Do the New DOL Overtime Rules Mean That I Will Be Getting (or Giving) a Raise?

Businessman Giving Cheque To Other Person

The Fair Labor Standards Act (“FLSA”) is the federal law requiring employers – with certain exceptions – to pay overtime wages to employees that work more than forty hours in a single week.  FLSA overtime litigation has been a major concern for employers with the Department of Labor (“DOL”) reporting more than 20,000 cases with violations occurring each year going back to 2011, and accounting for more than $200,000,000.00 in back wages paid in 2016 alone.  DOL, Fiscal Year Data for Wage and Hour Division, https://www.dol.gov/whd/data/datatables.htm#panel2 (last visited June 13, 2017).  Executive, administrative, and professional employees (“EAP”) are exempt from overtime wages as long as their work activities fit the EAP definitions and their salaries are greater than the $23,660 minimum annual salary.  However, under the Obama Administration, new DOL rules sought to raise the minimum salary requirements by more than 67%, which would eliminate the EAP exemption for a substantial number of employees across the country overnight, and consequently, force employers to either raise wages or pay overtime.

However, the new DOL labor rules have been put on hold after a federal judge in the Eastern District of Texas halted enforcement pending a formal trial.  See Nevada v. United States Dep’t of Labor, No. 4:16-CV-00731, 2016 WL 6879615, at *1 (E.D. Tex. Nov. 22, 2016).  Several states, including Texas, challenged the DOL rules, arguing that the DOL overstepped its authority in basing the exemption on a minimum salary.  The district court agreed, granting an emergency injunction and halting implementation of the new rules across the country until the matter can be ultimately resolved at trial.  Naturally, the DOL appealed before the Trump Administration came to office and the matter is before the Fifth Circuit waiting to be fully briefed.  For the time being, we will have to wait to find out whether these new rules will be effective.  But what do these rules really mean?  As it turns out for many employers, quite a lot.

New overtime rules have been gestating for some time now, with President Obama issuing a memorandum directing the Secretary of Labor to “modernize and streamline the existing overtime regulations for EAP employees” in March 2014.  79 Fed. Reg. 18, 737, 18,737 (March 13, 2014, https://obamawhitehouse.archives.gov/the-press-office/2014/03/13/presidential-memorandum-updating-and-modernizing-overtime-regulations) (last visited June 13, 2017). The Obama administration sought to update the existing “white collar” exemptions to the Fair Labor Standards Acts minimum wage and overtime requirements that had “not kept up with our modern economy.”  Id.  Indeed, the existing regulation had not been updated since the Bush presidency.

The DOL finalized the new rules to be effective December 1, 2016, increasing the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $913 per week ($47,892 annually).  29 CFR part 541.600.  Additionally, the salary basement would automatically amend every three years to correct to the 40th percentile of salaries in the country at that time.  The Final Rule states that “[w]hite collar employees subject to the salary level test earning less than $913 per week will not qualify for the EAP exemption, and therefore will be eligible for overtime, irrespective of their job duties and responsibilities.”  In other words, unless an employee’s salary is greater than $913 per week ($47,892 annually), then no other exemption consideration is even made.  Every exempt EAP employee making less than $913 per week would instantly become eligible for overtime compensation.  Employers would either be forced to increase salaries by at least 67%, or start paying their employees overtime.  The impact on employers around the country is easy to see.  And corporate America is not alone.  Academia, for instance, could be hugely impacted as well.

Numerous state governments filed suit against the DOL shortly before the rules were set to take effect, arguing that placing a salary-level test, or an automatic updating mechanism, to determine eligibility for the EAP exemptions to FLSA was beyond the authority granted to the agency under 29 U.S.C. § 213.  See Nevada, 2016 WL 6879615, at *9.  In simplified terms, the argument is that the United States Code allows for an exemption to FLSA overtime rules for “executive, administrative, and professional” employees.  However, the Code does not go so far as implementing a minimum salary requirement.  The plaintiffs sought an emergency injunction, which required the court to preview the likelihood of success at trial.  The court granted the emergency injunction, agreeing that DOL overstepped its authority.  Nevada, 2016 WL 6879615, at *9.  Section 213 authorizes the DOL to define and delimit the EAP classifications.  Nevertheless, the court found that section 213 already defined EAP employees based on job duties, and the DOL’s salary requirements went fundamentally beyond those definitions.  Id. at *6.  In lawyerly fashion, the analysis centered on the definition of “define” under section 213.  Id. at *6.  The court ultimately determined that section 213 allowed DOL to define the EAP classifications by the types of duties that might qualify an employee for the exemption, but it did not authorize the agency to define the EAP classifications by salary level.  Consequently, the automatic updating function of the new rules was also found to go beyond the authority granted by section 213.

