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DOL Issues Final Overtime Rule, Expanding Overtime Pay for Over 4 Million Workers; New Rule to Go Into Effect Dec. 1, 2016

The United States Department of Labor (DOL) Announced its long-awaited final rule regarding the update to the existing overtime rules.  The new rule is set to take effect on December 1, 2016.

Most significantly, whereas the previous rule employees who met certain duties tests under the so-called “white collar” exemptions had to make at least $455 per week on a “salary basis,” the new rule brings that threshold to $913 per week (or $47,476 annually).  This is approximately $3,000 less on an annual basis that an estimated $50,440 per year that a proposed version of the rule promulgated by the DOL had set last year, but over two times the current threshold amount.

The new salary basis threshold equates with the 40th percentile of weekly earnings for a full-time, salaried work in the United States’ lowest income region.

The final rule also raises the overtime eligibility threshold for highly compensated employees from $100,000 to $134,000.

While the rule raises the applicable thresholds for various exemptions, it also allows employers to count earnings paid to employees as bonuses and commissions toward meeting the salary threshold.  Specifically, the rule permits employers to meet up to ten (10%) of the salary threshold with amounts paid to employees as bonus and commission payments.

Although the DOL had also asked for input on a proposed rule which would have tracked the California white collar exemptions and created a more bright-line test requiring that a worker spend at least 50 percent of his or her time on exempt duties each week to qualify for an exemption, the final rule abandoned any such change to the duties’ portions of the executive, administrative, professional, outside sales, and computer employee exemptions.

In a lesser publicized 2nd final rule, the DOL carved out certain employers from the new rule.  Specifically, the 2nd rule announced a non-enforcement policy with regard to the 1st rule, for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities (i.e. group homes) with 15 or fewer beds.  Under the 2nd final rule announced, from December 1, 2016 to March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week for this subset of employers covered by the non-enforcement policy.

For further information on all things pertaining to the new rules, visit the DOL’s website.

9th Cir.: Employers May NOT Retain Employee Tips Even Where They Do Not Take a Tip Credit; 2011 DOL Regulations Which Post-Dated Woody Woo Due Chevron Deference Because Existing Law Was Silent and Interpretation is Reasonable

 

Oregon Rest. & Lodging Ass’n v. Perez

In a case that will likely have very wide-reaching effects, this week the Ninth Circuit reversed 2 lower court decisions which has invalidated the Department of Labor’s 2011 tip credit regulations. Specifically, the lower courts had held, in accordance with the Ninth Circuit’s Woody Woo decision which pre-dated the regulations at issue, that the DOL lacked the authority to regulate employers who did not take a tip credit with respect to how they treated their employees’ tips. Holding that the 2011 regulations were due so-called Chevron deference, the Ninth Circuit held that the lower court had incorrectly relied on its own Woody Woo case because the statutory/regulatory silence that had existed when Woody Woo was decided had been properly filled by the 2011 regulations. As such, the Ninth Circuit held that the lower court was required to give the DOL regulation deference and as such, an employer may never retain any portion of its employees tips, regardless of whether it avails itself of the tip credit or not.

Framing the issue, the Ninth Circuit explained “[t]he precise question before this court is whether the DOL may regulate the tip pooling practices of employers who do not take a tip credit.” It further noted that while “[t]he restaurants and casinos [appellees] argue that we answered this question in Cumbie. We did not.”

The court then applied Chevron analysis to the DOL’s 2011 regulation at issue.

Holding that the regulation filled a statutory silence that existed at the time of the regulation, and thus met Step 1 of Chevron, the court reasoned:

as Christensen strongly suggests, there is a distinction between court decisions that interpret statutory commands and court decisions that interpret statutory silence. Moreover, Chevron itself distinguishes between statutes that directly address the precise question at issue and those for which the statute is “silent.” Chevron, 467 U.S. at 843. As such, if a court holds that a statute unambiguously protects or prohibits certain conduct, the court “leaves no room for agency discretion” under Brand X, 545 U.S. at 982. However, if a court holds that a statute does not prohibit conduct because it is silent, the court’s ruling leaves room for agency discretion under Christensen.

Cumbie falls precisely into the latter category of cases—cases grounded in statutory silence. When we decided Cumbie, the DOL had not yet promulgated the 2011 rule. Thus, there was no occasion to conduct a Chevron analysis in Cumbie because there was no agency interpretation to analyze. The Cumbie analysis was limited to the text of section 203(m). After a careful reading of section 203(m) in Cumbie, we found that “nothing in the text of the FLSA purports to restrict employee tip-pooling arrangements when no tip credit is taken” and therefore there was “no statutory impediment” to the practice. 596 F.3d at 583. Applying the reasoning in Christensen, we conclude that section 203(m)‘s clear silence as to employers who do not take a tip credit has left room for the DOL to promulgate the 2011 rule. Whereas the restaurants, casinos, and the district courts equate this silence concerning employers who do not take a tip credit to “repudiation” of future regulation of such employers, we decline to make that great leap without more persuasive evidence. See United States v. Home Concrete & Supply, LLC, 132 S. Ct 1836, 1843, 182 L. Ed. 2d 746 (2012) (“[A] statute’s silence or ambiguity as to a particular issue means that Congress has . . . likely delegat[ed] gap-filling power to the agency[.]”); Entergy Corp. v. Riverkeeper, Inc., 556 U.S. 208, 222, 129 S. Ct. 1498, 173 L. Ed. 2d 369 (2009) (“[S]ilence is meant to convey nothing more than a refusal to tie the agency’s hands . . . .”); S.J. Amoroso Constr. Co. v. United States, 981 F.2d 1073, 1075 (9th Cir. 1992) (“Without language in the statute so precluding [the agency’s challenged interpretation], it must be said that Congress has not spoken to the issue.”).

In sum, we conclude that step one of the Chevron analysis is satisfied because the FLSA is silent regarding the tip pooling practices of employers who do not take a tip credit. Our decision in Cumbie did not hold otherwise.

Proceeding to step 2 of Chevron analysis, the court held that the 2011 regulation was reasonable in light of the existing statutory framework of the FLSA and its legislative history. The court reasoned:

The DOL promulgated the 2011 rule after taking into consideration numerous comments and our holding in Cumbie. The AFL-CIO, National Employment Lawyers Association, and the Chamber of Commerce all commented that section 203(m) was either “confusing” or “misleading” with respect to the ownership of tips. 76 Fed. Reg. at 18840-41. The DOL also considered our reading of section 203(m) in Cumbie and concluded that, as written, 203(m) contained a “loophole” that allowed employers to exploit the FLSA tipping provisions. Id. at 18841. It was certainly reasonable to conclude that clarification by the DOL was needed. The DOL’s clarification—the 2011 rule—was a reasonable response to these comments and relevant case law.

