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Labor and Employment

BREAKING: Take 2 – U.S. Department of Labor Unveils Updated Attempt to Expand Employee Overtime Eligibility

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On Thursday, March 7, 2019, the United States Department of Labor (the DOL) released its newest Proposed Rule that, if implemented, would broaden federal overtime pay regulations to cover millions of additional workers who are currently exempt from overtime eligibility.  Under the Proposed Rule, the DOL seeks to update the regulations governing which executive, administrative, and professional employees (the so-called “white collar” workers) are entitled to minimum wage and overtime pay protections under the Fair Labor Standards Act (the FLSA).

The FLSA requires employers to pay its “non-exempt employees” overtime (1 ½ the workers’ “regular rate of pay”) for all hours worked in excess of forty (40) per week.  See 29 U.S.C. § 207.  The DOL’s regulations implementing the FLSA sets forth a variety of employment classifications that are “exempt” from the FLSA’s overtime requirement—including employees performing executive, administrative, and/or professional job duties.  Since the 1940’s, in order for an employee to qualify as an exempt “white collar” employee, he/she had to meet three “tests”:  (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties (as defined by the regulations).  The DOL last fully updated these regulations in 2004, setting the current minimum salary threshold at $455 per week (or $23,660 per year).

In May 2016, the Obama-era DOL attempted change to the overtime rule that would have doubled the minimum salary level for the so-called “white collar” exemption from $23,660 to nearly $48,000 per year.  This proposal would have also increased the total annual compensation requirement needed to exempt “highly compensated employees” to $134,004 annually (previously set at $100,000), established a mechanism for automatically updating the minimum salary level every three years and allowed employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the new standard salary level.

Ultimately, the May 2016 proposal was challenged in court. On November 22, 2016, the U.S. District Court for the Eastern District of Texas enjoined the DOL from implementing and enforcing the proposal. On August 31, 2017, the court granted summary judgment against the DOL, invalidating the May 2016 proposal.  Currently, the Department is enforcing the regulations that have been in place since 2004, including the $455 per week standard salary level.

While an appeal of that decision to the United States Court of Appeals for the Fifth Circuit is pending, the current DOL seeks to formally rescind the Obama-era DOL’s 2016 proposal with this Proposed Rule.  In its place, the new Proposed Rule would raise the minimum salary level for exempt employees to only $679 per week, or $35,308 annually.  The Proposed Rule does have many similarities to the 2016 proposal, including:

  • Allowing employers to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level test (provided such bonuses are paid annually or more frequently);
  • Increasing the total annual compensation requirement needed to exempt “highly compensated employees” to $147,414 annually (currently set at $100,000 annually); and
  • Not proposing any changes to the standard duties test for the white collar exemptions.

If the Proposed Rule is adopted, the DOL estimates that over 1.3 million workers who are currently classified as “salaried exempt”—and thus, not eligible for overtime—will become eligible for overtime pay.  While an increase, this figure is lower than the estimated 5 million workers who would have become eligible for overtime under the 2016 proposal.  As with the prior proposal, observers feel the number could rise well above the projected increase.  If implemented, the Proposed Rules will undoubtedly result in greater expense or operational change for many employers as they struggle to deal with a shrinking pool of workers who are eligible for an exemption from the overtime pay.

The Proposed Rule is still subject to a lengthy comment period before implementation.  The DOL encourages any interested members of the public to submit comments about the proposed rule electronically at www.regulations.gov (Rulemaking docket RIN 1235-AA20).

Though the Proposed Rule has not yet been finalized, employers are encouraged to be proactive and engage their legal counsel to begin planning for the change now.  Preparations should include auditing current practices and projecting the cost of change and FLSA compliance under the anticipated new framework. This includes evaluating the possibility and effects of significantly higher operating costs.

E-Verify Website/Service Unavailable During Federal Government Shutdown

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“E-Verify”—the U.S. Government’s federal electronic employment eligibility verification service—has “expired”  due to a lapse in funding.  As a result, the e-Verify site and its services are not functioning and will not be available to participating U.S. employers during the partial shutdown of the federal government that began December 22, 2018.

The U.S. Department of Homeland Security (DHS), the federal agency that oversees the program, reported that “information on this website may not be up to date. Transactions submitted via this website might not be processed and we will not be able to respond to inquiries until after appropriations are enacted.” As a result, DHS announced that the website (www.e-verify.gov) will not be actively managed and will not be updated until after funding is restored.

