President-Elect Donald J. Trump intends to nominate Andrew F. Pudzer to head the U.S. Department of Labor, according to numerous sources familiar with his office. Pudzer is the CEO of the holding company that operates the fast food chains Hardee’s and Carls, Jr., an avid blogger, and an outspoken opponent of raises to the federal minimum wage and the minimum salary requirements for “white collar” exemptions. Like most other nominees, Pudzer has no government experience, having spent his entire career in the private sector. Continue reading
As we previously reported, a federal judge in Texas recently issued a nationwide injunction putting a halt to regulations issued by the U.S. Department of Labor (DOL), which would have doubled the minimum salary needed to satisfy the “white collar” exemptions to overtime and minimum wage under the Fair Labor Standards Act (FLSA). Yesterday, the DOL appealed that decision to the U.S. Court of Appeals for the Fifth Circuit and it is expected to seek emergency consideration of the appeal. If the Fifth Circuit hears the appeal on an expedited basis, it may prevent the incoming Trump Administration from abandoning a defense of those regulations, as would be widely expected. We will keep you updated with any additional developments.
Our Chinese Employment Law Alliance colleague, Jeffrey Wilson at the Jun He law firm in Shanghai, recently authored this article on the new compliance rating system which will go into effect in China beginning on January 1, 2017. Click on this link to read the article: junhe-china-labor-employment-update-november-2016_4433095_1
It has been a busy month for the federal courts in Texas, and a long one for the United States Department of Labor (the “DOL”). As we blogged here last week, on November 21, 2016, the United States District Court for the Eastern District of Texas blocked implementation of the DOL’s rule that would have nearly doubled the minimum salary level for the “white collar” exemptions. That ruling somewhat overshadows the fact that, just 6 days earlier, the United States District Court for the Northern District of Texas permanently enjoined enforcement of the DOL’s so-called “Persuader Rule,” leaving the viability of this rule in grave doubt, in light of the likely policy shifts in the administration of President-Elect Donald J. Trump. (See here for our blog entry of potential policy shifts under the new administration.)
As we previously blogged here, here, and here, the thrust of the “Persuader Rule,” a regulation first proposed by the DOL in 2011, and enacted in April of this year, is to essentially eliminate the “Advice Exception” to the Labor Management Reporting and Disclosure Act of 1959 (“LMRDA”). The enactment of the “Persuader Rule” precipitated the filing of multiple lawsuits in federal District Courts across the country by employer-business associations and others. In a significant victory for employers, on June 27, 2016, the Court granted a nationwide, preliminary injunction against the DOL and others, preventing the enforcement of the new Persuader Rule. With the Court’s November 16 ruling, that permanent injunction is now permanent.
The Persuader Rule modifies the “Advice Exception” under the LMRDA, in place since the Kennedy Administration, which allowed employers to receive confidential and privileged counsel from attorneys on union organizing and election efforts. The Advice Exception was and is consistent with state law interpretations of the confidential attorney-client communications privilege, and also consistent with an attorney’s duty of confidentiality to his/her client under state law and rules of professional conduct. The only caveat to this bright line that no disclosure was required under the LMRDA was that, in providing such counsel, the attorney had no direct contact with employees and the employer was free to accept or reject any recommendations. Although billed as a modification of the Advice Exception, in this case, Plaintiffs and notably, the American Bar Association (which filed a “friend of the court” brief), saw the Persuader Rule as creating an irreconcilable conflict: forcing lawyers to document and disclose their advice to employer-clients, in violation of their duties under state law and professional rules of conduct, in order to comply with the new DOL rule. Plaintiffs also argued that the new Persuader Rule violated their First Amendment rights to free speech and association: specifically, that the Persuader Rule would impose a content-based burden on speech about union organizing. They further argued that the rule was impermissibly vague and violated their right to due process under the Fifth Amendment.
In the Court’s 86-page ruling of June 16, the Court agreed with and expanded on all of these positions, but most significantly found that the changes to the Persuader Rule “effectively eliminate[ed]” the Advice Exemption to the disclosure requirements of LMRDA. On November 16, 2016, in a mere two pages, the Court referred to and incorporated the reasoning of its preliminary injunction order, and ruled that the Persuader Rule “should be held unlawful and set aside.”
What comes next is not certain, but the chances of the Trump Administration adopting the Obama Administration’s position on the Persuader Rule seem remote. The DOL has appealed the preliminary injunction order to the 5th Circuit, and it may well be that the DOL abandons that appeal in the next administration. Importantly, for the present, for employers who seek advice of counsel on union organizing and election matters, this permanent injunction means that the content and other details of such advice will be kept confidential, and will not be disclosed, on the same terms that existed prior to the April 2016 implementation of the final Persuader Rule; however, employers would be well advised to stay abreast of this issue over the coming months.