The legislative history of the FLSA supports the DOL’s interpretation of section 203(m) of the FLSA. An “authoritative source for finding the Legislature’s intent lies in the Committee Reports on the bill, which represent the considered and collective understanding of those Congressmen [and women] involved in drafting and studying proposed legislation.” Garcia v. United States, 469 U.S. 70, 76, 105 S. Ct. 479, 83 L. Ed. 2d 472 (1984) (citation and internal quotation marks omitted). On February 21, 1974, the Senate Committee published its views on the 1974 amendments to section 203(m). S. Rep. No. 93-690 (1974).

Rejecting the employer-appellees argument that the regulation was unreasonable, the court explained:

Employer-Appellees argue that the report reveals an intent contrary to the DOL’s interpretation because the report states that an “employer will lose the benefit of [the tip credit] exception if tipped employees are required to share their tips with employees who do not customarily and regularly receive tips[.]” In other words, Appellees contend that Congress viewed the ability to take a tip credit as a benefit that came with conditions and should an employer fail to meet these conditions, such employer would be ineligible to reap the benefits of taking a tip credit. While this is a fair interpretation of the statute, it is a leap too far to conclude that Congress clearly intended to deprive the DOL the ability to later apply similar conditions on employers who do not take a tip credit.

The court also examined the Senate Committee’s report with regard to the enactment of 203(m), the statutory section to which the 2011 regulation was enacted to interpret and stated:

Moreover, the surrounding text in the Senate Committee report supports the DOL’s reading of section 203(m). The Committee reported that the 1974 amendment “modifies section [20]3(m) of the Fair Labor Standards Act by requiring . . . that all tips received be paid out to tipped employees.” S. Rep. No. 93-690, at 42. This language supports the DOL’s statutory construction that “[t]ips are the property of the employee whether or not the employer has taken a tip credit.” 29 C.F.R. § 531.52. In the same report, the Committee wrote that “tipped employee[s] should have stronger protection,” and reiterated that a “tip is . . . distinguished from payment of a charge . . . [and the customer] has the right to determine who shall be the recipient of the gratuity.” S. Rep. No. 93-690, at 42.

In 1977, the Committee again reported that “[t]ips are not wages, and under the 1974 amendments tips must be retained by the employees . . . and cannot be paid to the employer or otherwise used by the employer to offset his wage obligation, except to the extent permitted by section [20]3(m).” S. Rep. No. 95-440 at 368 (1977) (emphasis added). The use of the word “or” supports the DOL’s interpretation of the FLSA because it implies that the only acceptable use by an employer of employee tips is a tip credit.

Additionally, we find that the purpose of the FLSA does not support the view that Congress clearly intended to permanently allow employers that do not take a tip credit to do whatever they wish with their employees’ tips. The district courts’ reading that the FLSA provides “specific statutory protections” related only to “substandard wages and oppressive working hours” is too narrow. As previously noted, the FLSA is a broad and remedial act that Congress has frequently expanded and extended.

Considering the statements in the relevant legislative history and the purpose and structure of the FLSA, we find that the DOL’s interpretation is more closely aligned with Congressional intent, and at the very least, that the DOL’s interpretation is reasonable.

Finally, the court explained that it was not overruling Woody Woo, because Woody Woo had been decided prior to the enactment of the regulation at issue when there was regulatory silence on the issue, whereas this case was decided after the 2011 DOL regulations filled that silence.

This case is likely to have wide-ranging impacts throughout the country because previously district court’s have largely simply ignored the 2011 regulations like the lower court’s here, incorrectly relying on the Woody Woo case which pre-dated the regulation.

Click Oregon Rest. & Lodging Ass’n v. Perez to read the entire decision.

D.D.C.: Revised Regulations re Companionship Exemption Reinstated; DOL Acted Within Its Rulemaking Authority and the New Regulation Grounded in Reasonable Interpretation of the FLSA

Home Care Association of America v. Weil

This case was before the D.C. Circuit on the Department of Labor’s appeal of a lower court’s decision that held the DOL’s recent amendments to the companionship exemption regulations to be unenforceable.  Specifically, in 2 separate decisions, the same lower court judge had invalidated the new regulations, both as they applied to third-party staffing companies and as they revised the definition of companionship duties within the scope of the exemption.  The D.C. Circuit reversed the lower court’s decision and reinstated the revised regulation, finding that the DOL acted within its rulemaking authority with regard to the revision pertaining to third-party staffing companies.  The D.C. Circuit declined to reach the second issue regarding the definition of companionship services, because it held that the plaintiffs lacked standing to challenge same in light of the fact that the exemption was inapplicable to them under the regulation in the first instance.

Explaining the issue before it, the court stated:

The Fair Labor Standards Act’s protections include the guarantees of a minimum wage and overtime pay. The statute, though, has long exempted certain categories of “domestic service” workers (workers providing services in a household) from one or both of those protections. The exemptions include one for persons who provide “companionship services” and another for persons who live in the home where they work. This case concerns the scope of the exemptions for domestic-service workers providing either companionship services or live-in care for the elderly, ill, or disabled. In particular, are those exemptions from the Act’s protections limited to persons hired directly by home care recipients and their families? Or do they also encompass employees of third-party agencies who are assigned to provide care in a home?

Until recently, the Department of Labor interpreted the statutory exemptions for companionship services and live-in workers to include employees of third-party providers. The Department instituted that interpretation at a time when the provision of professional care primarily took place outside the home in institutions such as hospitals and nursing homes. Individuals who provided services within the home, on the other hand, largely played the role of an “elder sitter,” giving basic help with daily functions as an on-site attendant.

Since the time the Department initially adopted that approach, the provision of residential care has undergone a marked transformation. The growing demand for long-term home care services and the rising cost of traditional institutional care have fundamentally changed the nature of the home care industry. Individuals with significant care needs increasingly receive services in their homes rather than in institutional settings. And correspondingly, residential care increasingly is provided by professionals employed by third-party agencies rather than by workers hired directly by care recipients and their families.

In response to those developments, the Department recently adopted regulations reversing its position on whether the FLSA’s companionship-services and live-in worker exemptions should reach employees of third-party agencies who are assigned to provide care in a home. The new regulations remove those employees from the exemptions and bring them within the Act’s minimum-wage and overtime protections. The regulations thus give those employees the same FLSA protections afforded to their counterparts who provide largely the same services in an institutional setting.

