© 2016 The Texas Lawbook.
By John V. Jansonius and David R. Schlottman of Jackson Walker
(Nov. 23) – The injunction issued Nov. 22 against the Department of Labor’s new overtime rule is potentially far-reaching, and a Republican-controlled government makes it conceivable that salary thresholds for white-collar exemptions to overtime may ultimately be reduced or eliminated entirely. This injunction from U.S. District Judge Amos Mazzant of the Eastern District of Texas is the latest in a remarkable series of decisions from Texas federal judges blocking Obama administration orders, rules, and regulations.
The recent of election of Donald Trump is likely to erode much of the Obama administration’s regulatory agenda. Exactly how and to what extent, however, are open questions. What is known is that President-elect Trump’s path to undoing the work of the Obama administration has been made much easier by the federal courts of Texas.
Salary Thresholds For White-Collar Exemptions – Injunction Against Enforcement of the DOL Overtime Rule
To much of American business, the most costly and complicated regulatory development of 2016 is—or at least was—the DOL’s overtime rule. That rule proposed to double the salary threshold for administrative, executive, and professional exemptions to overtime pay from $455 per week ($23,660 annualized) to $913 per week ($47,476 annualized) effective December 1, 2016 and with raises every three years after that.
The rule has been vigorously opposed. In September 2016, Texas and Nevada led a group of 21 states in filing suit in the Eastern District of Texas to enjoin the overtime rule. (Nevada v. DOL, No. 4:16-cv-00731-ALM) The case was assigned to District Judge Amos Mazzant, III, an Obama appointee.
In this important decision, Judge Mazzant sided with the challengers. On Nov. 22, he entered a preliminary injunction barring the overtime rule nationwide. Judge Mazzant ruled that the DOL had no authority to impose a salary threshold of $913 per week for the white-collar exemptions.
The most striking conclusion of the court’s opinion is that the text of the Fair Labor Standards Act shows that Congress did not intend for employees to be paid a minimum amount to qualify for white-collar exemptions. Instead, an employee’s duties are determinative. In the court’s words: “The plain meanings of the terms in Section 213(a)(1), as well as Supreme Court precedent, affirms the Court’s conclusion that Congress intended the EAP exemption to depend on an employee’s duties rather than an employee’s salary.” By imposing a weekly salary threshold of $913, the DOL violated the legislative intent behind the FLSA’s administrative, executive, and professional exemptions.
While Judge Mazzant stated that his ruling is limited to the DOL’s 2016 overhaul, his decision is potentially much more far-reaching. The court’s suggestion that Congress intended white-collar exemptions to turn solely on duties opens the door for future challenges to salary thresholds of any amount—even the previous threshold of $455 per week. This would reverse course on nearly 70 years of DOL regulations imposing salary thresholds of varying amounts.
Ultimately, the DOL’s overtime rule may have been destined for the dust bin anyhow. The rule is hugely unpopular among congressional Republicans and President-elect Trump. But, the unexpected scope of Judge Mazzant’s decision raises the potential for previously unthought-of scenarios. Instead of rollback to the previous threshold, it is conceivable that salary thresholds might be reduced even further or eliminated entirely.
More broadly, the decision may generate debate about the FLSA’s place in the modern economy. The FLSA, a law passed in 1938, is viewed by many in the business community as, at best, no longer relevant. President-elect Trump and congressional Republicans have been handed a platform by Judge Mazzant’s ruling to reform a law that many feel was not designed for the 21st century workforce.
Government Contracting – The Fair Pay And Safe Workplaces Rules
In mid-2014, President Obama signed Executive Order 13763 directing the DOL to require prospective federal contractors to disclose violations of labor laws and give federal agencies opportunity to consider a company’s record of violations in awarding contracts. Executive Order 13763 was referred to as the “Fair Pay and Safe Workplace” order. Late this summer, the DOL released its final rules for implementing the order, which became known by many as the “blacklist rules.”
The Fair Pay rules require government contractors to publicly report “violations” of federal labor law to procurement officers. “Violation” includes non-final, un-adjudicated, and un-appealed quasi-judicial agency actions, such as reasonable cause determinations by the EEOC, complaints issued by General Counsel for the NLRB, and show-cause notices from the federal contract compliance office. These “violations” can be grounds for suspension or debarment from federal contracts. The Fair Pay rules also prohibit contractors from requiring workers to sign pre-dispute arbitration clauses covering Title VII or sexual harassment claims.
