basing arguments from the business community’s perspective.

The new brief prominently featured comments from a range of employer groups that felt the DOL should be able to raise the salary level, even though they loudly opposed the Obama rulemaking for lifting the threshold too high.

Sachin Pandya, who was counsel of record in a law professor amicus brief filed in support of the rule’s legality, questioned the government’s reliance on employer views.

“Why is that in there? My guess is it’s in there because they think that it’s going to be persuasive support for their position that the business community is with them and that the plaintiffs have taken a more radical position about how to read DOL’s statutory authority,” Panyda, an employment law professor at the University of Connecticut, told Bloomberg BNA. A total of 21 states, almost all of which have Republican governors, challenged the Obama overtime rule in the case.

The National Restaurant Association, whose members employ countless midlevel managers earning below $47,000, was the first business group included in the government brief.

“We are very happy to see that our comments were cited, which tells us” the administration recognizes that “we are the second-largest private sector employer and we are impacted disproportionately by this regulation,” Angelo Amador, executive director of the NRA’s Restaurant Law Center, told Bloomberg BNA. “We are very happy that they took our comments seriously,” he said. Amador joined dozens of business groups in an amicus brief in January that asked the appeals court to keep the overtime rule on hold.

AFL-CIO Motion Pending

The brief also leaves unresolved the Texas AFL-CIO’s motion to intervene in the case, which is still pending before the district court. That motion was based on the premise that the Trump administration would withdraw the Obama rule, rather than maintain the government’s right to regulate in this area.

“Certainly we were heartened by the fact that they are defending the whole concept of the threshold,” Rick Levy, secretary treasurer of the Texas AFL-CIO, told Bloomberg BNA.

But Levy was noncommittal as to how the union would proceed.

“Our view is that the original rulemaking was thorough and in compliance with the law,” Levy said. “We’re going to be waiting to see exactly what happens as it moves forward, and continue to monitor it to make sure that the views of working people are considered.”

To contact the reporter on this story: Chris Opfer in New York at copfer@bna.comand Ben Penn

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

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