The D.C. Circuit held that the DOL acted within its rulemaking authority when it issued the regulations at issue and that they were not arbitrary and capricious.  For these reasons it held the regulations were proper and enforceable:

Appellees, three associations of home care agencies, challenged the Department’s extension of the FLSA’s minimum-wage and overtime provisions to employees of third-party agencies who provide companionship services and live-in care within a home. The district court invalidated the Department’s new regulations, concluding that they contravene the terms of the FLSA exemptions. We disagree. The Supreme Court’s decision in Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 127 S.Ct. 2339, 168 L.Ed.2d 54 (2007), confirms that the Act vests the Department with discretion to apply (or not to apply) the companionship-services and live-in exemptions to employees of third-party agencies. The Department’s decision to extend the FLSA’s protections to those employees is grounded in a reasonable interpretation of the statute and is neither arbitrary nor capricious. We therefore reverse the district court and remand for the grant of summary judgment to the Department.

To read the entire decision click Home Care Association of America v. Weil.

President Obama Announces That Threshold Salary for FLSA’s White Collar Exemptions Will Rise From $23,660 ($455/week) to $50,400 ($969/week)

In an Op-Ed penned by President Obama on the website Huffington Post, the new proposed overtime rules from the administration officially began their roll-out. Most significantly, the new rules more than double the current salary threshold for exempt employees from $23,660 per year (or $455 per week) to $50,400 per yer (or $969 per week), and continue to increase automatically in years to come.

“In this country, a hard day’s work deserves a fair day’s pay,” Obama wrote in an op-ed published Monday evening by the Huffington Post — an outreach to the president’s base on the left. “That’s at the heart of what it means to be middle class in America.”

The President continued:

Without Congress, I’m very hard-pressed to think of a policy change that would potentially reach more middle class earners than this one,” said Jared Bernstein, a former economic adviser to Vice President Joe Biden who’s now a senior fellow at the Center on Budget and Policy Priorities.

According to an article published last night on Politico.com:

The new threshold wouldn’t be indexed to overall price or wage increases, as many progressives had hoped. Instead, it would be linked permanently to the 40th percentile of income. That would set it at the level when the overtime rule was first created under President Franklin Delano Roosevelt.

The timing reflects an administration increasingly feeling the clock ticking: it expects the overtime rule to be challenged in court, and will press to complete by 2016 the review process during which comments are submitted by the public and then considered by the Labor Department and the White House as it prepares the final rule. If all goes according to plan, the rule will go into effect before Obama leaves office.

The proposed rule comes after months of pitched internal debate, with Labor Secretary Tom Perez and Domestic Policy Council director Cecilia Muñoz pushing to keep the threshold at the 40th percentile, and other members of the White House economic team, including Council of Economic Advisers chairman Jason Furman, trying to lower it to the 37th percentile.

Perez spent months conferring with business groups while his team wrote the rule. Obama made the decision to go forward in a meeting of his economic team several months ago, and originally the plan had been to roll out the rule last week. That was put on hold so that Obama could instead deliver the eulogy Friday at Rev. Clementa Pinckney’s funeral in Charleston, S.C.

For years the White House has faced the frustrating reality that despite consistently improving economic numbers, wages have been largely stagnant. Obama’s 2014 push to raise the minimum wage struck many middle class voters as not having much to do with them. But the overtime rule would affect workers whose salaries approach the median household income.

As explained by Politico:

The regulation would be the most sweeping policy undertaken by the president to assist the middle class, and the most ambitious intervention in the wage economy in at least a decade. Administration aides warn that it wouldn’t always lead to wages going up, though, because in many instances employers would cut back employee hours worked rather than pay the required time-and-a-half. Even so, they say, the additional hires needed to make up for that time could spur job growth, and give existing workers either more time with their families or more opportunities to work second jobs and put more money in their pockets.

This change was badly needed. The overtime threshold has been updated only once since 1975 and now covers a mere 8 percent of salaried workers, according to a recent analysis by the left-leaning Economic Policy Institute. Raising the threshold to $50,440 would bring it roughly in line with the 1975 threshold, after inflation. Back then, that covered 62 percent of salaried workers. But because of subsequent changes in the economy’s structure, the Obama administration’s proposed rule would cover a smaller percentage — about 40 percent.

The current overtime rules contain a white collar exemption, which excludes “executive, administrative and professional” employees from receiving overtime pay. Advocates for changing the rule say the white collar exemption allows employers to avoid paying lower-wage workers overtime. The proposed rule contains no specific changes to this “duties test,” but instead solicits questions from the public about how best to alter it.

Click Huffington Post to read the President’s Op-Ed piece or Politico, to read Politico’s article. Of course, we will continue to update our readers as further details of the new regulations are rolled out.

U.S.S.C.: DOL Acted Within Its Rulemaking Authority When It Withdrew Its Administrative Interpretation re Exempt Status of Mortgage Loan Officers

Perez v. Mortgage Bankers Assn.

In a widely anticipated decision, a unanimous Supreme Court today held that the DOL acted properly within its authority in 2010 when it withdrew its prior administrative interpretation letter regarding the exempt status of mortgage loan officers and replaced it with an Administrator’s Interpretation concluding that mortgage-loan officers do not qualify for the administrative exemption. Reversing the D.C. Circuit’s decision below, it held that the DOL was not required to adhere to the Administrative Procedure Act’s (APA) notice-and-comment procedures when it wishes to issue a new interpretation of a regulation that deviates significantly from a previously adopted interpretation.

A copy of the Court’s syllabus preceding the official opinion is copied and pasted below:

The Administrative Procedure Act (APA) establishes the procedures federal administrative agencies use for “rule making,” defined as the process of “formulating, amending, or repealing a rule.” 5 U. S. C. §551(5). The APA distinguishes between two types of rules: So-called “legislative rules” are issued through notice-and-comment rulemaking, see §§553(b), (c), and have the “force and effect of law,” Chrysler Corp. v. Brown, 441 U. S. 281, 302–303. “Interpretive rules,” by contrast, are “issued . . . to advise the public of the agency’s construction of the statutes and rules which it administers,” Shalala v. Guernsey Memorial Hospital, 514 U. S. 87, 99, do not require notice-and-comment rulemaking, and “do not have the force and effect of law,” ibid.

In 1999 and 2001, the Department of Labor’s Wage and Hour Division issued letters opining that mortgage-loan officers do not qualify for the administrative exemption to overtime pay requirements under the Fair Labor Standards Act of 1938. In 2004, the Department issued new regulations regarding the exemption. Respondent Mortgage Bankers Association (MBA) requested a new interpretation of the revised regulations as they applied to mortgage-loan officers, and in 2006, the Wage and Hour Division issued an opinion letter finding that mortgage-loan officers fell within the administrative exemption under the 2004 regulations. In 2010, the Department again altered its interpretation of the administrative exemption. Without notice or an opportunity for comment, the Department withdrew the 2006 opinion letter and issued an Administrator’s Interpretation concluding that mortgage-loan officers do not qualify for the administrative exemption.