During the shutdown, U.S. employers will not be able to:

  • Enroll in the program;
  • Access their E-Verify accounts;
  • Create a case;
  • View or take action on any case;
  • Add, delete or edit accounts; or
  • Reset passwords, edit company information, terminate accounts, or run reports.

Conversely, workers will not be able to resolve any E-Verify Tentative Nonconfirmations (TNCs) during the shutdown. In addition, “myE-Verify” will be unavailable and employees will not be able to access their myE-Verify accounts.

To minimize the burden on both employers and employees, DHS announced that:

  • The three-day rule for creating E-Verify cases is suspended for cases affected by the unavailability of the service.
  • The time period during which employees may resolve TNCs will be extended. The number of days E-Verify is not available will not count toward the days the employee has to begin the process of resolving their TNCs.

As with prior shutdowns, additional guidance regarding the three-day rule and time period to resolve TNC deadlines will be provided once operations resume.

Employers will not be penalized for any delays in creating E-Verify cases. However, the shutdown does not affect an employer’s responsibility to verify employment eligibility. Employers must still complete the Form I-9 no later than the third (3rd) business day after an employee starts work for pay and comply with all other Form I-9 requirements.

As a result of the shutdown and the unavailability of E-Verify, participating employers are warned not to take any adverse action against employees while an E-Verify case remains in an unresolved status. Federal contractors with the Federal Acquisition Regulation (FAR)/E-Verify clause should contact their contracting officer to inquire about extending federal contractor deadlines.

January 2, 2019 is the last day of the Republican-controlled 2017-2018 Congress. Democrats take control of the United States House of Representatives, effective January 3, 2019.

New Overtime Rule Proposal from Department of Labor Slated for Spring 2019

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Last week, the Trump Administration published its Fall 2018 Unified Agenda of Regulatory and Deregulatory Actions.  In it, the Trump Administration formally announced  the U.S. Department of Labor’s (“DOL”) intention to issue a Notice of Proposed Rulemaking (NPRM) in March 2019 “to determine the appropriate salary level for exemption of executive, administrative and professional employees.”  In its Spring 2018 Regulatory Agenda, the Administration had previously targeted January 2019 for the release of the NPRM.

Many will recall the rapid flurry of activity that accompanied the DOL’s previous attempt to overhaul the overtime exemptions to the Fair Labor Standards Act. In May 2016 , the Obama-era DOL “finalized” a change to the overtime rule that would have doubled the minimum salary level for the so-called “white collar” exemption from $23,660 to nearly $48,000 per year.  The proposed Final Rule never took effect.  Between May 2016 and November 2016, over 20 states and 50 business groups filed separate lawsuits  seeking to block enforcement of the Rule.

Then, in November 2016, a federal judge in Texas entered a nationwide preliminary injunction  blocking implementation of the highly controversial Rule—less than 10 days before the Rule was slated to take effect.  President Trump took office in January 2017, and the “new” DOL pushed the pause button on revisions to the overtime Rule.  In August 2017, U.S. District Judge Amos Mazzant of the Eastern District of Texas officially invalidated  the proposed Final Rule, thus temporarily halting the government’s highly-controversial attempt to expand overtime eligibility for millions for public and private sector employees.

Since that time, Labor Secretary Alexander Acosta, who assumed the post in late April 2017, repeatedly indicated that he favored some increase of the minimum salary threshold for exemption. In July 2017, the DOL began seeking public comment on a freshly revised overtime rule, publishing a Request for Information in the Federal Register.  The comment period closed in September 2017.

So, it appears that the Trump Administration is finally ready to unveil its proposal to revise a rule that was last modified in 2004 (and before that, in 1975). So what should employers expect in a new overtime rule?

  • Likely an increase in the minimum salary for exemption – but not nearly as drastic as the 2016 proposed Rule. Most commentators expect the increase to be something in the low-to-mid $30,000s. This would be consistent with Secretary Acosta’s comments on the issue, but still considerably lower than the increase proposed by the Obama Administration. Notably, the Society for Human Resource Management (SHRM) officially endorsed modestly raising the threshold to $32,000. Such an increase would still be lower—in some cases, significantly lower—than the current state law minimum salaries for exemption, such as New York (where the state minimum for exempt executive and administrative employees is set to climb to $58,500 at the end of 2018).
  • Modernization of examples within the Rule for application to the current workplace. With its most recent revision in 2004, the DOL included a number of new examples to assist employers in applying the tests. It would make sense to revisit those examples, and to consider additional examples, given how the workplace has evolved in the last 15 years.

