Courts Reject Department of Labor Decrees

It has been a pretty tough month for the Department of Labor (DOL), and it may soon get worse. In the span of a couple weeks, two Obama administration decrees have been enjoined by U.S. Districts Courts. A third could be coming soon. Reports indicate that the United States District Court Eastern District of Texas will rule next week on whether to issue an emergency injunction against the DOL’s overtime rule.

The first injunction issued this month was against DOL and Federal Acquisition Regulatory Council regulations that implemented an Obama executive order that would institute new reporting requirements on federal contractors, known as the “blacklisting rule.” The rules require contractors who bid on federal contracts in excess of $500,000 to report alleged and actual labor violations over the last three years. Reported violations of any of the 14 federal labor statutes may be used to block a company’s bid.

I wrote in a recent op-ed for why the U.S. District Court in Texas decided to block the rule:

While the government could not substantiate the benefits of the rule, the Regulatory Impact Analysis could calculate plenty of costs. There is an estimated cost of $458,352,949 to contractors and $15,772,150 imposed on the government in just the first year.

The court had additional reasons for blocking implementation of the rule, as well. The court found merit in the plaintiffs’ First Amendment complaint. The reporting requirements of the rule were viewed as “compelled speech” by the court because the regulations impose immediate disclosure of any labor violation, even if the violation did not occur while working on a government contract or is simply an allegation rather than a final agency or court decision.

Further, the District Court stated that the regulations implementing the executive order “compel government contractors to ‘publicly condemn’ themselves by stating that they violated one or more labor or employment laws.” What’s worse, federal contractors may have to “publicly condemn” themselves over mere allegations of wrongdoing, not actual labor law violations.

On November 16, 2016, the United States District Court for the Northern District of Texas made permanent its preliminary injunction of the DOL’s persuader rule. This regulation imposed reporting requirements on employers that contract with labor relations consultants for advice on how to respond to union organizing campaigns. Previously, employers only had to disclose hiring labor consultants when they directly come into contact with employees.

As my colleague Ivan Osorio explained at the time the Court issued its preliminary injunction, the persuader rule disproportionately harms mid-sized businesses that are large enough to be the target of union organizing campaigns but unlikely to have in-house counsel. The rule would dramatically limit their ability to acquire necessary legal advice, which these companies rely on to convey their side of the story during union campaigns.

The National Federation of Independent Business (NFIB), which filed the successful lawsuits against the rule, noted: “[T]his move would undermine the longstanding protection over the confidentiality of attorney-client communications and place an unfair burden on small business owners.”

NFIB praised the permanent injunction:

Small business owners today are relieved that they will still have the right to seek legal advice when facing a union election. Labor law is extremely complicated, and small business owners rely on the advice of experts to help them navigate through unfamiliar territory.

The next domino to fall could be the DOL’s overtime rule. The District Court for the Eastern District of Texas revealed yesterday that a ruling to issue an emergency injunction against the overtime regulation could come as soon as November 22.

The DOL’s rule makes salaried employees earning under $47,476 eligible for overtime pay, which is over a 100 percent from the current salary threshold of $23,660. This is historically out of line with past increases to overtime salary thresholds.

Secretary of Labor Thomas Perez has put forth rosy estimates about the impact of the rule. The DOL suggests around 5 million new workers will suddenly become overtime eligible, and the rule will boost employees’ wages across the country by $1.3 billion. However, other research shows that cutting wages would make up for 80 percent of overtime costs.

Further, as I wrote in The Hill:

[W]orkers will bear the brunt of the harmful impact of the overtime rule and its unintended consequences. Salaried employees now on a management track may have their work status downgraded to hourly, which will have some impact on their long-term career prospects, earnings, and other benefits, like healthcare and a pension. Perversely, the overtime rule would become a governmental roadblock on aspiration for ambitious employees.

Besides workers facing worse career prospects, small businesses, non-profits, local governments, and universities are ill-equipped to comply with the rule.

Another aspect of the rule causes significant trouble in the future and is statutorily on shaky ground. On top of dramatically increasing salary threshold, it will automatically increase every three years. One, nowhere does the Fair Labor Standards Act delegate authority to the Secretary of Labor to put the salary on autopilot; it requires rulemaking. Two, an automatic increase will cause some employers to demote salaried employees to hourly workers. Most likely, the employees that are reclassified as hourly would be employees earning lower salaries, so the pool of workers that determine the salary threshold earn higher incomes, which will make the salary threshold skyrocket in the future.

It is hoped more courts will block regulations that do more harm than good. If not, there is a golden opportunity for Congress and the next administration to pass legislation to repeal misguided regulations that cause far more in costs than benefits.