Since at least the 1920s, Republicans have been viewed as the party of commerce, small government and less regulation. And, to be sure, most Republicans still are. But Donald Trump challenged all of those assumptions by running a populist campaign directed to the working class in which he has often touted “yuge” government. Indeed, Trump garnered more votes from union households than any Republican candidate in decades.
On November 22, 2016, the United States District Court for the Eastern District of Texas blocked implementation of the Department of Labor’s rule that nearly doubles the minimum salary level for the “white collar” exemptions. This means that the rule is not going into effect as planned on December 1, 2016, unless a higher court lifts the injunction.
For many years, the minimum salary level for the so-called “white collar” exemptions – those covering qualifying executive, administrative and professional employees – has been set at $455 per week. In May 2016, the Department of Labor (DOL) issued new regulations increasing the minimum salary level to $913 per week ($47,476 annually), with scheduled increases every three years beginning January 1, 2020.
In October 2016, the State of Nevada and 21 other states filed an emergency motion for a preliminary injunction to halt the implementation of the new minimum salary regulations, arguing that the DOL exceeded the authority delegated by Congress in adopting the new salary level. The suit was filed in U.S. District Court in Texas, and consolidated with another lawsuit challenging the rule brought by over 50 businesses and the U.S. Chamber of Commerce. Yesterday, Judge Amos Mazzant, an appointee of President Obama, granted the states’ motion and imposed a nationwide injunction preventing the regulations from going into effect. The court agreed that although the FLSA gives the Department “significant leeway” to establish the job duties that may qualify an employee for a “white collar” exemption, it did not authorize the DOL to define the exemption with respect to a minimum salary or to limit it with respect to salary.
This is surprising reasoning, given that the DOL “white collar” regulations have imposed minimum salary levels since 1949 that have never been challenged. But the court cited a report issued in conjunction with the original 1949 regulations, explaining that the salary level had been “purposefully set low to screen out the obviously nonexempt employees, making an analysis of duties in such cases unnecessary.” Indeed, at that time the DOL admitted that it had no authority to create a test based on salary alone. Yet because the new salary level is set so high, the court explained, it “creates essentially a de facto salary-only test,” noting that the DOL itself has estimated that 4.2 million workers who are currently exempt will lose their exemption under the new rule. Because Congress did not intend that salary alone exclude employees from exempt status, the court held, the DOL had exceeded its authority and the rule was invalid.
The preliminary injunction stays the implementation of Department of Labor’s new “white collar” exemption regulations for all employers covered by the FLSA nationwide, pending further proceedings in the District Court. An immediate appeal to the Fifth Circuit Court of Appeals is almost certain. However, given the election results and certainty of a shift in direction and priorities at the Department of Labor, it is doubtful that the agency will seek to defend the rule after Inauguration Day.
In the meantime, employers who have previously announced salary increases to maintain exempt status under the new rule face the very real dilemma of whether to go forward with the increases or put them off, given employee morale issues as well as the fact that already-announced increases could constitute a contractual promise. Employers considering withdrawing such an announced increase should consider this issue carefully in conjunction with counsel.
In this blog, we have previously covered the United States’ Department of Labor’s controversial efforts to effect a significant change to the so-called “Persuader Rule,” a regulation first proposed by the United States Department of Labor in 2011, and finally enacted in April of this year, to essentially eliminate the “Advice Exception” to the Labor Management Reporting and Disclosure Act of 1959 (“LMRDA”). (See here and here.) The enactment of the “Persuader Rule” precipitated the filing of multiple lawsuits in federal District Courts across the country by employer-business associations and others. In a significant victory for employers, on June 27, 2016, in the Federal District Court for the Northern District of Texas, that court granted a nationwide, preliminary injunction against the DOL and others, preventing, for the present, the enforcement of the new Persuader Rule.
