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  • Supreme Court’s Wage, Hour Shift: More Than Minor Tuneup

    Employers Group | 04/10/2018 | News

     

    By Jon Steingart

    Workers, businesses, and their lawyers face a different landscape for litigating under the Fair Labor Standards Act.

    The U.S. Supreme Court abandoned a long-standing canon for how to apply exemptions to the Fair Labor Standards Act’s minimum wage and overtime requirements. An employee who works more than 40 hours per week generally is eligible for time-and-a-half pay for those extra hours under the Fair Labor Standards Act unless an exemption applies.

    On April 2, the court ruled 5-4 that the law doesn’t cover car service advisers at Encino Motorcars, a Mercedes-Benz dealer in Southern California. Known as narrow construction, the old approach provided that minimum wage and overtime exemptions should be construed in a way that provides the greatest possible benefit to a worker.

    “While courts have pretty uniformly articulated that principle whenever they’ve decided an exemption issue, courts have largely not adhered to it strictly,” Rachel Bien, a partner in the Los Angeles office of worker-side law firm Outten and Golden LLP, told Bloomberg Law. “Theoretically in close cases the presumption was supposed to be that the employee is outside the exemption. We haven’t really seen most courts adhering strictly to that very high bar.”

    “In general we are advising our clients that there is greater risk in bringing misclassification cases,” said Bien, who co-chairs Outten’s class and collective actions practice group. The risk in misclassification cases was underway before the court rejected the narrow construction principle, she said.

    It may be more difficult for a worker to bring wage and hour cases than in the past, Bien said. She’s concerned that the Labor Department appointees and judicial picks under the Trump administration aren’t as worker-friendly as they could be, creating a difficult backdrop for litigation. Because courts weren’t closely observing strict construction before the Encino Motorcars case, the Supreme Court’s decision to reject it doesn’t do much to change an already challenging context for litigating overtime and minimum wage exemption cases, she said.

    For employers, long-standing advice to take appropriate steps in classifying employees as exempt or nonexempt still stands, Brett Bartlett, an Atlanta-based national co-chair of the wage and hour practice at management-side law firm Seyfarth Shaw LLP, told Bloomberg Law in an email. “I’ve been counseling clients for almost 20 years to accept that the FLSA’s exemptions must be construed narrowly because the statute is a remedial one that requires ties to go to the employee,” he said.

    Fewer Workers Eligible for OT?

    Another worker-side attorney had a different prediction.

    The decision will result in fewer people being found eligible for minimum wage and overtime because they will be found to fall within an exemption, Patricia Smith, the Labor Department’s top lawyer during the Obama administration, told Bloomberg Law. “There’s no longer a presumption that the exemptions should be, when in doubt, construed to exclude as few people as statutory language allows,” she said. Smith is now senior counsel with the National Employment Law Project, a worker advocacy organization.

    Employers may see challenges to decisions on overtime eligibility, Bartlett said. Following the Supreme Court’s decision in Encino Motorcars to reject narrow construction, “lower courts will not be burdened with an immediate bias against an employer defending a misclassification case under the FLSA,” he said.

    The Labor Department didn’t participate in the case before the Supreme Court. The agency, which enforces the FLSA, published a bulletin 12 days before the court heard the case in which the agency said it was reconsidering its position on service advisers’ overtime eligibility and awaiting a ruling in the case. The department acknowledged but otherwise didn’t immediately respond to Bloomberg Law’s request for comment about how it plans to proceed in light of the ruling.

    ‘Thumb on the Scale’ Lifted

    The court’s decision changes how exemptions are applied, but it doesn’t repeal or change them. Only Congress can do that.

    “Congress didn’t say when you read these words you should read them really narrow,” Wendy McGuire Coats, a lawyer for Encino Motor Cars, told Bloomberg Law April 3. “Over time you’ve had this buildup that says as we’re looking at exemptions we treat them in a way that’s different than other congressional statutes.”

    Rejecting narrow construction makes it a bit more even in how courts apply exemptions, she said. “Courts are routinely in the position of applying statutory construction to all sorts of statutes,” she said. “Now they’re going to have a fair shake as opposed to one with their thumb on the scale” in favor of employees.

    Justice Clarence Thomas, who wrote the majority opinion, quoted an earlier decision written by the late Justice Antonin Scalia, saying it’s a “flawed premise” to interpret the FLSA in a way that pursues its purpose “at all costs.” Justice Ruth Bader Ginsburg wrote the dissenting opinion.

    “It’s interesting that Thomas cites to Scalia on the law,” Karl Lindegren, another member of the car dealer’s legal team, told Bloomberg Law. Lindegren is a partner in Fisher & Phillips LLP’s Irvine and Los Angeles, Calif., offices. Coats is a partner and appellate counsel in its San Francisco office.

    Thomas also quoted a treatise on statutory interpretation Scalia co-wrote in 2012 with Bryan Garner, a Southern Methodist University law professor who specializes in legal writing and drafting. FLSA exemptions deserve “a fair (rather than a ‘narrow’) interpretation” because there is nothing in the text of statute to suggest Congress intended it to have narrow construction, Thomas said.

    The case came to the Supreme Court once before. In 2016 it reversed an intermediate appeals court’s ruling for the workers and sent the case back to the U.S. Court of Appeals for the Ninth Circuit with instructions to analyze it a different way. The Ninth Circuit ruled for the workers a second time, and Encino appealed to the Supreme Court again.

    Scalia died in February 2016, after the court had first agreed to hear Encino I, but before it was argued. His successor, Justice Neil Gorsuch, was on the court for Encino II and joined the majority opinion.

    Sachin Pandya, an employment law professor at the University of Connecticut, questioned the way the court announced its rejection of narrow construction.

    “What’s puzzling is the way they did it. They appear to be overruling their past precedent but they don’t expressly say they’re overruling it,” he told Bloomberg Law.

    “In many cases, the Supreme Court has a separate doctrine for the conditions under which it’s supposed to set aside its own doctrine,” he said. “You’d expect much more than what the court did. As Justice Ginsburg points out, they don’t even acknowledge the precedent they appear to be overruling.”

    To contact the reporter on this story: Jon Steingart in Washington at jsteingart@bloomberglaw.com

    To contact the editor responsible for this story: Terence Hyland at thyland@bloomberglaw.com