On appeal, the DOL argues that salary-based limitations have been utilized for 75 years, and that prior Fifth Circuit precedent has acknowledged DOL’s wide authority to define limitations under section 213, including by salary.  See App. Brief at 12-13.  The state plaintiffs have made similar arguments as were made in the lower court. DOL has, however, moved to extend their reply deadline on multiple occasions, largely due to changes in administration and the lack of  a labor secretary until Mr. Alex Acosta was sworn in on April 28, 2017.  This delay could, as many have speculated, signal that DOL no longer has an appetite to continue litigating the matter.  However, no official statement on the issue has been made.

The DOL rules have the potential to significantly alter the EAP landscape for businesses and institutions around the country alike.  And while DOL’s arguments on appeal could be worth consideration, they may never even see the light before the Fifth Circuit as the Trump Administration works out its labor policy.  To date, DOL has been content to delay and the Fifth Circuit equally content to allow it.  Employers will have to do the same, but given the magnitude of the result, the Nevada case is one to watch in 2017.

Session is Over and My Bill Died. What Now?

“I’m from Texas, and one of the reasons I like Texas is because there’s no one in control.” -Willie Nelson

House of Representatives chamberIn 140 quick, but drama-filled days, it has come and gone—the 85th Texas Legislative Session has come to a close.  Out of over 6,600 bills filed in both the Texas House and Texas Senate this session, only about 1,200 passed (and many may of course still be subject to the Governor’s veto power).[1]  Of course, constituents and businesses alike may now find themselves disappointed that a bill they drafted, lobbied for, or followed is not now on the Governor’s desk, waiting to become law.  Hope, however, is not lost.  If your bill did not pass this session, depending on your goal for the legislation, there may be other options to pursue before simply waiting for the 86th Texas Legislative Session in 2019.

Special Session:   Governor Abbott announced today that he will convene the Texas Legislature, beginning July 18, for a special session.  Unlike the regular legislative session, the Governor “shall state specifically the purpose for which the Legislature is convened”[2] and “there shall be no legislation upon subjects other than those designated in the proclamation of the Governor calling such session.”[3]  Moreover, any special session would last only thirty days (unless, of course, a subsequent special session is convened).[4]  As a result, while a special session could present an opportunity to revive bills that have died, any legislation will have to be on the subject that is the purpose of the legislative session.  Here, the Governor has first called a special session to resolve agency sunset issues, which will likely be resolved in 2-3 days.  Once those issues are resolved, the special session will then include a sweeping list of nineteen additional items the Governor wants to see.  Those specific items can be viewed on the Governor’s website here:  https://gov.texas.gov/news/post/governor-abbott-announces-special-session.  It is therefore important to determine whether your failed legislation relates to any of the topics for which the special session has been called. If your bill relates to any of those nineteen items, you may get a second bite at the apple with the upcoming special session.

Attorney General Opinion:  If the legislation you had hoped would be passed clarified the law in some way or cleared up some ambiguity, then requesting an Attorney General opinion may be fruitful.  Under Texas law, the Attorney General “shall issue a written opinion on a question affecting the public interest.”[5]  Only certain persons, however, may request an opinion.[6]  Specifically, the following people are entitled to request an Attorney General opinion: “(1)  the governor; (2)  the head of a department of state government; (3)  a head or board of a penal institution; (4)  a head or board of an eleemosynary institution; (5)  the head of a state board; (6) a regent or trustee of a state educational institution; (7)  a committee of a house of the legislature; (8)  a county auditor authorized by law;  or (9)  the chairman of the governing board of a river authority.”[7]  Most likely, of these options, the head of a department of state government, the head of a state board, or a committee of the house of the Legislature would be the logical avenues for an opinion request.  Upon receipt of the request for an opinion, the Attorney General must issue the opinion within 180 days, unless the Attorney General notifies the parties of either a delay or a refusal to issue the opinion, and reasons for either the delay or refusal.[8]

While Attorney General opinions are not binding on Texas courts, a Texas court will be highly deferential to the opinion.[9]  Thus, while an Attorney General opinion issued on your particular matter would “not have the force of law,” it would be “entitled to be given considerable weight in determining the proper construction of statutes.”[10]  Likewise, Attorney General opinions are not binding upon the requestor either.[11]  Rather, “[t]he attorney general’s opinions . . . are purely ministerial and advisory.”[12]  Nevertheless, if your business has an issue that affects the public interest and you would like clarity on the law before taking certain action, seeking an Attorney General opinion during the interim would at least provide you with some legal support for your position (assuming the opinion is in your favor).

Agency Rulemaking:  Another avenue for seeking a clarification of existing law, if that is what your legislation proposed to do, is to seek a rulemaking from the applicable agency.  That is, “[a]n interested person by petition to a state agency may request the adoption of a rule.”[13]  A “rule” is defined as a “state agency statement of general applicability that: (i) implements, interprets, or prescribes law or policy;  or (ii)  describes the procedure or practice requirements of a state agency.”[14]  And, “interested person” means a Texas resident, a business located in Texas, a governmental subdivision of Texas, or a “public or private organization located in this state that is not a state agency.”[15]  Once you file a petition for rulemaking with the applicable state agency, the state agency would have to deny the request or initiate rulemaking within sixty days of the petition.[16]   From a litigation perspective, a court will generally defer to an agency’s interpretation of its own rules:  An “administrative agency has the power to interpret its own rules, and its interpretation is entitled to great weight and deference.  The agency’s construction of its rule is controlling unless it is plainly erroneous or inconsistent.”[17]  Moreover, “[w]hen the construction of an administrative regulation rather than a statute is in issue, deference is even more clearly in order.”[18]  That is, because “the interpretation represents the view of the regulatory body that drafted and administers the rule, the agency interpretation, if reasonable, becomes a part of the rule itself.”[19]  Consequently, a rulemaking could be a good avenue to pursue clarification of the law.