Many commentators feel that the new proposed rule—whatever it may be—is not likely to take effect until early 2020. In all likelihood, the Trump Administration’s DOL will give employers plenty of lead time to plan and prepare for any increases in the minimum salary for exemption.  Regardless, employers need to be mindful of the potential changes and ready to implement them when the time comes, as 2019 looks to be an eventful year.

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U.S. Court of Appeals Reverses Course Concerning Title VII Protection of LGBTQ+ Rights

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On Monday, February 26, 2018, the U.S. Second Circuit Court of Appeals issued a landmark ruling in holding that workplace discrimination premised on an employee’s sexual orientation is covered by Title VII’s express prohibition against gender-based discrimination. In so doing, the Second Circuit reversed its own precedent established less than one year ago, and in doing so, offered further judicial support for the protections of the LGBTQ+ community.

In a divided, en banc opinion, the Second Circuit decided the case of Zarda v. Altitude Express.  In its decision, the Court revived a sex bias claim brought by Donald Zarda, a Long Island, New York sky-diving instructor who claimed that his employer, Altitude Express, had terminated his employment based on his sexual orientation.  In its decision, the Second Circuit held that it saw “no principled basis for recognizing a violation of Title VII for associational discrimination based on race, but not on sex.” With its ruling, the case was sent back to the trial court for further proceedings.

The federal lawsuit was brought on Mr. Zarda’s behalf, and against his former employer, by the U.S. Equal Employment Opportunity Commission (EEOC).  Interestingly, during the appeal, the U.S. Department of Justice filed an amicus brief in opposition to Zarda and the EEOC.  In its briefing, the Justice Department stated that “[t]he sole question here is whether, as a matter of law, Title VII reaches sexual orientation discrimination. . . . . It does not, as has been settled for decades. Any efforts to amend Title VII’s scope should be directed to Congress rather than the courts.”  Additionally, the Justice Department noted that the EEOC was “not speaking for the United States.”

For years, LGBTQ+ employees could only advance claims of workplace discrimination under a theory of “sex stereotyping” discrimination—that is, discrimination based on an employee’s failure to confirm to an employer’s perceived gender roles.  In July 2015, the U.S. Equal Employment Opportunity Commission (EEOC) issued its first administrative ruling declaring that Title VII’s use of the word “sex” meant both gender and sexual orientation. However, no federal court immediately adopted or mirrored the EEOC’s guidance.

In fact, the Second Circuit expressly rejected the EEOC’s guidance just last year when it decided the case of Christiansen v. Omnicom Group, Inc.  There, the Second Circuit ruled that employees did possess viable Title VII claims based on the theory of “sex stereotyping.”  However, the Court also expressly stated that Title VII’s definition of “sex” did not cover a person’s sexual orientation—a decision that tracked the historical rulings of other U.S. courts, in holding that the term “sex” within Title VII refers only to a person’s gender—meaning that discrimination had to be premised on whether a worker is male or female.

Then, only nine days after the Christensen ruling, on April 4, 2017, the U.S. Seventh Circuit Court of Appeals became the first federal appellate court to rule that Title VII does extend workplace protections on the basis of their sexual orientation.  In deciding the case of Hively v. Ivy Tech, the Seventh Circuit opted to expand the definition of “sex” under Title VII to include an individual’s “sexual orientation.” With its ruling in Zarda, the Second Circuit is now aligned with both the EEOC and Seventh Circuit, thus ruling that Title VII effectively presents two avenues of recovery for individuals asserting claims on the basis of their sexual orientation.

The Second Circuit’s majority ruling Zarda was written by the Court’s Chief Judge, Robert A. Katzmann. He was joined, either in whole or in part, by nine other judges on the court. The three remaining judges dissented. In addition to Judge Katzmann’s decision, seven judges wrote separate opinions, concurring and dissenting.

