PUNCHING IN: Spotlight on SCOTUS

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By Chris Opfer and Ben Penn

Monday morning musings for workplace watchers

Acosta Sits Out Encino OT Case | Janus +SALT = Public Union Trouble | Carolina Fixin’ to Give Foxx New District?

Ben Penn: This week brings a potentially high-stakes Fair Labor Standards Act case to the fore at the U.S. Supreme Court, with oral arguments on Wednesday in Encino Motorcars v. Navarro, Part 2.

If the title brings to mind a sequel to the 1992 Pauly Shore masterpiece “Encino Man,” you probably need a quick refresher: This case will mark the second time in less than two years that the parties debate before the high court whether a Mercedes Benz dealership’s service advisers are exempt from federal overtime requirements. But this time, the feds are absent.

Two years ago, Labor and Justice teamed up on a brief in support of the workers’ right to time-and-a-half pay, and the solicitor general presented oral argument, too. The Supreme Court kicked the case back down to the Ninth Circuit, with instructions to ignore the DOL’s 2011 rule stating that service advisers are due overtime because they don’t fall within the FLSA’s exemption for car salesmen, mechanics, and partsmen.

But even without showing deference to the 2011 reg, the appeals court ruled for the workers again, based on the law’s text and legislative history. So back to the Supreme Court we go tomorrow (follow our coverage from Bloomberg Law’s Jon Steingart).

Depending on which attorney you’re talking to, there’s a possibility this seemingly narrow case can be a vehicle for the SCOTUS to establish a broader reading of exemptions to the federal statute. In essence, such a decision would reduce the number of workers allowed to bring minimum wage and overtime claims against their employers.

However the ruling goes, it’s intriguing that the Trump DOL opted not to file a brief on this iteration of Encino. Instead, the Wage and Hour Division quietly announced on Jan. 5 that it would stop enforcing the policy that service advisers don’t meet the overtime pay exemption. The agency said it would decide what’s next depending on the outcome of the Supreme Court’s Encino ruling and that new WHD guidance is possible.

You might think the government agency charged with enforcing and regulating the FLSA would have a compelling interest to weigh in as an amicus, even if that meant switching sides to join industry. After all, the Trump administration has appeared to relish reversing some Obama legal positions involving the workplace (see Janus, Zarda, Murphy Oil).

But deliberate Labor Secretary Alex Acosta had a few possible reasons for telling his attorneys to sit this one out. For starters, Acosta and the Trump-appointed DOJ solicitor general could have decided they don’t want to defend the Obama administration’s position. Rather than flip this time, they can now move to reverse the position more subtly by keeping their yappers shut.

Second, Acosta has an interest in building a good reputation with the justices. He may suspect that the majority-conservative high court will rule in favor of the car dealership and doesn’t want his name associated with the losing team. But if Acosta’s legal team argues against workers getting overtime, he could take a political beating for being anti-employee.

And finally, his legal shop had to put out enough fires this past year and with a skeleton crew of politicals. Why incur all the risks of wading into a matter that gives him practically zero window for victory?

Chris Opfer: The Supreme Court is also scheduled to soon reconsider the issue of forced union fees for public sector workers. That happens late next month. Even the most optimistic organized labor supporters are bracing for the justices to ban “fair share” arrangements in the Janus case.

“Justice Gorsuch will be the fifth vote to make it really hard for public sector unions to organize,” Democratic National Committee Chairman (and former Obama labor secretary) Tom Perez told me last week. “There’s little doubt in anyone’s mind what the court is going to do there.”

Critics say those fees violate government workers’ free speech rights.

Unions and their allies have been preparing for life after fair share fees since at least 2015, when the high court agreed to hear a similar challenge in the Friedrichs case. That one ended in a 4-4 draw after former Justice Antonin Scalia died. Gorsuch—who replaced Scalia on the bench—is widely expected to side against the fees this time around.

Some would like to give unions a hand by shifting the cost of collective bargaining to state and local governments. But that’s going to be a tough sell, because some of the states with the strongest government worker unions are also home to already high taxes. The new tax law limits state and local tax (SALT) deductions, meaning that lawmakers will be under pressure to cut spending. New money for labor groups representing a relatively small portion of workers will be hard to come by.

“Unions have a lot of power in some legislatures, but they prefer the current system because they don’t have to compete with other interests in the budget,” Patrick Semmens, a spokesman for the National Right to Work Committee, recently told me. The group’s litigation arm is challenging fair share fees in the Janus case.

