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For now, employers shouldn’t change how they address the enjoined salary threshold, attorneys say
Although a Chipotle Mexican Grill employee has sued the fast-food chain, claiming it should have been following the Obama administration's overtime rule since December 2016, employers shouldn't rush to change how they've addressed the rule, attorneys say.
The rule would have raised the federal salary threshold for white-collar exemptions from overtime pay to $47,476, but a federal judge in Texas blocked the rule in November 2016.
Management attorneys, however, told SHRM Online that businesses should sit tight.
Employers should not lose any sleep because of the case against Chipotle, noted Kathleen Anderson, an attorney with Barnes & Thornburg in Fort Wayne, Ind., and Columbus, Ohio.
"Right now, employers should not change how they have addressed the enjoined $47,476 salary threshold," said Brian Paul, an attorney with Michael Best in Chicago. Some employers chose to comply with the rule regardless of the injunction, while others chose not to comply for various reasons.
But employers should watch the case closely, Paul said. If the court refuses to dismiss the lawsuit against Chipotle, there will be a rush of plaintiffs waiting on the courthouse steps, he said.
The Chipotle lawsuit is "a waste of judicial resources," according to Lori Adelson, an attorney with Kaufman Dolowich Voluck in Boca Raton and Fort Lauderdale, Fla. She noted that the U.S. Department of Labor (DOL) has until June 30 to decide whether it will support the Obama administration's appeal of the Texas judge's injunction.
So it should soon be clear whether the DOL is going to move forward with the appeal, go through a new rulemaking process with an alternative salary threshold or take some other action.
"I would not be surprised to see a proposal of a more modest update to the overtime threshold," Anderson said.
[SHRM members-only toolkit: Calculating Overtime Pay in the United States]
Judge Blocked Rule
The overtime rule would have doubled the Fair Labor Standards Act's salary threshold for the executive, administrative and professional (EAP) exemptions from overtime pay. Employers had the choice to either pay the new minimum salary or convert workers to nonexempt status and pay them time and a half for hours worked beyond 40 in a week.
In the Chipotle case, the relevant employees (called "apprentices") were earning less than $47,476, and the restaurant chain initially converted them to nonexempt status in anticipation of the rule's Dec. 1, 2016, effective date.
But Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction preventing the DOL from implementing and enforcing the overtime rule while lawsuits challenging the rule's validity were being decided.
Many businesses interpreted Mazzant's order to mean that the new salary threshold would not apply until further notice. This was the case at Chipotle, which decided to convert the relevant workers back to exempt status. The restaurant chain stopped paying the workers overtime premiums and returned them to salaries of less than $47,476, according to the complaint.
Scope of Injunction Challenged
Carmen Alvarez, the lead plaintiff in the lawsuit, claims that Chipotle was still required to comply with the overtime rule as of Dec. 1, 2016, even though the court blocked implementation and enforcement.
Joseph Sellers, an attorney with Cohen Milstein Sellers & Toll in Washington, D.C.—who represents Alvarez in this case—said Mazzant's hold on the new salary threshold was limited in scope.
Among other things, the complaint asserts that Mazzant's order enjoined the DOL and its officials from "implementing and enforcing" the rule—but didn't halt the rule's effective date or prevent parties who weren't a part of that lawsuit to bring private actions against their employers.
But Adelson said the Chipotle worker's complaint contradicts Mazzant's order. Mazzant had said the preliminary injunction would preserve the status quo—meaning it would not raise the salary threshold—while the court determines the rule's validity and the DOL's authority to make the rule.
"A nationwide injunction is proper in this case," Mazzant wrote in his Nov. 22, 2016, ruling on the preliminary injunction.
"The final rule is applicable to all states. Consequently, the scope of the alleged irreparable injury extends nationwide," he said. "A nationwide injunction protects both employees and employers from being subject to different EAP exemptions based on location."
Paul said the intent of Mazzant's nationwide injunction was clear. For Alvarez to succeed in her claim against Chipotle, the federal district court in that case would have to find that Mazzant used the wrong language when he enjoined the DOL from "implementing" the new overtime rule, rather than "staying" the rule from going into effect. "While anything is possible, such a ruling is unlikely," he added.
At the core of the Alvarez case is the independent question of whether Chipotle apprentices were properly classified as exempt based on the duties they performed, Anderson said.
She noted that the parties and the lawyers in the case will likely argue about the nature of the apprentice duties and how much work time was spent on different types of tasks. "Any argument about the enjoined overtime final rule is a sideshow," she remarked.
What Happens Now?
"Employers should know more in July 2017, but for now it looks as if employers should expect a new overtime rule with a different salary threshold," Paul said.
On June 6, Labor Secretary Alexander Acosta told a U.S. House of Representatives appropriations subcommittee that the DOL was planning to take the first step toward revising the DOL overtime rule by seeking information on it from interested parties "in the next two to three weeks," Paul noted.
"While not determinative, Secretary Acosta's comments, which are consistent with his prior comments questioning the wisdom of the $47,476 salary threshold, indicate the DOL will issue another revised final rule with a different salary threshold," he said. Further, if Acosta's comments are any indication, it appears less and less likely that the DOL will pursue the appeal of Mazzant's injunction, Paul added.
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