Employer-Compliance Obligations and Enjoined DOL Regulations

As previously discussed on this blog in a post dated November 23, 2016, the United States Department of Labor (“DOL”), in May of 2016, issued a final rule (“Final Rule”) revising its regulations construing the so-called white-collar overtime exemptions of the Fair Labor Standards Act (“FLSA”).  In essence, the Final Rule increased the minimum salary that employers must pay their employees in order to invoke the white-collar exemption, from $23,600 to $47,476 annually, and provided for automatic updates to the minimum salary every three years.

The Final Rule was scheduled to take effect on December 1, 2016, but on November 22, 2016, a federal judge in the Eastern District of Texas issued a nationwide preliminary injunction, preventing the DOL from implementing the rule ( Nevada v. U.S. Dep’t of Labor ).  That litigation continues, and the preliminary injunction ruling is on appeal to the Court of Appeals for the Fifth Circuit.  It is unknown whether the Fifth Circuit will uphold the injunction or reverse, and whether the District Court will ultimately vacate the Final Rule or lift the injunction.   Resolution of these uncertainties appears to be months away.  The Fifth Circuit recently granted the DOL’s request for an extension of time to file its reply brief “to allow incoming leadership personnel adequate time to consider the issues,” and the reply brief is not due until May 1, 2017.

If the District Court lifts the injunction, or the Fifth Circuit reverses, the Final Rule will presumably go into effect, and a troubling question for employers arises: Will courts hold employers liable under the FLSA’s overtime rules based on their failure to comply with the Final Rule since December 1, 2016?

District courts across the country have been wrestling with a similar issue relating to a different set of DOL regulations – those construing the FLSA’s companionship-services exemption.  The new DOL companionship-services regulations, set to take effect on January 1, 2015, removed home health care employees of third-party agencies from the ambit of the FLSA’s exemption.  However, before the new regulations took effect, a federal judge in the District of Columbia vacated the regulations.  Over eight (8) months later, in August of 2015, the Court of Appeals for the District of Columbia reversed the vacatur and upheld the regulations ( Home Care Ass’n of Am. v. Weil ).

Since that time, a distinct split of authority has developed regarding whether employers are liable for overtime for those previously-exempt companionship-services employees during the time that the vacatur of the new DOL regulations was in effect.  On the one hand, some federal judges have concluded that the regulations did not require compliance during the period that the vacatur was in effect.  In contrast, other federal judges have ruled that, because of the D.C. Circuit’s reversal, the District Court’s vacatur, in essence, never occurred, and employers were required to follow the new regulations as of January 1, 2015.  Of course, the latter interpretation puts employers in a distinct quandary to the extent they justifiably relied upon the pronouncements of a district court.

The uncertainty surrounding the effective date (for employer-compliance purposes) of the DOL’s companionship-services regulations may have implications for the obligations imposed by the Final Rule.  In the event that the Texas judge’s injunction against the enforcement of the Final Rule is lifted or reversed, it is entirely unclear whether courts will determine that employers were obligated to comply with the Final Rule’s new minimum salary requirement as of December 1, 2016.  This lack of clarity is further compounded by the uncertainty surrounding the new administration’s position with respect to the Final Rule and its motivation to pursue the appeal.

Employers who would be affected by the obligations imposed by the Final Rule should carefully evaluate the relevant legal and business risks in determining whether to meet the Final Rule’s minimum salary requirements while the injunction remains in place.

We will keep our readers updated with respect to the state of the law surrounding the Final Rule.