New York EmploymentAttorney Blog

Yesterday the U.S. Department of Labor issued a response to the recent federal court decision that blocked the Department of Labor from implementing the Overtime Final Rule on December 1, 2016.  We wrote about the decision earlier this week in Wage/Hour Alert: Court Issues Nationwide Block of Overtime Exemption Regulations. According to the Department of Labor’s statement on its website:

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted an Emergency Motion for Preliminary Injunction and thereby enjoined the Department of Labor from implementing and enforcing the Overtime Final Rule on December 1, 2016.  The case was heard in the United States District Court, Eastern District of Texas, Sherman Division (State of Nevada ET AL v. United States Department of Labor ET AL No: 4:16-CV-00731). The rule updated the standard salary level and provided a method to keep the salary level current to better effectuate Congress’s intent to exempt bona fide white collar workers from overtime protections.

Since 1940, the Department’s regulations have generally required each of three tests to be met for the FLSA’s executive, administrative, and professional (EAP) exemption to apply: (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 (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”).  The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees.  The Department has updated the salary level requirements seven times since 1938.

At the request of 20 states, the federal District Court in Texas has issued a nationwide preliminary injunction blocking the U.S. Department of Labor’s rule increasing the minimum salary threshold for the “white collar” exemptions to overtime under the Fair Labor Standards Act (“FLSA”).  The Department of Labor rule requires that effective December 1, the minimum salary level for the exemption to apply would be increased from $455 per week ($23,660 per year) to $912 per week ($47,892 per year), and then automatically thereafter.   Our May 18, 2016 blog addressed this rule.

In State of Nevada, et al. v. U.S. Department of Labor, et al. (4:16-CV-00731), the United States District Court for the Eastern District of Texas, concluded that the states had demonstrated a likelihood of success on the merits of the lawsuit, and that a failure to preliminarily block the rule would cause irreparable harm to the states (and, presumably, private employers).  The court credited the states’ arguments that the Department of Labor exceeded its authority in increasing the minimum salary threshold, because it disregarded the requirements of the “duties” test under the FLSA.  The court also took issue with the Department of Labor’s automatic updating mechanism to increase the minimum salary threshold, because it does not require public notice and comment.  The updating mechanism was intended to ensure that the minimum salary level would be linked to the 40^th percentile of weekly earnings of full-time salaried employers in the country’s lowest wage region.

The court’s decision comes at a time when most employers have already addressed the increase in salary thresholds that were originally set to take effect in a few days.  Nevertheless, the future viability of the Department of Labor rule, particularly the automatic updating mechanism, remains in question.

Over the last few years, we have written about misclassification issues arising out of the use of unpaid interns to perform work.  A recent case from a New York State court has just made it more difficult for such interns to assert class action claims for unpaid wages.  In Rodriquez v. 5W Public Relations, (N.Y.S. Supreme Ct., N.Y. Cty, Index No. 156571/14, July 26, 2016), a putative class of individuals sought to recover unpaid wages from 5W Public Relations, LLC and its CEO for work they performed as unpaid interns.  In seeking class certification, the plaintiffs were required to show, among other things, that common questions of law or fact predominated over any questions affecting only individual plaintiffs.  Such a showing would be necessary to permit the plaintiffs to sue as a class, instead of individually.

The plaintiffs argued that common questions of law and fact predominated because all of the putative class members were required to agree to a universal employment agreement; performed similar work; were all subject to the identical employee handbook policies; and were all uniformly misclassified as interns not entitled to minimum wage.  The court denied the plaintiffs’ motion for class certification despite that the interns appeared to all be subject to the same policies and work, because, according to the court, “the question of whether defendants’ internship program created employment relationships [could] only be answered with individualized proof as opposed to generalized proof.”  In other words, although the interns were all part of the same internship program and subject to the same policies, their individual circumstances would need to be considered on the ultimate issue of whether or not they were really employees.  The court did not state the precise test it would ultimately  apply in determining whether the interns were really employees, but stated that any such test would balance a number of factors that took into account both the benefit of the work to the employer and the individual intern’s experiences.

The court provided the following non-exclusive list of factors that would be relevant in determining whether an intern was really an employee entitled to wages:

Today, the U.S. Department of Labor (USDOL) issued its Final Rule modifying overtime requirements under the Fair Labor Standards Act (“FLSA”).  The Final Rule makes material changes to the application of overtime exemptions, and will take effect on December 1, 2016.

In 2014, President Obama directed the Secretary of Labor to simplify and modernize the overtime rules to make them easier for employees and employers to understand and apply.  As we previously wrote, in July 2015 the USDOL issued its proposed rule changes to the “white collar” exemptions to overtime pay, which apply to Executive, Administrative, Professional, Outside Sales and Computer Employees.  The proposed rules addressed the salary basis test but not the duties test, both of which need to be satisfied in order for the exemption to apply.  The USDOL requested comments from the public on its proposed changes to the salary basis test and on whether the USDOL should consider changes to the duties test as well.

By the time the comment period ended on September 4, 2015, the USDOL had received approximately 270,000 comments on the proposed rules.  Among the concerns expressed was that the USDOL sought a substantial increase in the minimum salary threshold from $455 per week ($23,660 per year) to $970 per week ($50,440 per year), with automatic annual revisions/increases.