A short work week did not mean a lack of regulatory substance, something else to be thankful for. In two significant decisions declaring final rules to be turkeys, a district court preliminarily enjoined an agency rule potentially effecting 4.2 million American wage earners, while a Court of Appeals decision vacated a rule that effectively prohibited an adult toy. Agency authority and viability return to the fore this wee
k as one agency challenged the demise of one of its significant political protections and asserted authority over an expansive and expensive line of financial products.
Overtime Increase Rule Enjoined: Unlike the National Hockey League where an overtime loss is still worth a point, the United States District Court for the Eastern District of Texas, in State of Nevada v. DOL, gave the Department of Labor (DOL), Wage and Hour Division (WHD), no points for its strictly monetary revision of overtime rules under the Fair Labor Standards Act (FLSA). To summarize, the President of the United States (POTUS) instructed DOL to update the FLSA “executive, administrative, or professional capacity” (EAP) exemption from overtime pay requirements. DOL’s final rule would increase the minimum salary level for exempt employees from $455 per week ($23,660 annually) to $921 per week ($47,892 annually) and create an automatic indexing system beginning in 2020 based on the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage region of the United States.
Although the district court summarily swept aside many of the States’ constitutional arguments, the court found that the States were likely to succeed on the merits of several basic statutory arguments. While the district court eschewed a broad decision that all monetary distinctions were inappropriate, the court held that the final rule failed to comport with the FLSA at Chevron Step 1 “plain meaning” because Congress delegated authority to define the EAP exemption based on duties, not a minimum salary level. The district court declined DOL’s attempt to introduce ambiguity through specific terms, such as ‘position.’ The court further concluded that the lack of authority to set the minimum salary level equally resolved the authority to make automatic adjustments in that salary level.
The district court found that the States had established that they are likely to suffer irreparable harm on the basis of the significant costs imposed on closed-end State budgets, i.e. that the States would be required to pay higher wages against inflexible budget caps, affecting a detrimental change in government services. That, for States, is sufficient irreparable harm. Based on that harm alone, the court found it unnecessary to consider the business-parties’ interests, which it treated as amici on the same subjects.
► The decision is the result of a consolidation of two cases – including Plano Chamber of Commerce v. Perez, brought by a host of private business interests. A great deal more lies beneath the court’s preliminary ruling that will likely be aired on pending motions for summary judgment or judgment on the administrative record.
The narrowness of the district court decision should be emphasized: the district court, on request of Nevada and others, issued a preliminary injunction against the defendants; the court did not stay the effective date of the rule. One oddity exists, however, in that the State of Nevada’s request that the court “enjoin the new overtime rule from becoming effective pending” final judgment and the district court order that “the Final Rule … is enjoined” when both mean to stay the rule’s effective date.
DOL was defended here by the Department of Justice (DOJ) and DOJ is likely to file at least a protective notice of appeal before the end of this Administration. The incoming Administration will ultimately need to determine whether to defend the final rule.
Buckyballs Rule Vacated: The United States Court of Appeals for the Tenth Circuit last Tuesday vacated the Consumer Product Safety Commission (CPSC) Safety Standards for Magnet Sets final rule for failure to comply with statutory prerequisites under the Consumer Product Safety Act (CPSA) as incomplete or inadequately explained. The issue in Zen Magnets v. CPSC was the safety of small rare earth magnets used as adult desktop toys (colloquially buckyballs), and which have a demonstrated use in teaching various scientific subjects, but can cause serious gastrointestinal problems if swallowed (an attractive nuisance to children). The CPSC forced most manufacturers to cease importing magnet sets and convinced most to comply with the existing “toy” standards. But in 2012, the CPSC proposed a safety standard that effectively extending the “toy” standard to all magnet sets, not matter their use.
