Monday, May 21, 2018

Supreme Court Casually Changes Decades of FLSA Enforcement

By Brian Farrington

The Fair Labor Standards Act of 1938, 29 USC 201 et seq. (FLSA), is the federal wage and hour law. It establishes the federal minimum wage, currently $7.25 per hour, and mandates the payment of overtime at time and a half of employees’ regular rates of pay for hours worked in excess of 40 in a workweek. The FLSA also contains the federal child labor provisions and authorizes the Secretary of Labor to promulgate recordkeeping rules.

The FLSA and the Burden of Proof

The Act also contains a number of exemptions. Some exemptions relieve employers of the obligation to pay both minimum wage and overtime, while others only relieve the overtime obligation. Since the application of these exemptions is important to employers and employees alike, a fundamental question is and has been:  who bears the burden of proof -- do employees have to prove they are not exempt, or do employers have to prove that employees are exempt?

From the beginning of FLSA enforcement, the principle has been that the burden of proof is on employers who assert an exemption:


The Fair Labor Standards Act was designed "to extend the frontiers of social progress" by "insuring to all our able-bodied working men and women a fair day's pay for a fair day's work." Message of the President to Congress, May 24, 1934.  Any  exemption from such humanitarian and remedial legislation must therefore be narrowly construed, giving due regard to the plain meaning of statutory language and the intent of Congress.  To extend an exemption to other than those plainly and unmistakably within its terms and spirit is to abuse the interpretative process and to frustrate the announced will of the people. A. H. Phillips, Inc. v. Walling, 324 U.S. 490, 493, 65 S. Ct. 807, 808 (1945).

See also:

It is well settled that exemptions from the Fair Labor Standards Act are to be narrowly construed.   A. H. Phillips, Inc., v. Walling, 324 U.S. 490, 493;   see also Powell v. United States Cartridge Co., 339 U.S. 497, 517 (1950); Mitchell v. Ky. Fin. Co., 359 U.S. 290, 295-96, 79 S. Ct. 756, 759-60 (1959).
    

The Encino Motorcars Decision

In a recent 5-4 decision (in which the usual suspects aligned as might be expected), the Court casually and almost as an afterthought overruled these long-standing precedents:
 

The Ninth Circuit also invoked the principle that exemptions to the FLSA should be construed narrowly. 845 F.3d, at 935-936 (2017). We reject this principle as a useful guidepost for interpreting the FLSA. Because the FLSA gives no “textual indication” that its exemptions should be construed narrowly, “there is no reason to give [them] anything other than a fair (rather than a ‘narrow’) interpretation.” Scalia, Reading Law, at 363. The narrow-construction principle relies on the flawed premise that the FLSA “‘pursues’” its remedial purpose “‘at all costs.’” [citations omitted] ….We thus have no license to give the exemption anything but a fair reading. Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018).


Justice Ginsburg dissented from the majority decision, and then observed in a footnote:
 

This Court has long held that FLSA “exemptions are to be narrowly construed against the employers seeking to assert them and their application limited to those [cases] plainly and unmistakably within their terms and spirit.” Arnold v. Ben Kanowsky, Inc., 361 U. S. 388, 392, 80 S. Ct. 453, 4 L. Ed. 2d 393 (1960). This principle is a well-grounded application of the general rule that an “exception to a general statement of policy is usually read . . . narrowly in order to preserve the primary operation of the provision.” Maracich v. Spears, 570 U. S. 48, 60, 133 S. Ct. 2191, 186 L. Ed. 2d 275 (2013) (internal quotation marks omitted). In a single paragraph, the Court “reject[s]” this longstanding principle as applied to the FLSA, ante, at 9, without even acknowledging that it unsettles more than half a century of our precedent. Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1148 n.7 (2018).
 

That the conservative majority on the Court should reach such a conclusion is not in itself surprising. Not long ago the Court, including some of the more liberal members, limited the narrow construction principle only to exemptions contained in Section 13 of the Act, and not to definitions contained in Section 3:
 

This Court has stated that “exemptions” in the Fair Labor Standards Act “are to be narrowly construed against the employers seeking to assert them.” Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S. Ct. 453, 4 L. Ed. 2d 393 (1960). We need not disapprove that statement to resolve the present case. The exemptions from the Act generally reside in §213, which is entitled “Exemptions” and classifies certain kinds of workers as uncovered by various provisions. Thus, in Christopher v. SmithKline Beecham Corp., 567 U.S. ___, ___-___, n. 21, 132 S. Ct. 2156, 183 L. Ed. 2d 153 (2012), we declared the narrow-construction principle inapplicable to a provision appearing in §203, entitled “Definitions.” Sandifer v. U.S. Steel Corp., 134 S. Ct. 870, 879 n.7 (2014).
 

But although limiting narrow construction to the section of the Act entitled “exemptions,” Sandifer* did not reject it in that context. That it would do so only four years later, and replace it with an undefined “fair reading” principle not previously found in FLSA jurisprudence, is striking.
 

The problem with the “fair reading” standard promulgated by Encino Motors is two-fold. First, there is no discussion of what the phrase might mean in the context of interpreting the FLSA. More significantly, the Court has summarily rejected not only consistent precedents going back to 1945, it has ignored the stare decisis principle. Stare decisis is the idea that prior holdings, especially if they are of long standing, should not be overruled, at least not without good reason. Here, the Court devotes only a “single paragraph,” as Justice Ginsburg puts it, to making a really significant change in a law applicable to almost all the employees in the United States, without making the slightest effort to discuss and justify the reasons for the change.
    
Since Encino Motors is only a month old, it remains to be seen what effect it will have on DOL enforcement and on the approach of the lower courts (as of this writing, there are no reported cases citing it). It will surely make it easier for employers to assert exemptions, and correspondingly harder for employees to avoid them and show their entitlement to minimum wage and/or overtime.

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*Interestingly, in the case below, Judge Posner had clearly challenged the narrow construction principle:  

The plaintiffs cite language from a number of cases to the effect that "exemptions" from the Fair Labor Standards Act are to be construed narrowly. E.g., Moreau v. Klevenhagen, 508 U.S. 22, 33, 113 S. Ct. 1905, 123 L. Ed. 2d 584 (1993); A.H. Phillips, Inc. v. Walling, 324 U.S. 490, 493, 65 S. Ct. 807, 89 L. Ed. 1095 (1945). We expressed skepticism in Yi v. Sterling Collision Centers, Inc., 480 F.3d 505, 508 (7th Cir. 2007), asking rhetorically: "Why should one provision in a statute take precedence over another?" No matter; section 203(o) does not create an exemption. The Fair Labor Standards Act has a section entitled "Exemptions"; it is 29 U.S.C. § 213; the exclusion of changing time is not in that section. Sandifer v. United States Steel Corp., 678 F.3d 590, 595 (7th Cir. 2012).
    

This was notable in light of the fact that Posner had written an earlier opinion upholding the application of an exemption contained in Section 7 of the Act—see Mechmet v. Four Seasons Hotels, Ltd., 825 F.2d 1173 (7th Cir. 1987). (And even in that case, Posner had spoken rather dismissively of the narrow construction principle).]

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