The Persuader Rule modifies the “Advice Exception” under the LMRDA, in place since the Kennedy Administration, which allowed employers to receive confidential and privileged counsel from attorneys on union organizing and election efforts. The Advice Exception was and is consistent with state law interpretations of the confidential attorney-client communications privilege, and also consistent with an attorney’s duty of confidentiality to his/her client under state law and rules of professional conduct. The only caveat to this bright line that no disclosure was required under the LMRDA was that, in providing such counsel, the attorney had no direct contact with employees and the employer was free to accept or reject any recommendations. Although billed as a modification of the Advice Exception, in this case, Plaintiffs and notably, the American Bar Association (which filed a “friend of the court” brief), saw the Persuader Rule as creating an irreconcilable conflict: forcing lawyers to document and disclose their advice to employer-clients, in violation of their duties under state law and professional rules of conduct, in order to comply with the new DOL rule. Plaintiffs also argued that the new Persuader Rule violates their First Amendment rights to free speech and association: specifically, that the Persuader Rule would impose a content-based burden on speech about union organizing. They further argued that the rule was impermissibly vague and violated their right to due process under the Fifth Amendment.
In an 86 page ruling, the Court agreed with and expanded on all of these positions, but most significantly found that the changes to the Persuader Rule “effectively eliminate[ed]” the Advice Exemption to the disclosures requirements of LMRDA.
What comes next is not entirely certain, although an appeal by the DOL to the 5th Circuit would not be surprising. The DOL could also go back to the drawing board to revise the new Persuader Rule. Regardless of its next steps, the DOL will need to better articulate and support its rationale for any proposed change. The DOL apparently believes that the playing field regarding union organizing and elections has somehow become unlevel, and the new Persuader Rule was supposed to address this perceived imbalance. (Notably, however, the court here was unmoved by the DOL’s arguments and found that the DOL had provided little evidence to support such conclusions.) Importantly, for the present, for employers who seek advice of counsel on union organizing and election matters, this injunction means that the content and other details of such advice will be kept confidential, and will not be disclosed, on the same terms that existed prior to the April 2016 implementation of the final Persuader Rule; however, employers would be well advised to stay abreast of this issue as it works its way through the courts.
On June 23, 2016, in Fisher v. University of Texas et al., (“Fisher II”), the United States Supreme Court voted 4-3 to uphold the limited use of race in college and university admissions. The result was somewhat surprising given that Justice Anthony Kennedy, writing for the majority, had never before voted to uphold a race-based affirmative action program. (The Supreme Court had issued an earlier opinion on a different aspect of this case, “Fisher I.”)
In so doing, the Fisher II Court finally put to rest a race discrimination lawsuit that had been pending for more than eight years. During that time, eight undergraduate classes matriculated at the University of Texas-Austin (“UT-Austin”), while the plaintiff, Abigail Fisher (“Fisher”), grew from an eighteen-year old white high school applicant to a twenty-six year-old who graduated from Lousiana State University and now works as a financial analyst in Austin, Texas.
At the time Fisher applied to join the entering class of fall 2008, UT-Austin had a dual-track admissions policy for Texas residents: (i) a Top Ten Percent Plan (“Plan”) which provided automatic acceptance to those in the top ten percent of their graduating class, equal to 81 percent of the seats available for Texas residents for fall 2008; and (ii) a holistic review program that went beyond class rank to individually evaluate each applicant based on her or his achievements and experiences for the remaining 19 percent of seats available for Texas residents that year. As Fisher did not graduate in the top ten percent of her class, UT-Austin considered and then denied Fisher admission under its holistic review program.
The Supreme Court’s Decision
Fisher subsequently filed suit in federal court, arguing that UT-Austin’s admissions policies practices violated and had discriminated against her on the basis of race in violation of the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution. Fisher asserted that she had not been admitted because of her race.
In August 2009, the District Court granted UT-Austin’s motion for summary judgment. This was subsequently followed by two separate reviews by the Fifth Circuit Court of Appeals affirming summary judgment, in addition to two trips to the U.S. Supreme Court.
In its decision, the Supreme Court first discussed the “strict scrutiny” standard of review that it applied: a university must make a showing that the affirmative action plan at issue is narrowly tailored to this criterion: the benefit of student body diversity that “encompasses a … broa[d] array of qualifications and characteristics of which racial or ethnic origin is but a single though important element.”
Applying this standard, Justice Kennedy, writing for the majority, found that the UT Austin “articulated concrete and precise goals” for its affirmative action program that “mirror[ed]” the compelling interest of obtaining “the educational benefits that flow from student body diversity,” and that UT Austin was owed “considerable deference…in defining [its] intangible characteristics, like student body diversity, that are central to its identity and educational mission.” At the same time, the Court considered and rejected various race-neutral alternatives advanced by Fisher, including: (i) intensifying outreach efforts to Hispanic and African-American applicants; (ii) changing the weight given to socioeconomic and academic factors to increase diversity; and (iii) uncapping the Plan and admitting all students through a percentage plan. In doing so, the Court noted that UT-Austin had tried all three alternatives and found them seriously deficient in achieving a diverse student body.