The business community wasted no time challenging the so called blacklist rules in Texas. The case is Associated Builders & Contractors of Southeast Texas v. Rung (No. 1:16 cv 00425). On Oct. 24, District Judge Marcia Crone in Beaumont issued a temporary injunction halting implementation of EO 13763 and the related regulations.
In her decision, Judge Crone concluded that the Fair Pay rules are anything but. The court took issue with the disclosure requirements because the rule’s definition of “violation,” which includes non-final and un-adjudicated agency actions, conflates allegations and guilt. An “allegation” of course is not a “violation,” and Judge Crone ruled that the Fair Pay rule’s merger of the two is so unfair as to raise due process concerns. Further, the Fair Pay rule’s prohibition against mandatory pre-dispute arbitration clauses overstepped executive authority by disregarding the strong congressional policy choice in favor of arbitration embodied by the Federal Arbitration Act.
The rules implementing EO 13763 are currently enjoined nationwide pending final resolution of the case. That may be moot. President elect Trump will have authority after Jan. 21, 2017 to unilaterally withdraw the Fair Pay rule. Judge Crone’s decision elaborating on due process considerations of the Fair Pay rule may make repeal of the Executive Order an easy decision for the new Administration.
Union Organizing & Collective Bargaining – The DOL Persuader Rule
The Labor-Management Reporting and Disclosure Act requires businesses and their advisors to make publicly available reports to the DOL about attempts to persuade employees in union organizing and collective bargaining. For decades—based on the statutory advice exemption in the LMRDA—the DOL’s position was that this obligation applied only to “direct” persuasion. In other words, direct communication with employees about the disadvantages of joining a union is reportable, but behind-the-scenes advice and counsel to the employer is not.
After years of trying to erode the advice exemption, over considerable resistance, the DOL took the plunge in 2016. The new regulations extend the LMRDA’s disclosure obligations to “indirect” persuasion. Included as “indirect” persuasion is attorney advice. Critics of the persuader rule, which include the American Bar Association and every major business association, argue that the DOL’s rule invades attorney-client privilege, violates express language of the LMRDA, violates the First Amendment, and exceeds the DOL’s authority. To make these points in court, the American business community again looked to Texas.
District Judge Sam Cummings in Lubbock had no trouble identifying the overreach of the persuader rule. On June 27, 2016, he issued a temporary injunction halting its implementation. (Nat’l Fed. of Indep. Bus. v. Perez, No. 5:16 cv 00066 C) Judge Cummings explained that the regulation is hopelessly vague, “defective to its core,” and that the DOL “effectively eliminate[ed] the [LMRDA’s] advice exemption contrary to the plain text of section 203 (c) of the law.”
On Nov. 16, Judge Cummings went a step further and issued a national permanent injunction. For Secretary of Labor Perez and the DOL, there is little hope for resuscitation of its union-friendly persuader rule soon, and, possibly, ever. As with the Fair Pay rules, a federal district judge in Texas has simplified the process for the incoming Trump Administration to undo federal government initiatives unpopular with business.
Corporate Tax Strategy – Anti-Inversion Rules
The United States has the highest corporate tax rate among the world’s major economies. “Inversions” have thus become popular with large American businesses. The process involves relocating a business’s tax address from the United States to a foreign jurisdiction to take advantage of lower corporate tax rates. In a rare moment of agreement on the campaign trail, both President Elect Trump and former Secretary Clinton expressed opposition.
In April 2016, the IRS and Treasury Department announced new rules to curb inversions. As a result, one high-profile transaction dissolved. In that deal, Pfizer, Inc. was set to merge with Allergan, PLC and transfer Pfizer’s residence for corporate taxes to Ireland.
For proponents of freedom to choose one’s tax domicile, what better place to contest the anti-inversion rules than a business-friendly state with no state income tax? Thus, in August 2016, the US Chamber of Commerce filed suit in the Western District of Texas, contending that the Treasury and IRS exceeded executive authority and failed to comply with the Administrative Procedure Act when promulgating the anti-inversion rules. The challengers seek an injunction enjoining enforcement of these rules.
The case, Chamber of Commerce v. IRS (No. 1:16-cv-00944), is pending before U.S. District Judge Lee Yeakel in Austin. Oral argument on dispositive motions is likely to take place in mid-January and a decision should be forthcoming shortly after. The anti-inversion rules are in effect currently and will remain so unless enjoined. Regardless of outcome, the decision in this case is likely to be a centerpiece in the coming political debate over corporate tax rates in the United States.