I’ll be looking at some of the other options for unions in a post-Janus world later today.

BP: Now that we know the department is swerving around Encino Motors, the question is, what is DOL’s legal shop actually doing to move the agenda forward?

Well, I don’t have the answer, but I do have some news that will help us get there: Newly confirmed Solicitor Kate O’Scannlain lands at the Frances Perkins Building this week for her first official day of service, a DOL spokesman tells me. She’ll be joined by Preston Rutledge, the new Employee Benefits Security Administration leader, and Katherine McGuire, DOL’s assistant secretary for congressional and intergovernmental affairs.

O’Scannlain, arriving from Kirkland & Ellis, is a relative unknown to labor and employment insiders, although we’ve spilled plenty of ink on her. O’Scannlain’s work behind the scenes on the L&E aspects of mergers and acquisitions has kept her visibility low. Her new job will also keep her mostly out of the public eye, but it has major implications for the future DOL posture on litigation, regulations, and enforcement. Her boss, Acosta, was said to be in line for the solicitor post before Andy Puzder’s labor secretary nomination went up in flames. He will probably have a keen interest in O’Scannlain’s work during the early days of her government service debut.

The permanence of a Senate-confirmed solicitor could lead to some sweeping modifications eventually at a variety of DOL agencies. Some folks wonder if O’Scannlain will deliver a dramatic flurry of activity, ala Peter Robb, the newish NLRB general counsel. But while O’Scannlain and Robb are both the top prosecutors at their agencies, the parallels end there.

The Obama administration’s Patricia Smith, whose old office O’Scannlain is inheriting, told me that the DOL’s new chief legal officer and Robb, a longtime labor practitioner, are different breeds. “She’s never been in government and she doesn’t have a deep background in labor law,” Smith, now a senior counsel at the National Employment Law Project, said of O’Scannlain. “She’s going to have a steep learning curve—both institutionally and substantively.”

To the extent we get major reversals in legal interpretation in her opening months at DOL, it’s more likely that will originate via orders from the Justice Department.

CO: We’re less than 11 months away from the midterm elections and all eyes in D.C. are already on the ballot boxes. Democrats certainly sound confident about winning back control of at least one chamber of Congress, but the electoral map paints a tough road ahead. Republicans have a 44-member lead in the House, where every seat is up in 2018. And they occupy only eight of the 34 Senate seats in play.

A recent development out of North Carolina offers some good news for Perez and the DNC. It also could make House Education and the Workforce Committee Chairwoman Virginia Foxx (R-N.C.) less of a shoe-in to stay at the Capitol.

A federal court last week ordered the Tar Heel State to redraw its congressional districts. The current map, the three-judge panel said, is so slanted that it gives Republicans an unfair advantage. North Carolina is an increasingly purple battleground state with a Democratic governor where Donald Trump won by less than 4 percent. But 10 of its 13 congressional seat are held by Republicans.

State lawmakers have until the end of the month to come up with a new map. They’re also likely to appeal the decision, perhaps all the way up to SCOTUS. A new map could mean a strong challenge for Foxx from either or both sides.

“If this map gets redrawn, all 10 of the Republicans in our delegation have to worry,” North Carolina State political science professor Steven Greene told me.

BP: We’re punching out. Daily Labor Report subscribers can check in during the week for updates. In the meantime, feel free to reach out to us: copfer@bloomberglaw.com and bpenn@bloomberglaw.com or on Twitter: @ChrisOpfer and @BenjaminPenn.

Congress and the White House have until Friday to come up with a deal to avoid a government shutdown, a process that’s been tied to Democratic demands that Trump do something to protect young undocumented immigrants brought to the country at an early age. Bloomberg Law’s Laura Francis tells us that the DACA program currently protecting those dreamers doesn’t run out until March, but the government would likely need some time before that to get a new program up and running.

Meanwhile, Jay-Anne Casuga and Jacquie Lee are looking at efforts to increase diversity in the tech sector, and Jaclyn Wille is crunching some big numbers in ERISA class action settlements. Capitol Hill reporter Tyrone Richardson has his eye on a new, bipartisan sexual harassment bill coming in the House and the next push for a national infrastructure plan.

Finally, we’re told the Senate labor panel might be rescheduling its vote to this week on whether to clear four pending DOL nominees to the Senate floor. The Perkins Building is scheduled to play host on Jan. 18 to all the major union presidents, who will meet with Acosta to discuss the labor aspects of the administration’s NAFTA negotiations.

See you back here next week.

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