MBA filed suit contending, as relevant here, that the Administrator’s Interpretation was procedurally invalid under the D. C. Circuit’s decision in Paralyzed Veterans of Am. v. D. C. Arena L. P., 117 F. 3d 579. The Paralyzed Veterans doctrine holds that an agency must use the APA’s notice-and-comment procedures when it wishes to issue a new interpretation of a regulation that deviates significantly from a previously adopted interpretation. The District Court granted summary judgment to the Department, but the D. C. Circuit applied Paralyzed Veterans and reversed.

Held: The Paralyzed Veterans doctrine is contrary to the clear text of the APA’s rulemaking provisions and improperly imposes on agencies an obligation beyond the APA’s maximum procedural requirements. Pp. 6–14.

(a) The APA’s categorical exemption of interpretive rules from the notice-and-comment process is fatal to the Paralyzed Veterans doctrine. The D. C. Circuit’s reading of the APA conflates the differing purposes of §§1 and 4 of the Act. Section 1 requires agencies to use the same procedures when they amend or repeal a rule as they used to issue the rule, see 5 U. S. C. §551(5), but it does not say what procedures an agency must use when it engages in rulemaking. That is the purpose of §4. And §4 specifically exempts interpretive rules from notice-and-comment requirements. Because an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures to amend or repeal that rule. Pp. 7–8.

(b) This straightforward reading of the APA harmonizes with longstanding principles of this Court’s administrative law jurisprudence, which has consistently held that the APA “sets forth the full extent of judicial authority to review executive agency action for procedural correctness,” FCC v. Fox Television Stations, Inc., 556 U. S. 502, 513. The APA’s rulemaking provisions are no exception: §4 establishes “the maximum procedural requirements” that courts may impose upon agencies engaged in rulemaking. Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U. S. 519, 524. By mandating notice-and-comment procedures when an agency changes its interpretation of one of the regulations it enforces, Paralyzed Veterans creates a judge-made procedural right that is inconsistent with Congress’ standards. Pp. 8–9.

(c) MBA’s reasons for upholding the Paralyzed Veterans doctrine are unpersuasive. Pp. 9–14. (1) MBA asserts that an agency interpretation of a regulation that significantly alters the agency’s prior interpretation effectively amends the underlying regulation. That assertion conflicts with the ordinary meaning of the words “amend” and “interpret,” and it is impossible to reconcile with the longstanding recognition that interpretive rules do not have the force and effect of law. MBA’s theory is particularly odd in light of the limitations of the Paralyzed Veterans doctrine, which applies only when an agency has previously adopted an interpretation of its regulation. MBA fails to explain why its argument regarding revised interpretations should not also extend to the agency’s first interpretation. Christensen v. Harris County, 529 U. S. 576, and Shalala v. Guernsey Memorial Hospital, 514 U. S. 87, distinguished. Pp. 9–12. (2) MBA also contends that the Paralyzed Veterans doctrine reinforces the APA’s goal of procedural fairness. But the APA already provides recourse to regulated entities from agency decisions that skirt notice-and-comment provisions by placing a variety of constraints on agency decisionmaking, e.g., the arbitrary and capricious standard. In addition, Congress may include safe-harbor provisions in legislation to shelter regulated entities from liability when they rely on previous agency interpretations. See, e.g., 29 U. S. C. §§259(a), (b)(1). Pp. 12–13. (3) MBA has waived its argument that the 2010 Administrator’s Interpretation should be classified as a legislative rule. From the beginning, this suit has been litigated on the understanding that the Administrator’s Interpretation is an interpretive rule. Neither the District Court nor the Court of Appeals addressed this argument below, and MBA did not raise it here in opposing certiorari. P. 14. 720 F. 3d 966, reversed.

Click Perez v. Mortgage Bankers Assn. to read the entire unanimous decision, delivered by SOTOMAYOR, J., in which ROBERTS, C. J., and KENNEDY, GINSBURG, BREYER, and KAGAN, JJ., joined, and in which ALITO, J., joined except for Part III–B.

While it is too soon to tell, many observers believe this unanimous decision bodes well for the other big “exemption” case currently pending at the Supreme Court, regarding the DOL’s power to utilize its formal rulemaking authority to alter the companionship exemption, which was recently struck down by a Judge in the same Circuit where this case originated.

DOL Announces It Will Not Enforce New Regulations Regarding FLSA Rights of Home Health Workers for First 6 Months of 2015

The Department of Labor’s (Department) October 1, 2013, Final Rule amending regulations regarding domestic service employment, which extends the Fair Labor Standards Act’s (FLSA) minimum wage and overtime protections to most home care workers will become effective on January 1, 2015. However, by an announcement dated October 6, 2014, the DOL advised that it will not be enforcing the regulations for the first 6 months that the regulations are in effect.

Critically important, while the DOL will not be bringing enforcement actions—as it is able to do under the FLSA—this announcement does not effect home health workers’ rights to bring private enforcement actions themselves through private lawsuits.

In a thoughtful commentary regarding the importance of the new regulation, issued on his blog on the day of the DOL’s recent announcement, former Deputy Administrator of the Wage and Hour Division, Seth Harris, has this to say:

Home health workers are the people who care for people with disabilities and seniors so that they may live in the community rather than in nursing homes or other institutions.  Their work is essential.  They allow each of us to rest assured that we will be able to live in dignity in our homes if age, happenstance, or genetics result in physical, mental, or developmental disabilities.  Yet, these workers have not been protected by the federal minimum wage or the requirement that workers who work more than 40 hours in a week receive overtime pay for those additional hours.  These requirements are found in the Fair Labor Standards Act. Home health workers have been excluded from the FLSA.  On January 1, that exclusion ends.  Home health workers will be entitled to at least the federal minimum wage and time-and-one-half for overtime worked beginning New Year’s Day.

While Harris went further to explain that he thought that the new regulations would likely lack teeth, in light of this delayed enforcement policy—given the relatively small sums of money individuals stand to lose from unscrupulous employers who ignore the new regulation—that may not turn out to be accurate. While many smaller home health agencies will likely feel free to skirt the new regulation, at least initially, most of the larger national home health agencies have already put the wheels in motion to make the necessary changes to comply with the new law about to go into effect. However, if you are a home health worker, who is still being denied your rightful minimum wages and/or overtime pay, after the new law goes into effect on January 1, 2015, you should contact a wage and hour lawyer to investigate whether you have a claim to recover your rightful wages.

Click DOL Announcement to read the official announcement, and Harris Blog to read Seth Harris’ commentary on this issue.