Either the Justice Department or Altitude Express could seek review of the decision before the United States Supreme Court. Neither party had any immediate comment on the ruling. In December 2017, the U.S. Supreme Court passed on an initial opportunity to weigh-in on the issue when it declined to hear an appeal from the Eleventh Circuit Court of Appeals, in which that Court held that Title VII did not extend to sexual orientation.

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BREAKING – U.S. FEDERAL JUDGE OFFICIALLY INVALIDATES OBAMA-ERA OVERTIME RULE CHANGE

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Late Thursday afternoon (August 31, 2017), a U.S. federal judge officially invalidated the Obama administration’s highly-controversial attempt to expand overtime eligibility for millions for public and private sector employees.  In November 2016, U.S. District Judge Amos Mazzant of the Eastern District of Texas made national news when he issued a nationwide preliminary injunction blocking implementation of a proposed rule that was set to take effect on December 1, 2016.

In September 2016, two separate lawsuits were filed  in U.S. District Court in the Eastern District of Texas challenging the legality of the U.S. Department of Labor’s (DOL) proposed changes.  The lawsuits—one filed by a group of 21 states and the other filed by a conglomerate of over 50 nationwide business groups and trade organizations—both sought to temporarily enjoin and permanently strike the DOL’s Proposed Overtime Rule from taking effect.  The federal court later consolidated the two suits into one case.

Judge Mazzant’s November 2016 ruling temporarily prevented the DOL from enforcing the Proposed Overtime Rule, which would have significantly expanded overtime eligibility for millions for public and private sector employees.  On Thursday, Judge Mazzant followed his preliminary injunction by granting summary judgment in favor of the plaintiffs.

If enacted, the Proposed Rule would double the minimum salary threshold—from the current $23,660 to the proposed $47,476—required for an employee to qualify for the Fair Labor Standards Act’s (FLSA) white collar exemptions.   In his ruling, Judge Mazzant ruled that the “significant increase” contemplated in the Proposed Overtime Rule would essentially render meaningless the duties, functions, or tasks that an employee performs if their salary falls below the new minimum salary level.  The Court further agreed with the states and business groups which argued that the DOL had “exceeded its authority and gone too far with the [Proposed Overtime Rule].”  According to Judge Mazzant, the Obama-era DOL proposal made overtime status “predominately dependent on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

Representatives of the states and business groups who initiated the legal challenge, as well as those from the now Trump-era DOL, have yet to comment.  However, given the Trump administrations’ recent statements favoring an overhaul of the FLSA’s exemption analysis, the Court’s ruling on Thursday likely spelled the final chapter in the life of the much-maligned Proposed Overtime Rule.

Recent Federal Court Ruling Indicates Coverage for LGBTQ-Related Conditions Under the Americans with Disabilities Act

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In May 2017, a federal district court judge from the Eastern District of Pennsylvania ruled that the Americans with Disabilities Act (“ADA”) may cover “gender dysphoria,” as well as other conditions related to “gender identity disorder.” Though seen as a departure from previously established law, this ruling could open the door to expanding employment protections to some transgender individuals under the ADA.

What is “Gender Dysphoria”

By now, the term “transgender” is a common term in our national vocabulary.  “Transgender” is an umbrella term for people whose gender identity and/or gender expression is different from cultural expectations placed on them due to their biologically-assigned birth gender. An issue more and more transgender individuals are seeking treatment for is known as “gender dysphoria.” The Human Rights Campaign defines “gender dysphoria” as “clinically significant distress caused when a person’s biologically-assigned birth gender is not the same, or does not match, the gender with which that person “identifies.”

Historical Treatment of LGBTQ Issues under the ADA

Historically, the ADA has not recognized LGBTQ-related conditions as covered disabilities. Specifically, Section 12211 of the ADA contains a number of exclusions—including “homosexuality” and “bisexuality” on the grounds that they are not “impairments” at all. The ADA also excludes “transvestism, transsexualism, pedophilia, exhibitionism, voyeurism, gender identity disorders not resulting from physical impairments, or other sexual behavior disorders; compulsive gambling, kleptomania, or pyromania; or psychoactive substance use disorders resulting from current illegal use of drugs.”

