Ruling Against Overtime Is Wrong in So Many Ways

Comment are off

By Ross Eisenbrey, Economic Policy Institute

Judge Amos Mazzant’s opinion to block the Department of Labor’s new overtime rule is poorly reasoned and factually inaccurate. Judge Mazzant does not know the history of the Fair Labor Standards Act and he appears not to understand Chevron deference, a rule constructed by the U.S. Supreme Court to guide judicial review of federal agency regulatory decisions.

Let’s begin with Judge Mazzant’s astonishing unfamiliarity with the FLSA. Judge Mazzant incorrectly implies on page 2 of his Opinion that the initial regulations that accompanied the enactment of the FLSA in 1938 did not include a salary test:

“The Department’s initial regulations, found in 29 C.F.R. § 541, defined ‘executive,’ ‘administrative,’ and ‘professional’ employees based on the duties they performed in 1938. Two years later, the Department revised the regulations to require EAP employees to be paid on a salary basis.”

In fact, it was not “two years later” but right from the get-go on October 20, 1938 that the Secretary defined the exemption for executive and administrative employees to require a minimum salary of “not less than $30 (exclusive of board, lodging, or other facilities) for a workweek.”

On pages 13-14, Judge Mazzant cites very selectively1 from the Labor Department’s 1949 Report and Recommendations on Proposed Revisions of Regulations, Part 541, at 7–8 (the Weiss report) but ignores the Department’s 1940 report (the Stein report), written nine years closer to the FLSA’s enactment, by officials of the administration that wrote the first draft of the FLSA, shepherded it through Congress, and wrote the original regulations in 1938. Writing on behalf of the Department of Labor, Harold Stein pointed out that the original definitions in the regulations were written “before the effective date of the act” following “a conference of representatives of industry and labor to ascertain their views on an appropriate definition and delimitation of these terms. A draft was discussed and revised after which those present at the conference expressed their decisive approval thereof.”

The salary test as a requirement, an independent element of the definition apart from and in addition to the duties test, that has to be satisfied before the exemption can apply, was incorporated into the definition of bona fide executive and administrative employee from the very beginning. Presiding officer Stein wrote that “the good faith [bona fide] specifically required by the act” as part of the definition of exempt executive, administrative or professional employees “is best shown by the salary paid.”

In great detail, Stein explained that the duties tests are actually ineffective in many cases in distinguishing between exempt and non-exempt employees:

“Many more examples could be cited but these are sufficient to show that there is no description of duties or titles which in and of itself can prevent abuse or can differentiate between those persons who may reasonably be exempt under the act and those who deserve and require its benefits. One element distinguishing the two groups is the use of discretion and independent judgement and this requirement is included in each of the recommended alternatives for the term ‘administrative.’ In some instances this requirement in and of itself will be adequate to differentiate between employees who should be exempt and those who should be covered by the act. In some cases, however, decision would be difficult if sole reliance were to be placed on the descriptive factors in the proposed definition. In these instances inclusion or exclusion should be determined by reference to a completely objective requirement. This proposed objective requirement is, or course, the payment of a stated salary.”2

The Stein report reiterated the importance of the salary requirement again and again, but emphasized its special importance as a trade-off for limitations on the amount of non-exempt work an employee could do while remaining exempt. The 1938 regulation barred exempt employees from performing “a substantial amount of nonexempt work.” Because the 1940 regulation did not strictly limit the amount of nonexempt work an administratively exempt employee could do, it made it more important not just to have a salary test, but “to set the figure therein high enough to prevent abuse.” Stein stated the importance of the salary requirement in no uncertain terms: “[A] salary criterion constitutes the best and most easily applied test of the employer’s good faith in claiming that the person whose exemption is desired is actually of such importance to the firm that he is properly described as an employee employed in a bona fide administrative capacity.”3

Even the Weiss report that Judge Mazzant does cite makes clear the paramount importance of the salary test. After discussing how difficult it is to parse the duties of diverse occupations such as radio announcers, architects, engineers, and librarians, Weiss concluded that the salary test, because it is a proxy for the status and importance of the position, is essential for separating bona fide professionals from radio announcers, architects, engineers, and librarians who are not truly professionals:

“The inclusion of a salary test in the regulations is of great assistance in making a ready separation between such nonexempt employees and the bona fide professional employees whose professional status is recognized by the salary paid.