Interim Charge:  While the 86th Legislative Session has not yet convened, it has already begun.  Those needing legislation in 2019—albeit completely new law or clarifications of current law—should start the process of drafting proposed bills and meeting with legislators now.  In particular, now that the regular session is over and especially once the special session concludes, Senators and Representatives have more time for longer, more detailed conversations about constituent and business needs.  It is the perfect time to set up a meeting, discuss your needs and policy implications of your proposal, and begin planning for the 2019 session.  In addition, during that conversation—particularly with committee chairs of the relevant committee that would theoretically hear your bill—you could propose obtaining an interim charge to study the economic, policy, or social implications of the bill you are trying to pass.  If you can obtain an interim charge, request to be a part of that process and provide testimony on the subject.  Developing the record for the need for legislation—and any implications of the proposed legislation—is a helpful process for setting up successful legislation in the future.

Suit for Declaratory Judgment:  For most, actively pursuing litigation is not the best option due to cost, but it nevertheless is an option.  If you are seeking clarity of a law, think existing law is invalid, or want to challenge the law, pursuing a declaratory judgment in court may be a fruitful option.  That is, a “person interested under a deed, will, written contract, or other writings constituting a contract or whose rights, status, or other legal relations are affected by a statute, municipal ordinance, contract, or franchise may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise and obtain a declaration of rights, status, or other legal relations thereunder.”[20]  Thus, if you want to pursue a declaration of your rights under a certain law or challenge a law, seeking a declaratory judgment in court may be another option to consider.

In sum, while the 85th Legislative Session is over, there are still potential options available for accomplishing your goals if you are creative.  And, if some of these interim steps are not palatable, start laying the legislative groundwork for 2019 now.

               [1]              Texas Legislature, Legislative Statistics, available at http://www.capitol.state.tx.us/Reports/Report.aspx?ID=legislativestatistics (last visited June 5, 2017).

               [2]              Tex. Const. art. IV, Sec. 8.

               [3]              Tex. Const. art. III, Sec. 40.

               [4]              Id. (“When the Legislature shall be convened in special session, there shall be no legislation upon subjects other than those designated in the proclamation of the Governor calling such session, or presented to them by the Governor; and no such session shall be of longer duration than thirty days.”).

               [5]              Tex. Gov’t Code § 402.042(a).

               [6]              Id. at § 402.042(b).

               [7]              Id. (emphasis added).

               [8]              Id. at § 402.042(c).

               [9]              Comm’rs Court of El Paso County v. El Paso County Sheriff’s Deputies Ass’n, 620 S.W.2d 900, 902 (Tex. Civ. App.—El Paso 1981, writ ref’d n.r.e.) (“Opinions of Attorney Generals, while not binding on the judiciary, are persuasive, and entitled to consideration.”); Royalty v. Nicholson, 411 S.W.2d 565, 572 (Tex. Civ. App.—Houston 1967, writ ref’d n.r.e.) (“We recognize that the Attorney General’s opinions are not in any manner controlling, but they are entitled to great weight unless clearly wrong.”).

               [10]            City of Houston v. S. Pac. Transp. Co., 504 S.W.2d 554, 557 (Tex. Civ. App.—Houston [14th Dist.] 1973, writ ref’d n.r.e.).

               [11]            See City of San Antonio v. Texas Atty. Gen., 851 S.W.2d 946, 950 (Tex. App.—Austin 1993, writ denied) (“A request for an opinion, addressed to the attorney general . . . does not give rise to a species of litigation culminating in a decision by that officer that binds parties in their legal and equitable interests.”).

               [12]            Id.

               [13]            Tex. Gov’t Code § 2001.021(a).

               [14]            Tex. Gov’t Code § 2001.003(6).

               [15]            Tex. Gov’t Code § 2001.021(d).

               [16]            Tex. Gov’t Code § 2001.021(c) (“Not later than the 60th day after the date of submission of a petition under this section, a state agency shall: (1) deny the petition in writing, stating its reasons for the denial; or (2) initiate a rulemaking proceeding under this subchapter.”).

               [17]            Phillips Petroleum Co. v. TCEQ, 121 S.W.3d 502, 507 (Tex. App.—Austin 2003, no pet.).

               [18]            Id.

               [19]            Id. at 508.

               [20]            Tex. Civ. Prac. & Rem. Code § 37.004(a).