“Transsexualism” and “gender identity disorders not resulting from physical impairments” seem to be 1990s-era terms for the state of being what we call today “transgender.” And based on the other conditions that “transsexualism” and “gender identity disorders” are grouped with, it appears that in 1990, Congress considered these to be “anti-social” behaviors. Other “anti-social” behaviors not covered under the ADA include peeping, child molestation, compulsive stealing, and compulsively setting things on fire.

Recent Third Circuit Ruling – Blatt v. Cabela’s Retail, Inc.

On August 15, 2014, a transgender woman filed Title VII and ADA claims against her former employer, claiming that she had suffered disability discrimination and retaliation based on her “gender dysphoria.” In her case (styled Blatt v. Cabela’s Retail, Inc., No. 5:14-cv-04822-JLS), the plaintiff alleged that her gender dysphoria was characterized by clinically significant stress and substantially limited one or more of her major life activities, including but not limited to, interacting with others, reproducing, and social and occupational functions.

The employer sought early dismissal of the ADA claims on the grounds that gender identity disorders are expressly excluded from coverage under Section 12211 of the ADA. In response, the plaintiff argued that excluding gender dysphoria from ADA protection violated the Equal Protection Clause of the Fourteenth Amendment—a particularly novel argument in light of recent U.S. Supreme Court, including the 2015 gay marriage opinion (Obergefell v. Hodges, 135 S. Ct. 2584 (2015)). However, the district court judge sidestepped this Equal Protection issue altogether.

Instead, the judge ruled that a plaintiff’s “gender dysphoria” could be an ADA-protected disability—despite the language in Section 12211 excluding “gender identity disorders not resulting from physical impairments”— if the dysphoria caused “clinically significant stress and other impairments.” In reaching its holding, the court noted that two categories of conditions are explicitly excluded from protection under the ADA: (1) non-disabling conditions concerning sexual orientation and identity (e.g., homosexuality and bisexuality), and (2) conditions associated with harmful or illegal conduct (e.g., pedophilia and kleptomania). The court then narrowly interpreted these exceptions and found that the ADA does not exclude protection of “conditions that are actually disabling but that are not associated with harmful or illegal conduct” – such as the gender dysphoria affecting the plaintiff.

In other words, the court ruled that a person with an ADA-excluded condition may also have medical conditions that are covered by the ADA. For many commentators, the judge relied on solid ADA-rationale applied to other conditions. For example, pregnancy is not an ADA-protected disability in itself. But if a pregnant woman develops a related condition such as preeclampsia (high blood pressure associated with pregnancy that can result in a stroke or permanent liver damage), she may have a protected disability based on the pregnancy-related medical condition, although not based on the pregnancy itself. Similarly, although homosexuality is not an ADA-protected disability, a gay man with HIV would have a disability based on the HIV condition.

Using the Blatt court’s rationale, a transgender individual with “gender dysphoria” would be no different.  For example, clinical depression caused by discrimination against an individual because he/she was transgender would clearly qualify as an ADA-protected condition under the rationale used in Blatt. Conversely, the individual’s transgender status—in and of itself—would not be entitled to ADA protection, as that is clearly excluded under Section 12211.

The court also noted that its interpretation of the ADA is consistent with the Third Circuit’s mandate that the ADA is “a remedial statute, designed to eliminate discrimination against the disabled in all facets of society. . . [and] must be broadly construed to effectuate its purposes.” Thus, the judge wrote any exceptions in the ADA “should be read narrowly in order to permit the statute to achieve a broad reach.”

This is yet another case in a recent wave of litigation concerning protections for LGBTQ individuals under the federal employment statutes. This ADA challenge represents a different approach to gender equity litigation that will warrant close monitoring to see how it impacts the development of jurisprudence—especially since it remains to be seen if the defendant will appeal the ruling, or if other jurisdictions will apply the Blatt rationale. In the meantime, employers should be mindful of their duties under the ADA to accommodate disabling impairments, even if the underlying condition is arguably not covered by the ADA.

 

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U.S. Department of Labor Withdraws Obama-Era Joint Employer/Independent Contractor Guidance

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On Wednesday, June 07, 2017, the U.S. Department of Labor (“Department”) withdrew two “guidance letters” previously issued by the Department during the Obama administration.  These guidance letters expressed a desire for “tighter standards” for determining joint employment, in an effort to limit the misclassification of workers as independent contractors.