D.D.C.: Laborers on Governmental Job, Who Have Exhausted Their Administrative Remedy, May Bring Case Under Davis-Bacon Act Against Bond of General Contractor; 2 Year SOL Applies

Castro v. Fidelity and Deposit Company of Maryland

It has long been the law that generally employees lack the right to bring a private cause of action under the Davis Bacon Act (DBA). Rather, the sole avenue under which aggrieved employees, on governmental jobs, can seek repayment of their improperly withheld wages under the DBA is through a proceeding brought by the Department of Labor. However, the Department of Labor rarely brings such proceedings and thus, workers on governmental projects are often left without a remedy where they have been the victims of wage theft. This case sheds some light on another avenue that such employees can use to attempt to recover their wages however. In this case, after exhausting their administrative remedies (i.e. filing with the DOL and being told the DOL could not pursue their claims) the plaintiffs—employees of a sub-contractor on a job for the District of Columbia—sued on the bond of general contractor to seek payment of their wages. Denying the defendant-bond company’s motion to dismiss, the court explained that this was a valid cause of action.

Discussing the relevant facts and procedural history, the court explained:

Plaintiffs were employed by S & J Acoustics, a second-tier subcontractor (or subsubcontractor) retained to complete ceiling installation on the Consolidated Forensic Laboratory, a building owned by the District of Columbia. See Am. Compl., ¶¶ 2, 5. Pursuant to the DBA, 40 U.S.C. § 3141, et seq., and the DCLMA, D.C.Code § 2–201.01, et seq., the project’s prime contractor, Whiting–Turner Contracting Co., provided a payment bond to the District of Columbia as an assurance that project laborers would receive payment at Department of Labormandated hourly rates. See Am. Compl., ¶¶ 3, 8. In bringing this action against Defendants (1) Fidelity and Deposit Company of Maryland and (2) Travelers Casualty and Surety Company of America, who insured Whiting–Turner’s bond as co-sureties, see id., ¶ 3, Plaintiffs allege that they were not paid for their contributions to the project in accordance with these designated wage rates. See id., ¶¶ 16–18, 21. As background, the DCLMA requires contractors on governmentfunded projects to secure payment bonds to protect the interests of suppliers of materials and subcontractors, and the DBA establishes prevailing wage rates for workers who contribute to government-funded construction projects.

Prior to initiating this action, Plaintiffs filed an administrative complaint with DOL, requesting that payments to the project’s prime contractor be withheld until an investigation could be completed and Plaintiffs compensated for the alleged back wages. See id., ¶¶ 23–25. As the project had since wound up and all payments had been released to Whiting–Turner, the DOL investigator closed the case without making any findings on Plaintiffs’ eligibility for relief under the DBA. See id., ¶¶ 24–25. After Plaintiffs brought suit and Defendants filed their Motion to Dismiss, the Court sua sponte raised the issue of subject-matter jurisdiction, questioning whether Plaintiffs had sufficiently exhausted their administrative remedies with DOL. See Order to Show Cause at 2–3. Out of deference to DOL’s plenary role in making DBA back-wage determinations, the Court issued a temporary stay in the proceedings and ordered Plaintiffs to return to DOL and request that conclusive findings be made. See ECF No. 16 (Order) at 4. Plaintiffs did so, but without success. DOL refused to take further action on the ground that the government had already made all payments to the prime contractor and had no further funds to withhold. See Joint Status Report, ¶¶ 6–7 & Exh. A. Satisfied that Plaintiffs had made all efforts to exhaust remedies with DOL, the Court concluded that it did have subjectmatter jurisdiction under the DBA and could consequently address the substance of their claims and Defendants’ pending Motion to Dismiss. See Castro v. Fid. & Deposit Co. of Maryland, No. 13–818, 2014 WL 495464 (D.D.C. Feb. 7, 2014).

Under these circumstances, the defendant argued that the plaintiffs lacked any remedy. The court summarized the defendants contentions as follows:

Defendants first argue that Plaintiffs cannot invoke the DCLMA to sue on Whiting Turner’s payment bond because eligibility under the statute is restricted to those suppliers of labor and materials that have been retained either by the prime contractor or by an immediate subcontractor. See Mot. to Dismiss at 9; Reply at 1–2. Since Plaintiffs were hired by a second- tier subcontractor, Defendants suggest that they fall outside of the scope of the statute. See Supp. to Mot. to Dismiss at 3.

Defendants further maintain that Plaintiffs also have no remedy under the DBA. They premise this argument on the text of DBA § 3144(a)(2), which provides that “laborers and mechanics have the same right [of] action … as is conferred by law on persons furnishing labor or materials.” See Reply at 4. The use of the phrase “same right,” according to Defendants, demonstrates that § 3144(a)(2) does not actually grant aggrieved workers an independent cause of action, but merely references the applicable bond statute – in this case, DCLMA § 2–201.02. See Mot. to Dismiss at 9; Reply at 1 (“Plaintiffs do not have separate cause [sic ] of action against the Defendants in this case under the DBA….”). Alternatively, even if § 3144(a)(2) does create a freestanding cause of action, Defendants reason that the result should be the same because “the rights, if any, that were conferred [by § 3144(a)(2) ] were limited by the express terms of the bond statute.” Reply at 7. The DBA, by this logic, merely duplicates the DCLMA, mirroring its procedural requirements and limitations on eligibility.

Addressing the defendants’ contentions, the court first analyzed the scope and requirements of the DCLMA, acknowledging that plaintiffs lacked standing thereunder, because like the federal Miller Act, it applies only to prime contractor and immediate subcontractors. That did not end the court’s inquiry however. It then turned to an examination of § 3144(a)(2) of the DBA to determine whether it provides an independent remedy with its own terms and conditions. Holding that the DBA, under these circumstances, provided the plaintiffs with a remedy the court explained:

The game is not over, however, because the DBA protects precisely those “ordinary laborers” that the Miller Act appears to exclude. The DBA applies to any construction contracts for public works and public projects that exceed $2,000 in value and to which either the Federal Government or the District of Columbia is a party. See 40 U.S.C. § 3142(a). It obliges contractors on such projects to pay workers in accordance with prevailing wage rates, established by the Secretary of Labor. See id. In the event that contractors do not comply with prevailing wage rates, a worker may seek redress through the mechanism set out in DBA § 3144(a)(2). Promulgated in 1935 – just six days after the federal Miller Act was updated to reflect its current language – § 3144(a)(2) is broadly worded, granting a right of action to “all the laborers and mechanics who have not been paid the wages required” pursuant to the DBA. In contrast to the Miller Act and DCLMA, which condition their protections on a requisite level of contractual proximity to the prime contractor, DBA eligibility appears to hinge upon a laborer’s presence at the job site. Section 3144(a)(2) stipulates that each “contractor or subcontractor” involved in a “contract” governed by the DBA “shall pay all mechanics and laborers employed directly on the site of the work, unconditionally and at least once a week … regardless of any contractual relationship which may be alleged to exist between the contractor or subcontractor and the laborers and mechanics.” § 3142(c)(1) (emphasis added).