I recommend the rejection of the proposals to except librarians, architects, and engineers from the salary requirement of the definition of ‘professional.’”4

Judge Mazzant never wrestles with the fact that some of the so-called white collar exemptions in section 13(a) (1) of the Fair Labor Standards Act, including the professional exemption as applied to physicians and lawyers, do not have salary requirements. In the case of physicians and lawyers who are licensed by the state, there is no question about their status or prestige, no concern about their ability to protect themselves from exploitation, and no worry that an employer will fudge their title or duties to exempt someone to whom the exemption should not apply. The fact of state licensure establishes the bona fides of their professional status. In the Department of Labor’s 1940 report, Harold Stein explained the very different reason why the exemption for outside salesman has no salary test: “It needs no extended argument to show that this group of employees, whose duties involve neither importance nor prestige, can be defined without reference to earnings. Indeed, while it is absurd on its face to speak of an executive, for example, who is paid only $12 a week, it cannot be denied that a man can earn as little as $12 a week and still be an outside salesman.”5

The salary test is not just a tool for weeding out employees who, for example, don’t do the work of engineers or architects or radio announcers; it is an independent measure of whether the employee has sufficient status and prestige to protect him or herself from abusively long hours without adequate compensation. Judge Mazzant’s claim in a footnote on page 18 of his Opinion that Congress “did not give the Department authority to supplant the duties test and establish a salary test that causes bona fide EAP’s (sic) to suddenly lose their exemption “irrespective of their job duties and responsibilities”” is nonsensical. Employees whose salary fails the salary test are not, and never were, bona fide EAPs. Such employees do not lose the exemption by earning a low salary: they never qualified for the exemption in the first place.

Judge Mazzant’s Chevron analysis is equally flawed. He starts on the right foot, citing the Supreme Court: “If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” But he quickly stumbles, finding an unambiguous statute to be unclear and “susceptible to more than one reasonable interpretation or more than one accepted meaning.” With respect to the EAP exemption, the intent of Congress is clear: The statute unambiguously leaves the definition of “bona fide executive, administrative, or professional employee” to the Secretary of Labor:

“The provisions of section 206 (except subsection (a) in the case of paragraph (1) of this subsection) and section 207 of this title shall not apply with respect to –

  • any employee employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools), or in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary, subject to the provisions of subchapter II of chapter 5 of Title 5, except that an employee of a retail or service establishment shall not be excluded from the definition of employee employed in a bona fide executive or administrative capacity because of the number of hours in his workweek which he devotes to activities not directly or closely related to the performance of executive or administrative activities, if less than 40 per centum of his hours worked in the workweek are devoted to such activities.”

Under Chevron, once a court has found, as Judge Mazzant does, erroneously, that a statute is ambiguous, then it must determine whether the agency’s interpretation is reasonable. Under Chevron, the agency’s regulations, issued following notice and comment rulemaking, are entitled to deference unless they are “arbitrary, capricious, or manifestly contrary to the statute.” Given the unbroken 78-year history of DOL and the courts at every level interpreting the statute to permit the use of a minimum salary level in defining and delimiting the terms “bona fide executive, administrative, or professional capacity,” it would take an extraordinary showing by the court to defeat a conclusion that the Secretary’s regulations have reasonably included a salary test. Judge Mazzant fails to make that showing. Under Chevron, Judge Mazzant may not substitute his own construction of the statutory provision.

The statute not only explicitly leaves the definition of the exemption’s terms to the Secretary (”as such terms are defined and delimited by regulations of the Secretary”), but it proscribes certain limits on how the Secretary may narrow or delimit the definition. Specifically, the Secretary’s regulations are subject to the provisions of subchapter II of chapter 5 of Title 5 (which specifies the administrative procedure to be followed), and the statute prohibits the Secretary from denying an exemption to an employee of a retail or service establishment because the employee engages in nonexempt work, “if less than 40 per centum of his hours worked in the workweek are devoted to such activities.” The statute unambiguously does not limit the Secretary’s authority to require a minimum salary for exemption. Nor does it direct anyone to a dictionary to discover the definition and delimitation of the terms. It directs us to the Secretary’s regulations.

The statute’s limitation on the Secretary’s ability to deny the exemption to retail or service employees who devote less than 40 percent of their workweek to nonexempt activities is especially enlightening because it is not part of the FLSA as enacted in 1938 and because the statutory EAP exemption itself does not mention time limits on nonexempt work. This tells us two important things.

One is that limitations other than a duties test are permissibly part of the Secretary’s definition of “bona fide executive, administrative, or professional capacity.” Limits on the amount of nonexempt work an executive does are clearly permissible even though they are unmentioned in the statute, because Congress would not otherwise have felt it necessary to restrict one application of such a limit. And just as statutorily unmentioned (but unproscribed) limits on time spent performing nonexempt activities are permissible, so are statutorily unmentioned but unproscribed limits on how small a salary an employee can be paid while he still qualifies for the EAP exemption.6

The second thing it tells us is that Congress knows how to limit the Secretary’s authority and will do so when it thinks the authority is misapplied. For two decades, the Secretary’s regulations imposed very strict limits on the amount of nonexempt work employees could do and still qualify for exemption as bona fide EAPs. When Congress applied the FLSA to the retail sector in 1961, it thought the Secretary’s restrictions on nonexempt work might be excessive and limited them, though only with respect to retail and service employees who were newly covered. By contrast with its treatment of nonexempt duties, Congress in 1961 did not seek to limit in any way the Secretary’s imposition of a salary test, either for retail employees or for any others.