The Department’s three sentence statement simply said that the two guidance letters issued by the Department in 2015 and 2016 were being withdrawn. Current Labor Secretary Alex Acosta said the agency would withdraw an administrator’s interpretation issued in 2015 aimed at curbing the misclassification of employees as independent contractors as well as another guidance document issued in 2016 on joint employment that called for greater scrutiny of business arrangements in which multiple companies might jointly employ workers. Despite its brevity, the announcement clearly signaled the Department’s intent to revert to its prior policies, saying the removal of the previous interpretations “does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law.”

The 2015 guidance letter narrowed the Department’s definition of “independent contractor,” by modifying the test from “control over the work” to a broader “economic realities” test.  At the time, the Department took the position that “most workers are employees under the FLSA’s broad definitions.”  Prior to this, the Department’s Wage and Hour Division looked at how much control an employer exercised over the worker. The more control an employer had (i.e., setting schedules, directing how and where the work was to be done, etc.), the more likely the worker would be considered an employee, and thus entitled to protection under the Fair Labor and Standards Act. The 2015 guidance said the Department would instead look at six economic factors to decide a worker’s status—each revolving around how economically dependent the worker was on the prospective employer.

The 2016 guidance letter offered a similar “re-interpretation” of the definition of “joint employment.” This guidance—which drew heated objections from a broad range of employers when it was issued—increased the likelihood that two employers would be found to be “jointly liable” for wage and hour compliance of an employee or group of employees. Under the 2016 guidance, the hours an employee worked for all joint employers would be aggregated for the purposes of determining overtime and compliance with other FLSA rules.

Importantly, these guidance letters did not have the force of law.  However, many courts have deferred to the Department’s interpretation.  This adds to the importance of the Department’s withdrawal of these earlier interpretations.

Contradictory Federal Court Opinions LGBT Rights in the Workplace Sets Stage for Landmark Supreme Court Showdown

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Two federal court opinions, issued less than 10 days apart, have set the stage for a potential landmark showdown at our nation’s highest court.  The issue revolves around the proper interpretation of the term “sex” contained in Title VII of the Civil Rights Act of 1964—an interpretation that will greatly impact workplace discrimination rights and requirements for years to come.

On March 27, 2017, a three-judge panel of the U.S. Second Circuit Court of Appeals decided the case of Christiansen v. Omnicom Group, Inc.  In its decision, the 2nd Circuit revived a homosexual employee’s employment discrimination claims by ruling that the employee possessed viable Title VII claims based on the theory of “sex stereotyping.”  However, in its ruling, the 2nd Circuit also expressly stated that Title VII’s definition of “sex” did not cover a person’s sexual orientation.  This decision tracked historical rulings of other U.S. courts, in holding that the term “sex” within Title VII refers only to a person’s gender—meaning that discrimination had to be premised on whether a worker is male or female.

Nine days later, on April 4, 2017, the U.S. Seventh Circuit Court of Appeals became the first federal appellate court to buck this trend and rule that Title VII does extend workplace protections on the basis of their sexual orientation.  In deciding the case of Hively v. Ivy Tech, the 7th Circuit opted to expand the definition of “sex” under Title VII to include an individual’s “sexual orientation.”  With its 8-3 decision, the 7th Circuit effectively presents two avenues of recovery for individuals asserting claims on the basis of their sexual orientation.

For years, LGBT employees could only advance claims of workplace discrimination under a theory of “sex stereotyping” discrimination—that is, discrimination based on an employee’s failure to conform to an employer’s perceived gender roles.  In July 2015, the U.S. Equal Employment Opportunity Commission (EEOC) issued its first administrative ruling declaring that Title VII’s use of the word “sex” meant both gender and sexual orientation.  However, until now, no federal court had adopted or mirrored the EEOC’s guidance.

Now things are set to get interesting. The contradictory rulings will most likely be condensed and presented before the U.S. Supreme Court. This would be a landmark ruling for employees, LGBT advocates, and employers.  All of this brings further attention to the remaining uncertainty surrounding the 8-justice status of the Supreme Court, the on-going political fight over filling the late Justice Scalia’s seat, and the impending Democratic filibuster over President Donald Trump’s nominee, Neil Gorsuch.  Even if Gorsuch were confirmed, it remains to be seen how he would rule on this issue.