Although the DBA does not separately delineate the terms “contract,” “contractor,” “subcontractor,” or “laborer,” these terms are defined in corresponding regulations promulgated by the Secretary of Labor. See 29 C.F.R. § 5.2. The term “contract” comprises “any prime contract which is subject … to the labor standards provisions of [the DBA] and any subcontract of any tier thereunder, let under the prime contract.” § 5.2(h) (emphasis added). This definition, unlike that in the DCLMA, is not limited by a particular degree of separation from the prime contractor. The regulations, in fact, expressly disavow any requirement that a worker demonstrate a particular contractual relationship, instead providing that “[e]very person performing the duties of a laborer or mechanic in the construction … of a public building or public work … is employed regardless of any contractual relationship alleged to exist between the contractor and such person.” § 5.2(o). The regulatory definition of “laborer” is governed by function, not by contractual formality, and extends to “at least those workers whose duties are manual or physical in nature.” § 5.2(m).

Even in the unlikely event that a court were to find the text of the DBA ambiguous, it would still be bound to apply DOL’s regulatory definitions in making its decision. “Because the Secretary of Labor has interpreted the Act,” courts must defer to the Secretary’s judgment provided that these “interpretations are reasonable.” AKM LLC v. Sec’y of Labor, 675 F.3d 752, 754 (D.C.Cir.2012) (citing Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 843 (1984)). In this case, the regulatory interpretations are more than merely reasonable – they are grounded in the most basic common sense. Because a prime contractor should have ample notice of laborers working at its project site, it can institute sufficient controls to ensure that they are accounted for and paid for their contributions, regardless of any particular contractual arrangement. In contrast to the situation with suppliers, who may come and go without any physical connection to a job site, there is far less risk that laborers will be completely “[un]known to the prime contractor,” U.S. ex rel. E & H Steel Corp., 509 F.3d at 187, and thereby expose it to unforeseen liability.

The court then explained that where, as here, workers had exhausted their administrative remedy (i.e. filed with the DOL), they were entitled to bring a private cause of action under the DBA:

Clearly titled as a “[r]ight of action,” DBA § 3144(a)(2) provides that, if the Secretary of Labor’s withholdings under the terms of a contract are “insufficient to reimburse all the laborers and mechanics who have not been paid the wages required[,] … the laborers and mechanics have the same right to bring a civil action and intervene against the contractor and the contractor’s sureties as is conferred by law on persons furnishing labor or materials.” (Emphasis added). Two points are notable here. First, the express title of § 3144(a)(2) indicates that Congress believed that it was creating a new and fully functional right of action, and not merely a superficial reference to remedies already available under the bond statutes. While many battles have been waged over whether or not an aggrieved worker can claim an implied right of action under the DBA and thereby circumvent the administrative-exhaustion requirements of § 3144(a), see, e.g., Univers. Research Ass’n v. Coutu, 450 U.S. 754, 780 (1981), courts have long recognized that § 3144(a)(2) furnishes an express cause of action once remedies have been exhausted. See, e.g., U.S. ex rel. Bradbury v. TLT Const. Corp., 138 F.Supp.2d 237, 241 (D.R.I.2001).

Second, the formulation “all the laborers … who have not been paid” sets an expansive scope of application that is not obviously restricted by what follows. If Congress had intended to limit the scope of eligibility to sue on a bond to the narrow class of workers who might qualify under the terms of the Miller Act, it stands to reason that the legislature would have said so in clear and unambiguous terms or, more plausibly, would have completely omitted § 3144(a)(2) from the DBA. If Defendants are correct, § 3144(a)(2) would be mere surplusage, offering nothing of value over and above the remedies already available via the Miller Act and DCLMA. The Court cannot ignore the ” ‘cardinal principle of statutory construction’ that ‘a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.’ ” TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (quoting Duncan v. Walker, 533 U.S. 167, 174 (2001)).

Perhaps even more troubling, Defendants’ assessment of § 3144(a)(2) would create two arbitrary classes of workers – first, those who satisfy the technical qualifications imposed by the terms of the Miller Act and DCLMA, and second, all otherwise DBA-eligible workers. If the Court were to endorse Defendants’ highly restrictive interpretation, it might encourage prime contractors to insulate themselves behind several layers of subcontracts and thus opt out of the obligation to pay DBA-mandated wages, particularly as a project draws to a close and the government is no longer able to withhold funds. It should be obvious, accordingly, that all laborers present on the worksite of a DBA-eligible project should stand to benefit from the Act’s protections, regardless of contractual formalities. The Court thus concludes that § 3144(a)(2) of the DBA creates an independent cause of action that grants the ability to collect on a prime contractor’s bond to all eligible on-site workers, regardless of who hired them.

Finally, the court rejected the defendant’s argument that the plaintiff’s were limited by a one year statute of limitations, and held that a two year statute of limitations was applicable to the claims, pursuant to the Portal-to-Portal Act.

Click Castro v. Fidelity and Deposit Company of Maryland to read the entire Memorandum Opinion of the court.

DOL Announces Final Rule Extending Minimum Wage and Overtime Pay to Home Health Workers

In an announcement that has long been awaited by workers advocates and those in the home health industry as well, today the United States Department of Labor (DOL) announced a final rule, to go into effect on January 1, 2015, which extends the FLSA’s minimum wage and overtime protections to home health aides that perform typical CNA tasks in the homes of the aged and infirm.  In an email blast, the DOL reported:

The U.S. Department of Labor’s Wage and Hour Division announced a final rule today extending the Fair Labor Standards Act’s minimum wage and overtime protections to most of the nation’s direct care workers who provide essential home care assistance to elderly people and people with illnesses, injuries, or disabilities. This change, effective January 1, 2015, ensures that nearly two million workers – such as home health aides, personal care aides, and certified nursing assistants – will have the same basic protections already provided to most U.S. workers. It will help ensure that individuals and families who rely on the assistance of direct care workers have access to consistent and high quality care from a stable and increasingly professional workforce.

Among other things, the final rule overrules the 2007 holding of the Supreme Court in Long Island Care at Home, Ltd. v. Coke, and requires 3rd party employers such as staffing agencies to pay companions and home health workers overtime under the FLSA when they work in excess of 40 hours per week.

The New York Times provides a pretty good synopsis of the changes to the Companionship Exemption, provided by the final rule:

Under the new rule, any home care aides hired through home care companies or other third-party agencies cannot be exempt from minimum wage and overtime coverage. The exemptions for aides who mainly provide “companionship services” — defined as fellowship and protection for an elderly person or person with an illness, injury or disability who requires assistance — are limited to the individual, family or household using the services.