With one exception, Congress has never limited the Secretary’s authority to impose a minimum salary requirement for exemption – in addition to the duties test — even though the Secretary has imposed such requirements continuously for 78 years. That one exception only strengthens the case for the Secretary’s authority to require a threshold salary. In 1990, Congress established a new professional exemption for computer professionals and, following the example of the Department’s regulations, set out not just a duties test, but also a minimum salary level that would rise as the minimum wage rose. Rather than leave the definition to the Secretary, as it had with the other EAP exemptions, Congress required not only that computer professionals meet a detailed statutory duties test for exemption but also set an earnings test: compensation at a rate not less than 6.5 times the minimum wage. In 1996, Congress amended the earnings test, fixing it at “a rate of not less than $27.63 an hour.” 29 USC 213(a)(17)

Like every Congress before them, the 101st Congress in 1990 and the 104th Congress in 1996 understood that the EAP exemptions involve both a minimum level of compensation and a minimum set of duties. Judge Mazzant is without any support for his notion that it would be unreasonable for the Secretary to impose a salary requirement for exemption, in addition to a duties test. When he says on page 11 of his Opinion that “Congress defined the EAP exemption with regard to duties, which does not include a minimum salary level,” he is dead wrong. His declaration that the regulations are not entitled to Chevron deference because “Congress did not intend salary to categorically exclude an employee with EAP duties from the exemption,” is equally wrong.

Instead of following the Supreme Court’s directive to “give effect to the unambiguously expressed intent of Congress” and defer to the Secretary’s regulations, Judge Mazzant resorted to a 1933 dictionary for his definition of the statutory terms. That error led him to an irrational conclusion: that a statute interpreted and enforced consistently by 12 presidents over 78 years, and amended many times by Congress, could not have been rationally interpreted that way.

Judge Mazzant’s entire approach to the overtime regulation is characterized by an indifference or even hostility to the purposes of the statute. He considers it a “harm” that employers will have to pay millions of employees for overtime hours while dismissing the benefit of higher salaries and more humane workweeks for workers. His entire Opinion is characterized by a failure to recognize that the statute he is interpreting, the statute whose congressional intent he should be trying to effectuate, is a labor standards law enacted to benefit employees and to protect them from abusively low pay and excessive hours of work. The statute’s exemption provisions must, therefore, under normal statutory rules of construction, be construed narrowly, since they work to exclude employees from the benefits of the Act. Harold Stein pointed this out on page 2 of his 1940 report, under a heading entitled: “EXEMPTION SHOULD BE INTERPRETED NARROWLY.”

“The general rule in a statute of this nature, that coverage should be broadly interpreted and exemptions narrowly interpreted, is so well known as to need little elaboration here. This doctrine was recently restated by the Circuit Court of Appeals for the Eighth Circuit in its opinion in the Hawkeye case, in connection with the exemption in section 13(a)(5) of the act. In this opinion, which is equally applicable to the problems of definition and delimitation under section 13 (a)(1), the court said:

“The manifest declared purpose of the statute was to eradicate from interstate commerce the evils attendant upon lower wages and long hours of service in industry. Accepting this as the declared purpose of the act, exemption would tend to defeat its purpose. The statute is remedial, with a humanitarian end in view. It is, therefore, entitled to a liberal construction.”

The U.S. Supreme Court specifically adopted this rule of construction with respect to the FLSA in AH Phillips, Inc. v. Walling, 324 U.S. 490, 493 (1945). The Court stated that, because the FLSA was “designed to extend the frontiers of social progress,” purposeful, explicit exemptions to such “humanitarian and remedial legislation” should “be narrowly construed.” A narrow reading of the EAP exemption favors the salary test and the Secretary’s regulation.

Endnotes

1. Judge Mazzant missed, for example, the statement on page 7 of the Weiss Report that, “A salary requirement was part of the original regulations defining “executive (and) administrative” issued in 1938.”

2. Stein report, p. 26.

3. Stein report, p. 26

4. Weiss report, p. 78.

5. Stein report, p. 52.

6. Clearly, Judge Mazzant’s reasoning on page 11 of his Opinion that because the Oxford English Dictionary definitions of EAP do not mention salary it cannot be part of the Secretary’s definition and delimitation of the terms is erroneous. The Oxford definitions do not mention the amount of time spent in nonexempt work, yet Congress not only condones the Secretary’s use of time limits on nonexempt work but circumscribes the Secretary’s authority only very narrowly.

Originally posted here.

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