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BREAKING – U.S. FEDERAL JUDGE ISSUES NATIONWIDE ORDER TEMPORARILY BLOCKING DEPARTMENT OF LABOR’S PROPOSED OVERTIME RULE CHANGE

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Late Tuesday afternoon (November 22, 2016), a federal judge in Texas entered a nationwide preliminary injunction blocking implementation of a highly controversial rule that was set to take effect in less than 10 days (on December 1, 2016).  The judge’s injunction temporarily prevents the U.S. Department of Labor (DOL) from enforcing its controversial Proposed New Overtime Rule that would significantly expand overtime eligibility for millions for public and private sector employees.

In September 2016, two separate lawsuits were filed in U.S. District Court in the Eastern District of Texas challenging the legality of the DOL’s proposed changes.  The lawsuits—one filed by a group of 21 states and the other filed by a conglomerate of over 50 nationwide business groups and trade organizations—both sought to temporarily enjoin and permanently strike the DOL’s Proposed Rule from taking effect.  The federal court later consolidated the two suits into one case.

In granting the preliminary injunction on Tuesday, U.S. District Judge Amos Mazzant ruled that the states and businesses were able to show ”a likelihood of success in their challenge” of the Proposed Rule, as well as a likelihood of “irreparable harm” if the Proposed Rule went into effect on December 1st.  In contrast, Judge Mazzant felt that the DOL failed to show it would be harmed if implementation of the Proposed Rule were delayed.

In their lawsuits, as well as during oral argument on their requests for the preliminary injunction, the states and businesses argued that the DOL’s rule would force many state and local governments, as well as private businesses, to increase their employment costs substantially.  If enacted, the Proposed Rule would double the minimum salary threshold—from the current $23,660 to the proposed $47,476—required for an employee to qualify for the Fair Labor Standards Act’s (FLSA) white collar exemptions.  To this end, the states and businesses contested the DOL’s policy behind the change to the Proposed Rule by arguing that the federal agency relied too heavily on the “salary level” earned by an employee and not enough on the kind of work an employee performs.  The states and businesses argued that such a policy disregarded the original text of the FLSA.

In initially siding with the states and businesses, Judge Mazzant held that the DOL wasn’t entitled to deference in creating the Proposed Rule, and that Congress intended the exemption to apply based on the tasks an employee actually performs.  The judge recognized that the DOL has “significant leeway” to establish the types of duties that might qualify an employee for the white collar exemptions, but that nothing in the text of the FLSA indicated Congress’s intention for the DOL to define employee classifications with respect to a minimum salary level.  Judge Mazzant ultimately opined that the DOL’s enactment of the Proposed Rule appeared to exceed its delegated authority and as a result, ignored Congress’s intent behind the FLSA.

In issuing the preliminary injunction, Judge Mazzant also agreed that the states and businesses would suffer irreparable harm being forced to comply with the new costs associated with the Proposed Rule—harm which could not be redressed or undone if the Court later decided in their favor in permanently striking the Proposed Rule. “Due to the approaching effective date of the final rule, the court’s ability to render a meaningful decision on the merits is in jeopardy,” Judge Mazzant said. “A preliminary injunction preserves the status quo while the court determines the department’s authority to make the final rule as well as the final rule’s validity.”

Representatives of the states and business groups who initiated the legal challenge were quick to praise the Court’s decision.  “Businesses and state and local governments across the country can breathe a sigh of relief now that this rule has been halted,” said Nevada Attorney General Adam Paul Laxalt.

Representatives for the DOL have yet to comment, so it remains to be seen if the federal government will simply allow the injunction to remain in place pending final resolution of the consolidated lawsuits.  Alternatively, the DOL could choose to pursue a countermanding order on appeal.  (However, since any appeal would be heard by the Fifth Circuit, the success of such an appeal is far from a certainty.)  Lurking above all of these legal maneuvers is the recent election of President Donald Trump, who has yet to publicly announce his intentions for the Proposed Rule.

So, while it still remains possible the Proposed Rule could ultimately take effect (either in full or in some modified form), the Court’s ruling on Tuesday is certainly a welcome reprieve for U.S. employers—at least for the time being.