If an aide or companion provides “care” that exceeds 20 percent of the total hours she works each week, then the worker is to receive minimum wage and overtime protections.

The new rule defines care as assisting with the activities of daily living, like dressing, grooming, feeding or bathing, and assisting with “instrumental activities of daily living,” like meal preparation, driving, light housework, managing finances and assisting with the physical taking of medications.

The companionship exemption will not apply if the aide or companion provides medically related services that are typically performed by trained personnel, like nurses or certified nursing assistants.

Live-in domestic service workers who reside in the employer’s home and are employed by an individual, family or household are exempt from overtime pay, although they must be paid at least the federal minimum wage for all hours worked.

Click Final Rule to read the published rule, or U.S. News and Report to read an article discussing the announcement.

W.D.Mo.: Under Motor Carrier Act (MCA), Weight of Vehicle Measured by Gross Vehicle Weight Rating (GVWR) Which Includes the Weight of Trailer Pulled

McCall v. Disabled American Veterans Ernestine Schumann-Heink Missouri Chapter 2

This case was before the court on the parties dueling motions for summary judgment. Specifically, the motions addressed the applicability of the Fair Labor Standards Act (“FLSA”) to drivers employed by the defendants, in light of the Motor Carrier Act (“MCA”). As discussed here, the court was required to opine on the method by which the 10,001 pound threshold is calculated under the MCA, in order to determine whether a vehicle qualifies as a covered vehicle for the purposes of the MCA’s application to its driver(s). While the plaintiff argued that the actual weight of the truck, when loaded was less than 10,000 pounds, the court held that this was not dispositive of the issue. Instead, the court held that the plaintiff came within the MCA’s exemption to the FLSA because, “[t]he uncontroverted facts demonstrate[d] the truck’s gross vehicle weight rating (“GVWR”) exceeded 12,000 pounds.”

After surveying the MCA and the recent amendments thereto under SAFETA–LU and the TCA, the court- applying the post-TCA standard (due to the dates of plaintiff’s employment/claim) explained:

The TCA does not specify how the vehicle weight is to be determined: whether the vehicle is weighed loaded or unloaded, fueled or unfueled, or some sort of average is to be utilized. On November 4, 2010, the Department of Labor (“DOL”) issued Field Assistance Bulletin No.2010–2 (“the Bulletin”) to explain its interpretation of the TCA. Among other matters, the Bulletin announces DOL’s method for determining whether a vehicle weighs 10,000 pounds or less, stating the Wage and Hour Division “will continue to use the gross vehicle weight rating (GVWR) or gross combined vehicle weight rating in the event that the vehicle is pulling a trailer.”

The parties agree the Bulletin is entitled to deference because it represents DOL’s interpretation of statutory provisions it is charged with enforcing, but they disagree as to the Bulletin’s meaning. The Court believes the interpretation is quite clear: a vehicle’s GVWR is its weight for purposes of the TCA and, hence, applicability of the FLSA. If the vehicle is pulling a trailer, the combined GVWR of the vehicle and the trailer will be used. Plaintiff’s interpretation—that GVWR is to be used only if the vehicle is pulling a trailer makes no sense. There is no reason to use GVWR in one instance and not in another, and Plaintiff’s interpretation renders part of the Bulletin a nullity (or, at worst, surplusage) by purporting to have the Bulletin explain how vehicles are weighed if they pull a trailer but failing to explain how vehicles are weighed if they are not. The Court also notes DOL’s interpretation is reasonable because it not only leads to certainty but it is consistent with the Secretary of Transportation’s entire statutory and regulatory framework, which elsewhere typically relies on GVWR when referencing the weight of vehicles.

Plaintiff contends this interpretation thwarts Congress’ intent by diminishing the reach of the FLSA. The Court disagrees. Before 2005, the Secretary of Transportation had authority over all motor private carriers regardless of the weight of the vehicle, and the FLSA did not apply to any motor private carriers. With the passage of SAFETEA–LU in 2005, Congress removed the Secretary’s authority over motor private carriers using vehicles with a GVWR of 10,000 pounds or less—and thereby expanded the FLSA’s reach. The TCA restores the Secretary’s authority to all motor private carriers regardless of a vehicle’s weight, but specifies that the FLSA’s reach will remain as it was expanded with SAFETEA–LU’s passage. In short, the TCA expanded the Secretary’s authority, but it was not intended to further expand the FLSA’s reach—it remained exactly where it was before the TCA was passed.

Thus the court concluded:

There is no dispute that the GVWR of the vehicle Plaintiff drove exceeded 10,000 pounds. Therefore, the FLSA does not apply and the moving Defendants are entitled to judgment as a matter of law.

Click McCall v. Disabled American Veterans Ernestine Schumann-Heink Missouri Chapter 2 to read the entire Order and Opinion.

Courts Support DOL Positions re: Tip-Credit Regs and Classification of Mortgage Loan Officers

More so than any recent Department of Labor in memory, the DOL’s positions have come under attack by several major industries largely under the battle cry that they amount to unfair or “over” regulation. Although the Supreme Court recently handed the pharmaceutical industry a major victory in its industry-wide litigation regarding the outside sales exemption’s application to its so-called pharmaceutical reps or PSRs, the DOL and workers come out on the winning end in 2 district-level cases, both challenging recent DOL pronouncements of its policies. In the first, the DOL’s recent amendment to the rules governing when an employer may take the tip-credit with respect to tipped employees came under fire. In the second, the Mortgage Bankers Association challenged the DOL’s recent Administrative Interpretation 2010–1 in which the DOL took the position that Mortgage Loan Officers (MLOs) performing typical MLO duties were non-exempt.

National Restaurant Ass’n v. Solis

In the first case, the National Restaurant Association, Counsel of State Restaurant Associations, Inc., and National Federation of Independent Businesses sued the Secretary of Labor, Hilda L. Solis, in her official capacity as Secretary of the U.S. Department of Labor; Nancy Leppink, in her official capacity as Acting Administrator of the U.S. Department of Labor; and the U.S. Department of Labor (“the Department” or “DOL”).

The rule at issue, 29 C.F.R. § 531.59(b), which went into effect on May 5, 2011, provided:

Pursuant to section 3(m), an employer is not eligible to take the tip credit unless it has informed its tipped employees in advance of the employer’s use of the tip credit of the provisions of section 3(m) of the Act, i.e.: The amount of the cash wage that is to be paid to the tipped employee by the employer; the additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, which amount may not exceed the value of the tips actually received by the employee; that all tips received by the tipped employee must be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and that the tip credit shall not apply to any employee who has not been informed of these requirements in this section.