Financial Advisors – The DOL’s Fiduciary Rule
In the financial planning industry, perhaps no act of the Obama Administration is more reviled than the DOL’s “fiduciary rule.” That rule imposes a fiduciary duty upon financial professionals who advise on retirement accounts to act in the best interest of clients when recommending investment products. This new fiduciary rule displaces the long-standing suitability standard. Critics charge that the rule will substantially increase business costs through new compliance measures and litigation while decreasing planning options for investors.
The fiduciary rule is the subject of litigation across the country, including the Dallas Division of the Northern District of Texas. In a case pending before Chief District Judge Barbara M.G. Lynn, the US Chamber of Commerce contends that the fiduciary rule violates the Administrative Procedure Act, unlawfully impedes on constitutionally protected commercial speech, and exceeds the DOL’s statutory authority. (Chamber of Commerce of the U.S., et al., v. Perez, et al., Case No. 16 cv 1476 M) Oral argument on the Chamber’s request for injunctive relief was held on November 17, 2016 and a decision is expected shortly.
Judge Lynn’s decision has taken on added interest in light of a recent ruling from District Judge Randolph Moss of the District of Columbia upholding the fiduciary rule in a similar lawsuit. (Nat’l Ass’n of Fixed Annuities v. Perez, No. 16 1035 (RDM)). Absent injunctive relief in one of the pending cases across the country, or political intervention, the new fiduciary duty rule will take effect on April 10, 2017.
Reporting On-The-Job Injuries – OSHA Reporting Rules
The administration’s focus on union organizing, overtime pay, and government contracting has not been to the exclusion of added regulatory burdens concerning workplace safety and health. Flying somewhat under the radar compared to the high-profile regulatory actions discussed above, but no less burdensome on business, is OSHA’s Improve Tracking of Workplace Injuries and Illnesses rule (81 Fed. Reg. 29,624 (May 12, 2016) (to be codified at 29 C.F.R. pts. 1902 & 1904)).
The rule requires companies subject to OSHA reporting to submit reports electronically on specific OSHA forms that, for the first time, will be publicly available on the internet. Previously, employers could make reports on paper forms that were substantially similar to OSHA’s specific forms, and they were kept confidential.
The rule also purports to “clarify” an employer’s obligation to maintain an employee-friendly workplace-injury reporting procedure and, for the first time, grants OSHA discretionary authority to cite employers for OSHA retaliation even when an employee has not filed an OSHA complaint.
The rule has been criticized for imposing additional compliance burdens and infringing on both employer and employee privacy. Once again, legal pushback is happening in Texas. And also again, the Northern District of Texas, Dallas Division, is the venue of choice. The case is Texo ABC/AGC Inc. v. Perez (No. 3:16 cv 01998) and is pending before District Judge Sam Lindsey.
The plaintiffs argue that OSHA exceeded its authority in enacting the rules. They also argue that the “clarification” of requirements for a workplace-injury reporting procedure improperly curtail employer’s rights to investigate incidents through post-accident drug testing. Most employers would like to know if drugs or alcohol were contributory to an on-the-job injury.
A decision on the injunction request should come soon. Absent injunctive relief, the new rules will begin phasing in on January 1, 2017. As with much or all of the Obama administration’s labor and employment initiatives, the new OSHA rules are vulnerable to the imminently changing political winds. The federal court cases in Texas remain important nonetheless, and may influence the leverage the incoming administration and Congress have in undoing orders, rules, and regulations.
January 21, 2017 And Beyond: Will The Federal Courts In Texas Remain A Popular Forum For Restraining Executive Action?
President elect Trump’s election stumped professional pollsters and pundits, so it is perhaps impossible to accurately predict how the new administration will treat executive orders and regulatory actions of the outgoing administration. The most that can be said is that President elect Trump, with Republican control of both houses of Congress, is well-positioned to neutralize a bureaucratic environment that has been unpopular with business. As to the legal challenges in Texas and elsewhere to President Obama’s orders, rules, and regulations impacting business, the injunctions already entered and the decisions to come may simplify matters for Mr. Trump and his administration. What can be said with greater certainty is that the federal court system in Texas has figured prominently in limiting the outgoing administration’s employment, immigration, and business agenda from gaining sufficient traction to survive political change.
John Jansonius is a partner in the Dallas office of Jackson Walker LLP, focused on labor and employment litigation matters. David Schlottman is an associate, also in the Dallas office, focused on labor and employment and business litigation.
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