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“Paid Sick Leave” for Employees of Certain Federal Contractors & Subcontractors

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By: Chris Fontan & Kyle Williams

In October 2016, the U.S. Department of Labor (“DOL”) published regulations implementing Executive Order 13706 (“the Order”).  Initially signed in September 2015, the Order—entitled Establishing Paid Sick Leave for Federal Contractors—requires some federal contractors and subcontractors to provide certain employees with up to seven (7) days of paid sick leave annually.  Historically, the federal government has not established regulations (covering either private employers or federal contractors) mandating the provision of paid leave time for employees.   While it only impacts federal contractors and subcontractors, the DOL’s regulations will drastically alter this historical policy, as the DOL estimates that anywhere from 600,000 – 1.2 million employees will be impacted by the Final Rule.

Contracts Subject to the Order & Regulations

According to the DOL, the coverage of contracts and employees under the Order is “nearly identical” to coverage under the regulations mandating a minimum wage for certain federal contractors.  (The required minimum wage rate for covered federal contractors is adjusted each year by the DOL.  For 2017, the required minimum wage for covered federal contracts is $10.20.)

The Order and its regulations apply to four (4) types of contracts:

  • Procurement contracts for construction covered by the Davis-Bacon Act;
  • Service contracts covered by the Service Contract Act;
  • Concessions contracts; and
  • Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.

Of these covered contracts, the Order applies to (1) new contracts, (2) replacements for expiring contracts, and (3) subcontracts of any covered contract issued on or after January 1, 2017.  For the Order to apply, the new/replacement contract must include a clause setting forth the Order’s requirements.  If the contract does include this required clause, the governmental agency can withhold funds due under the contract if a contractor or subcontractor fails to abide by the Order’s requirements. (Additionally, contractors are required to include a clause outlining the Order’s requirements in all new subcontracts issue.)

Employees Covered by the Order & Regulations

The Order only applies to individuals engaged in performing work directly related to the subject matter of the contract, or “in connection with” a covered contract.  Importantly, employees that spend less than twenty percent (20%) of their working hours performing work in connection with a contract (such as providing administrative or other support services) are not covered by the Order.

Leave Required Under the Order & Regulations

Under the Order and its regulations, there are a couple of methods by which covered contractors can grant and track the required paid sick leave.  Employees that are covered are entitled to one hour of paid sick leave for every thirty (30) hours worked (actually worked – not total hours paid) on or in connection with a covered contract.  As an alternative, contractors have the option to provide covered employees with at least fifty-six (56) hours of paid sick leave at the beginning of each accrual year, rather than allowing employees to accrue leave based on hours worked.   Under this option, contractors who already provide employees with paid sick leave (for the same types of absences described in the Order) can take credit for the amount of leave provided—they are only required to provide employees with the difference between the amount already provided and the mandated fifty-six (56) hours.

The Order & its regulations set forth rules concerning a covered employee’s ability to “carry over” any accrued, but unused paid sick leave from one year to the next.  Also, if an employee is rehired by the same contractor within 12 months of a job separation, the contractor must reinstate that employee’s accrued, unused paid sick leave balance (unless the employee is paid for that leave at the time of separation).  Covered contractors are also required to notify covered employees of the amount of paid sick leave they have accrued—either at the end of each pay period or each month, whichever interval is shorter.  This notification must be provided in writing.

Covered Absences under the Order

The Order requires contractors to allow covered employees to use their paid sick leave (in increments as small as one hour) for any absence resulting from:

  • Physical or mental illness, injury, or medical condition of the employee;
  • Obtaining diagnosis, care, or preventive care from a health care provider by the employee;
  • Caring for the employee’s child, parent, spouse, domestic partner, or “any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship”; or
  • Domestic violence, sexual assault, or stalking.

When employees use their paid sick leave, contractors must provide them with the same regular pay and benefits they would have received if they had not used the leave, except that employees do not earn additional paid sick leave during their absence.

Under the Order, an employee is required to request paid sick leave “as soon as is practicable,” either orally or in writing.  If a contractor denies an employee’s request, it must communicate the denial in writing with an explanation as to why the request was denied. A contractor can only require an employee to document or verify absences of three or more consecutive days, and the contractor must inform the employee of the requirement to provide documentation before he or she returns to work. If the absence is healthcare-related, the contractor can require the certification to be made by a healthcare provider. If the absence is related to domestic violence, sexual assault, or stalking, the documentation or verification can come directly from the employee.

If you feel that your organization may be impacted by these new regulations, you should contact your labor & employment counsel for implementation advice.

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