The Implications of Fisher II: Next Steps for Affirmative Action
For all of its significance, the Fisher II ruling is rather narrow. Fisher II analyzed the use of race in a limited number of admissions decisions under the holistic review program that constituted a distinct minority of the overall number of admissions decisions made by UT-Austin, where most students were admitted under the Plan. Moreover, as Justice Kennedy noted, UT Austin (and all other colleges engaging in holistic review that includes race as a factor) has a “continuing obligation to satisfy the burden of strict scrutiny in light of changing circumstances,” and must engage in “periodic reassessment of the constitutionality, and efficacy, of its admissions program.”
Fisher II’s full impact on public and private universities may not been known for some time. At present, eight states already ban the consideration of race in higher education admissions decisions at public institutions, and Fisher II will not have any legal impact on those campuses. In other states, Fisher II may lead public universities to discuss and perhaps even reconfigure their admissions policies should those policies consider race as part of a holistic review.
Moreover, while Fisher II may represent a strong statement that it is possible for public universities to create narrowly tailored affirmative action programs, that public discussion is likely not completely over. Two other, similar lawsuits are pending in federal court, one involving Harvard College, a private college, and the University of North Carolina-Chapel Hill, a public university. Both cases were stayed in 2015 pending the outcome in Fisher II and will undoubtedly become more active over the coming months. Accordingly, colleges and universities that may consider race as one element of a holistic admissions process should stay tuned to these new cases to see what develops.
In April, in Kilby v. CVS Pharmacy, Inc., the California Supreme Court weighed in, at the request of the Ninth Circuit, on elements of two California Wage Orders that have, until now, received relatively little notice, and have escaped much judicial interpretation—the requirement that seating is to be made available to employees “when the nature of the work reasonably permits the use of seats.” (Emphasis added.) Unfortunately, the Court’s decision raises at least as many questions as it answers.
Before the Court were two main questions, both concerning the seating requirements of California Wage Orders: what does “nature of the work” mean when determining if employee seating is required, and, in this same context, what does “reasonably permits” mean?
The defendants, CVS Pharmacy (in a class action where the named plaintiff was a customer service representative) and JP Morgan Chase Bank (in a class action where the named plaintiffs were bank tellers), argued that “nature of the work” required a “holistic” analysis, where one basically could add up the overall duties and tasks of an employee, and consider the overall position and title, and determine whether, all things considered, the provision of seating was required.
The Supreme Court sided, not surprisingly, with the position of the California Department of Labor Standards and Enforcement in its amicus brief. Essentially, the Court said that you need to look at each discrete task and determine whether the nature of each task permits the use of seating. If, for example, a retail employee spends 90 percent of her working time stocking merchandise and 10 percent of her time ringing up sales at a cash register, and if we further assume that the “totality of the circumstances” (discussed more below) makes clear that seating is reasonable for the cashier work, but not for the stocking work, then the employer would need to provide seating for the time that the employee is performing cashier duties—regardless of the employee’s title (e.g., “stockperson” ), the fact that the majority of her tasks did not reasonably permit seating, or otherwise.
This interpretation of “nature of the work” naturally flows into the adjoining language of the Wage Orders—“when the nature of the work reasonably permits.” (Emphasis added.) And this is the part of the decision likely to cause California employers significant angst. The Court basically said that whether the nature of the work “reasonably permits” an employee to sit is based upon the “totality of the circumstances,”—in other words, a determination of what is reasonable must be based upon all of the material facts. But the Court did not provide any useful examples of what this might look like in the real world. The Court did say that the business judgment of the employer, as well as the physical layout of the workspace, were factors to be considered when looking at this “totality of the circumstances,” but no single factor was dispositive. (Notably, the defendant-employers argued that the test should be whether an employer’s business judgment was “legitimate” and not “pretextual,” harkening to the standard for employment discrimination cases under the California Fair Employment and Housing Act and Title VII of the Civil Rights Act of 1964, but this suggestion received little attention from, or discussion by, the Court.)
Takeaways: this decision is most certainly a mixed bag. On the one hand, the clarification that “nature of the work” refers to discrete tasks, and not an overall, holistic analysis provides useful guidance. Employers will have the burden to assess and analyze their employee positions to determine what “work” (tasks) merit seating. But for many such tasks, the nature of the task itself (such as cashiering versus stocking) will provide a guidepost, if not a bright line. The only bright line appears to be that the burden of proof will be on the employer—in other words, it is an employer’s burden to prove that compliance with the seating requirement is “infeasible because no suitable seating exists.”
