On November 23, 2016, we issued a Client Bulletin titled “Employers Can Breathe A Sigh of Relief Come December 1: Court strikes down overtime rule.”  But a new lawsuit in federal court in New Jersey puts a gulp in that sigh of relief.

Background

As previously reported, regulations that would have more than doubled the salary threshold for Administrative, Executive and Professional exemptions were scheduled to take effect on December 1, 2016, while President Obama was still in office. On November 22, 2016, eight days before the effective date, a district court judge in Sherman, Texas, issued a nationwide injunction prohibiting the U.S. Department of Labor from "implementing and enforcing [the new regulations].” On December 1, 2016, the DOL appealed to the U.S. Court of Appeals for the Fifth Circuit.  After President Trump took office in January, the Fifth Circuit stayed the appeal at the request of the Trump DOL until June 30 to allow the Trump Administration’s labor secretary to be confirmed. (Secretary of Labor Alexander Acosta was confirmed by the Senate on April 27.)

Alvarez v. Chipotle Mexican Grill, Inc.

This past Wednesday, managers and other exempt employees at Chipotle restaurants in New Jersey filed a class and collective action in federal court, claiming that the company failed to comply with the overtime regulations by failing to pay exempt workers at least $47,476 a year (they also assert claims under the New Jersey Wage and Hour Law). The employees argued that, despite the ruling in Texas, private employers were still required to comply with the overtime regulations because the preliminary injunction applied only to state government employers. (The Texas lawsuit was brought by 21 states on behalf of state employers and not private companies.) The plaintiffs contend that they are owed overtime for all hours worked in excess of 40 hours a week since December 1, 2016.

Plaintiffs’ attorney Joseph Sellers was quoted in Bloomberg BNA's Daily Labor Report as saying that Chipotle wasn’t the only employer “to avoid paying overtime to its employees by illegally hiding behind a rule that doesn’t apply to them.” He added, “this case could benefit millions of hard-working Americans who are being denied money that they’ve earned.”

At issue in the case is the legal status of the overtime regulations. Mr. Sellers said that “the Administrative Procedure Act provides that rules, once they are issued for final publication [in this case on May 23, 2016] with an effective date [Dec. 1, 2016], automatically go into effect on that date unless the court issues a final adjudication vacating that rule . . . The Department of Labor doesn't implement the rule. The rule goes into effect on its own.”

But a former Wage and Hour official also quoted in the Daily Labor Report article takes issue with this conclusion: “The injunction bars not only the enforcement but the implementation of the regulation in the first place. It means that the final rule that was issued in 2016 never became effective,” said Paul DeCamp, who was a Wage and Hour Administrator during the administration of President George W. Bush.

A spokesman for Chipotle denied that the company engaged in any wrongdoing.

What will Secretary Acosta do with the overtime regulations?

Interestingly enough, the Chipotle lawsuit was filed on the same day that Secretary Acosta testified before the House Labor, Health and Human Services, Education and Related Agencies regarding the DOL budget. Acosta said that he plans to seek public comment in the next two to three weeks on revising the overtime regulations.

During his Senate confirmation hearing on March 31, now-Secretary Acosta was asked about the salary level for exempt employees. He said that the salary level  hadn’t been raised since 2004 and was not adjusted each year for inflation: “I think it’s unfortunate that rules that involve dollar values can go more than a decade without updating.” He noted that when that happens it can lead to large increases that can disrupt businesses. But he acknowledged Republican concerns about the new overtime threshold of $47,476, and said that a simple cost of living adjustment on the existing level ($23,660) would move the threshold to about $33,000. He suggested that he might be open to that salary level, but when pressed by Sen. Tim Scott (R-SC) to commit to that amount, Secretary Acosta would not be pinned down.

Conclusion

The Chipotle lawsuit is expected to provide Secretary Acosta with even more of an incentive to take quick action regarding the overtime regulations. It seems likely that Acosta will drop the DOL’s appeal of the Texas ruling, pull the regulation, and begin the process of establishing a new salary threshold for exempt employees.

Image Credits: From flickr, Creative Commons license. Unhinged by Zak Greant, caricature of Secretary Acosta by Donkey Hotey.