In its challenge to the regulation, the restaurant tradegroup-Plaintiffs alleged that the DOL violated the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 611, 702 (2006), when DOL promulgated a new regulation, 29 C.F.R. § 531.59(b) (2011), concerning an employer’s obligation to inform tipped employees of the “tip credit” requirements of the Federal Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. §§ 201219 (2006). The parties filed cross-motions seeking judgment in their respective favor. The court held that because the agency complied with the APA notice requirements when it conducted this rulemaking exercise, and the public was fully and specifically informed of the subject matter under consideration, the DOL was within its rulemaking powers when it promulgated the new tip-credit notice rules.

Click National Restaurant Ass’n v. Solis to read the entire Memorandum Opinion.

Mortgage Bankers Ass’n v. Solis

In the second case, the Mortgage Bankers Association, a trade group for mortgage bankers challenged the DOL’s issuance, in 2010, of Administrative Interpretation, the 2010 AI, which expressly withdrew a DOL’s 2006 Opinion Letter, regarding the exempt status of typical Mortgage Loan Officers (“MLOs”). Whereas, previously the DOL had taken the position that MLOs, performing typical duties of MLO positions met the requirements for application of the administrative exemption, the 2010 Administrative Interpretation took the opposite view- that typical MLOs are non-exempt.

Discussing the AI, the court explained:

The 2010 AI relies on a District of Minnesota decision, Casas v. Conseco Finance Corp., No. Civ.00–1512, 2002 WL 507059 (D.Minn. March 31, 2002) in addition to several other cases, as support for its position that mortgage loan officers are non-exempt employees. Id. at 105. In Casas, loan originators asserted they were entitled to overtime compensation from the defendants under the FLSA, requiring the court to decide whether the plaintiffs were exempt from FLSA overtime pay provisions. The court found that because “Conseco’s primary business purpose [was] to design, create and sell home lending products,” the mortgage loan officers’ primary duty was to sell those lending products on a day-to-day basis, not ” ‘the running of [the] business [itself]’ or determining its overall course or policies.” Casas, 2002 WL 507059, at *9 (citation omitted) (alterations in original). Relying on the ruling in Casas, the 2010 AI reasons that “because Conseco’s loan officers’ duties were ‘selling loans directly to individual customers, one loan at a time,’ ” the administrative exemption did not apply to them. A.R. at 105 (Administrator’s Interpretation No.2010–01) (internal citation omitted). The 2010 AI further notes that the 2004 amended regulations examined the difference between mortgage loan officers who spend the majority of their time selling mortgage products to consumers, like the Casas plaintiffs, as compared to those who “promot[e] the employer’s financial products generally, decid[e] on an advertising budget and techniques, run[ ] an office, hir[e] staff and set[ ] their pay, service [ ] existing customers …, and advis[e] customers.” Id. at 105 (citing 69 Fed.Reg. at 22145–46). The 2010 AI concluded that in order for mortgage loan officers to be properly classified as exempt employees, their primary duties must be administrative in nature. Id. at 105.

Relying on the facts that a significant portion of mortgage loan officers’ compensation is composed of commissions from sales, that their job performance is evaluated based on their sales volume, and that much of the non-sales work performed by the officers is completed in furtherance of their sales duties, the 2010 AI concluded “that a mortgage loan officer’s primary duty is making sales.” Id. at 106–07. And because their primary duty is making sales, the 2010 AI further concludes that “mortgage loan officers perform the production[, not the administrative,] work of their employers.” Id. at 107.

After concluding that the work of mortgage loan officers is not related to the general business operation of their employers, the 2010 AI considered another factor that could provide the basis for finding that mortgage loan officers are subject to the administrative exemption. Id. at 108. The AI states that “[t]he administrative exemption can also apply if the employee’s primary duty is directly related to the management or general business operations of the employer’s customers.Id. In making this assessment, the 2010 AI notes that “it is necessary to focus on the identity of the customer.” Id. The 2010 AI finds that “work for an employer’s customers does not qualify for the administrative exemption where the customers are individuals seeking advice for their personal needs, such as people seeking mortgages for their homes.” Id. However, it recognizes that a mortgage loan officer “might qualify under the administrative exemption” if the customer that the officer is working with “is a business seeking advice about, for example, a mortgage to purchase land for a new manufacturing plant, to buy a building for office space, or to acquire a warehouse for storage of finished goods.” Id. Nevertheless, the 2010 AI concludes that the typical mortgage loan officers’ “primary duty is making sales for the employer [to homeowners], and because homeowners do not have management or general business operations, a typical mortgage loan officer’s primary duty is not related to the management or general business operations of the employer’s customers.” Id. at 109.

Finally, the 2010 AI took exception with the 2006 Opinion Letter’s apparent assumption “that the example provided in 29 C.F.R. § 541.203(b) creates an alternative standard for the administrative exemption for employees in the financial services industry.” Id. Rather, the 2010 AI states that 29 C.F.R. § 541.203(b) merely illustrates an example of an employee who might otherwise qualify for the exemption based on “the requirements set forth in 29 C.F.R. § 541.200.” Id. Thus, the 2010 AI clarifies that “the administrative exemption is only applicable to employees that meet the requirements set forth in 29 C.F.R. § 541.200.” Id. In providing this clarification, the 2010 AI states, “[t]he fact example at 29 C.F.R. § 541.203(b) is not an alternative test, and its guidance cannot result in it ‘swallowing’ the requirements of 29 C.F.R. § 541.200.” FN4
Id.

In summation, the DOL through the issuance of the 2010 AI explicitly withdrew the 2006 Opinion Letter “[b]ecause of its misleading assumption and selective and narrow analysis[.]” Id. Before taking this action, the DOL did not utilize the APA’s notice and comment process. Compl. ¶¶ 32–33.

The Mortgage Bankers Association relied on two different theories in seeking that the court strike down the AI at issue. First, relying on Paralyzed Veterans, 117 F.3d at 586, the plaintiff argues that once an agency issues an authoritative interpretation of its own regulation, it must utilize the notice and comment process if it desires to modify that interpretation. Second, the Mortgage Bankers Association argued that the 2010 AI does not comport with the 2004 regulations and is therefore “arbitrary, capricious, an abused of discretion, and otherwise not in accordance with law.”

With regard to the first argument, the rejected it, noting that ” seven courts of appeals have held that the notice and comment provisions found in section 553 of the APA do not apply to interpretative rules.” Further, the court held that the case did not fit within the limited recognized exceptions to that general rule. Similarly, the court held that the DOL’s interpretation of its own 2004 white collar regulations was not inconsistent and therefore not arbitrary and capricious. Thus, the court granted the DOL summary judgment, in part, and denied the Mortgage Bankers Association’s similar motion, and upheld the AI.

Click Mortgage Bankers Ass’n v. Solis to read the entire Memorandum Opinion.