Hunton Employment & Labor Perspectives

On November 16, 2016, Judge Amos L. Mazzant, heard more than three hours of oral argument from a group of 21 States (“State Plaintiffs”) challenging the Department of Labor’s new overtime rule. Following the hearing, the motion for a preliminary injunction of the rule was taken under advisement and a ruling is forthcoming on Tuesday, November 22,2016. Judge Mazzant’s pointed criticism of the rule during argument suggests employers may have reason to be optimistic.
The DOL’s overtime rule is scheduled to go into effect December 1^st and would more than double the salary requirement, from $23,660 to $47,476 per year, for executive, administrative, and professional employees to qualify for an overtime exemption (the “white collar exemption”) under the Fair Labor Standards Act.

Judge Mazzant’s questioning emphasized a “Chevron” analysis, targeting what he called the “crux of the case” - whether Congress intended to give the DOL the authority to impose a salary level ceiling in determining whether an employee meets the white-collar exemption. Under Chevron, an agency is required to implement the clear intent of Congress (“step 1”), however, if a statute is ambiguous with respect to a specific issue, an agency’s permissible construction of the statute must be given deference (“step 2”). Chevron v. Natural Resources Defense Council, 467 U.S. 837, 842-43 (1984).

State Plaintiffs argued that the overtime rule violates the clear intent of Congress that white-collar employees who perform executive, professional, or administrative duties, must be exempt from overtime regardless of salary. State Plaintiffs argued the case should be decided with a Chevron “step 1” analysis and the court should not defer to the agency. In questioning the Plaintiffs, Judge Mazzant emphasized that the language of the FLSA indicates Congressional intent to delegate express authority to the DOL to define the white collar exemption.  Judge Mazzant implored State Plaintiffs to “find a single case” declining to grant an agency deference where a statute so explicitly granted the agency such broad authority, and stressed that the agency has “considered salary alongside duties for over 75 years.”

State Plaintiffs responded that even if the court found an express delegation of authority and reached “step 2” of Chevron, the agency had “colored outside of the lines” by ignoring language in the FLSA constraining the agency to prioritize duties and instead creating a rule that was, in effect, an impermissible “salary-only” test with an arbitrary salary threshold. State Plaintiffs stressed that a salary level had been in place alongside the duties test for over 75 years only because the salary level was low enough, “acting as a floor”, that it was “unlawful but not consequential”, serving mainly as an “easy cut-off” for the white collar exemption and thus remaining unchallenged. State Plaintiffs also argued that Congress intended the agency to consider an employee’s salary only in tandem with a primary focus on duties, even making the analogy that despite President-Elect Trump’s decision to decline a salary, he undoubtedly remains an “executive” because of his duties.

The DOL argued that Congress expressly delegates broad authority to the agency in the FLSA to define the terms of the white-collar exemption, including the authority to consider the salary of employees performing “executive, professional or administrative” duties and the agency’s reasonable interpretation of the statute is entitled to deference under a “step 2” of Chevron. In questioning the DOL, Judge Mazzant highlighted that the language of the statute, expressly exempting employees employed in an “executive, professional, and administrative capacity”  connotes duties, not salary. He also asked the DOL to reconcile the fact that Congress clearly intended for all employees performing executive, professional and administrative duties to be exempt with the rules new salary threshold that makes millions of them non-exempt.

The DOL responded that Congress intended the overtime rule to protect employees that had not yet “reached a certain status at their job” such that they “did not need the protections of minimum wage or overtime pay”, adding that “salary is a quantitative indicator of an employee’s qualitative status” in the workplace and is thus a permissible consideration in interpreting the white collar exemption. The DOL maintained throughout the oral argument that the terms “executive, administrative, or professional” are “open-ended” and the agency is best positioned to define them.

The final stretch of Wednesday’s oral argument could signal trouble for the DOL. In those last 45 minutes, Judge Mazzant repeatedly asked the DOL to explain how the rule was not a “drastic change” from “what has always been a salary floor” to a “salary ceiling” amounting to an impermissible “salary only” test, and the agency appeared unable to give a satisfactory response. Judge Mazzant made multiple references to the fact that for millions of employees, irrespective of their duties, the new salary threshold would be dispositive in deciding their overtime exempt status. The Judge also pointed to the dramatic increase from the 2004 salary threshold, seemingly unpersuaded by the agency’s explanation that the 2004 salary threshold was set too low due to a “methodological error”, and asked what other methods the agency could have used in updating the rule. This final line of questioning suggests that Judge Mazzant is at least strongly considering deciding the case at “step 2” of Chevron, finding that the terms of the statute are ambiguous, but the agency’s interpretation is not a permissible construction entitled to deference because it amounts to a “salary only test” where the statute emphasizes duties, and the agency had no reasonable basis to make the “drastic change from a salary floor to a ceiling.”

Tuesday’s ruling will come only 6 days after a federal judge in Texas granted a permanent injunction to plaintiffs challenging the DOL’s controversial “persuader rule.” Note, Tuesday’s ruling will only determine whether the overtime rule is temporarily enjoined and is not a final determination. Nonetheless, the ruling is likely a useful indicator of what is to come and Wednesday’s oral argument gives employers reason to be optimistic. Stay tuned.