The real conundrum for employers is that their judgment, i.e., what is “reasonable” in the totality of the circumstances, will almost certainly be second guessed by judges and juries, often in the context of class actions, and such judgment as to whether employee seating is reasonably permissible is one factor among many, and is entitled to no deference. On a related matter, the fact that the physical layout of a workspace is itself not dispositive further complicates the reasonableness analysis: it leaves the door open, for example, that a reconfiguration or enlargement of a work area, such as an enlargement of a cashier area to accommodate seating, may be “reasonable” under the law.
Also, a less discussed, but still impactful part of the Court’s decision was its discussion of the Wage Orders’ language that “[w]hen employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work and employees shall be permitted to use such seats when it does not interfere with the performance of their duties” —in other words, that when there are “lulls in operation” and such an employee is not “actively engaged in any duties,” seating must be provided. It appears that the same totality-of-circumstances and reasonableness analysis would apply to an employer’s determination of whether an employee was or was not “actively engaged” in duties. Is a customer service employee in a retail storefront actively engaged in the duty of providing customer service (including, for example, being welcoming) when there are no customers in the store, but where the store interior and the employee are visible from passersby? This would seem to rest, in part, on an employer’s business judgment, and such judgment, under this decision, is not entitled to deference, but is only one factor among many.
Future decisions from the California courts will hopefully provide more structure and guidance to employers’ “reasonableness” analysis. Until then, in homage to Auguste Rodin’s famous “Thinking Man” sculpture, employers and human resources professionals may want to put their heads in their hands and think…while sitting, of course.
We recently blogged about the U.S. Department of Labor’s dramatic increase in the salary threshold for exempt employees. The federal changes put California in the unusual position of having (at least as to one corner of the wage and hour universe) less favorable standards than federal law. But have no fear—California has recently raised its own minimum wage, which surpasses the federal standards. Together, the federal and California state law changes will have costly affects for California employers who employ exempt employees earning less than $47,476 by December 1, 2016. California employers should start planning now to make adjustments for compliance with both state and federal exemption laws.
What is California’s Minimum Wage? The current minimum wage for employers with at least 26 employees in California is $10.00 per hour – but not for long! Beginning January 1, 2017, the minimum wage will increase annually until it reaches $15 per hour by January 1, 2022:
- January 1, 2017 through December 31, 2017: $10.50 per hour.
- January 1, 2018 through December 31, 2018: $11 per hour.
- January 1, 2019 through December 31, 2019: $12 per hour.
- January 1, 2020 through December 31, 2020: $13 per hour.
- January 1, 2021 through December 31, 2021: $14 per hour.
- Beginning January 1, 2022: $15 per hour.
How Does the FLSA Regulation Affect California Employers with Exempt Employees? Under California’s salary basis test, exempt employees must (among other requirements) earn at least twice the state’s minimum wage, meaning that under the current $10 per hour minimum wage, exempt employees must earn an annual salary of $41,600 ($10 per hour x 2 x 40 hours per week x 52 weeks per year). But due to recent amendments to the FLSA, it is not enough to simply follow the scheduled annual increases to the state minimum wage.
The new FLSA regulation, which takes effect December 1, 2016, more than doubles the current federal salary threshold for exempt employees from $455 a week to $913 a week or $47,476 per year. Historically, federal exemption regulations did not have a major impact on California employers since their requirements were much lower than the state level – until now. This federal threshold exceeds California’s minimum exemption salary until the state minimum wage reaches $12.00 per hour on January 1, 2019. However, the DOL will update the minimum salary threshold for exempt employees every three years, starting January 1, 2020, compelling employers to re-assess compliance under the FLSA standard once again.
This regulation will force many California employers to choose between raising the salary of exempt employees to the federal threshold of $47,476 (until it increases again in 2020) or reclassifying employees entirely to hourly (and therefore eligible for overtime pay). For those who choose the latter option, keep in mind that the state minimum wage will reach $15.00 per hour by 2022.
What Can Employers Do Now? Employers are encouraged to start assessing their workforce and compensation policies to prepare for dramatic annual increases to compensation for exempt employees who are at or close to the current state minimum allowable salary. Though entry level managerial positions are likely to be the most affected by the federal increase in the exempt salary threshold, employers should consider conducting an audit, through counsel, of their workforce to determine what portion of their workforce will be affected by the new regulation and whether re-classifying some workers as non-exempt is the less-costly option.