The CPSA requires the CPSC to make highly structured statutory findings in promulgating safety standards, including (1) the degree and nature of the risk of injury sought to be prevented; (2) the approximate number and type of products subject to the rule; (3) the public’s need for those products, and the probable effect of the rule on the utility, cost, and availability of the products; and (4) any means of reducing the risk of injury while minimizing adverse effects on competition or other commercial practices. The CPSA authorizes the CPSC to promulgate a safety standard only if it concludes and articulates that (1) the rule is “reasonably necessary to eliminate or reduce an unreasonable risk of injury;” (2) the rule is in the public interest; (3) the expected benefits from the rule reasonably relate to its costs; and (4) the rule imposes the “least burdensome requirement which prevents or adequately reduces the risk of injury for which the rule is being promulgated.”
The Court of Appeals found distinct failures in the CPSC analysis. First, the data used to determine the benefits of the rule failed to reflect the downward trend in injuries due to the CPSC’s own extra-rule efforts. Second, the CPSC’s benefits analysis was premised on the cumulation of injury report narratives that presented only an imprecise “possibility” that the injuries were caused by magnet sets that does not meet the CPSA authorization to promulgate safety rule that is “reasonably necessary to eliminate or reduce an unreasonable risk of injury.”
► The Court of Appeals is divided, but the lesson on agency compliance with statutory requirements is clear. The Court of Appeals’ conclusion that the CPSC made incomplete prerequisite, compulsory factual findings are incomplete or inadequately explained those findings joins the same as Michigan v. EPA, in which the United States Supreme Court (SCOTUS) found that the Environmental Protection Agency (EPA) failed to adequately respond to statutory requirements that it consider costs. The Court of Appeals’ harsh response does not correspond with the later history of Michigan v. EPA in which the United States Court of Appeals for the District of Columbia Circuit remanded to the EPA without vacating the rule. Here, the Court of Appeals does not take up the equitable cudgel of remand without vacatur for the CPSC to respond, sometimes referred to as the Allied-Signal balancing of harms and likelihood that the agency can correct its deficiency. This hard line hews more closely to the Administrative Procedure Act (APA)’s requirement that a court hold unlawful and set aside regulations promulgated not in accordance with the law. Unfortunately, without analysis of the remand without vacatur, this case does not yet present an opportunity for further resolution of a growing conceptual conflict.
Agency Demarche & Prepaid Cards: The Consumer Financial Protection Bureau (CFPB) finally published its Prepaid Accounts Under the Electronic Fund Transfer Act [EFTA] (Regulation E) and the Truth In Lending Act [TILA] (Regulation Z) final rule last Tuesday. These rules apply a number of credit consumer protection requirements to various types of prepaid cards. The final rule is effective October 1, 2017, except for certain reporting requirements which become effective October 1, 2018. The CFPB certified that the final rule would not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (RFA), discusses at length its consideration of benefits and costs as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), and reanalyzes burdens under the Paperwork Reduction Act (PRA). The final rule does not, however, provide any accounting statement of any of these analyses or Executive Order 12866 benefit / cost analysis or estimates by discount rates.
The prepaid rule must be evaluated in light of the current constitutional (un) status of the CFPB. A panel of the D.C. Circuit held, in PHH Inc. v. CFPB, that the CFPB was unconstitutionally structured because it is headed by a single director who may be removed by POTUS only for cause, and severed the “for cause” requirement. The panel held also that the CFPB erred in interpreting the Real Estate Settlement Procedures Act (RESPA) and applicable statute of limitations. The CFPB subsequently filed a petition for rehearing en banc characterizing the constitutional issue as “what may be the most important separation-of-powers case in a generation.” The petition challenges the panels statutory interpretation of RESPA as well, but apparently abandons the issue of the applicable statute of limitations.
► The petition for rehearing en banc is not surprising – it was necessary for the CFPB to hope to preserve not just its Director, but the rules is has promulgated into the next Administration. If the D.C. Circuit grants the petition prior to January 20, 2017, the panel decision and the severance of the “for cause” requirement for removal of CFPB’s Director, will be vacated. Any other course leaves the CFPB Director vulnerable to at will removal and the final rule subject to an agency stay at the direction of a replacement Director without more.
The tenuousness of the CFPB’s position is underscored by the arrogance of its asserted importance – this case and its constitutional implications have very limited application outside the CFPB. Moreover, the CFPB argues from the narrowness of its own interest – it represents itself; DOJ has not submitted a petition by or the views of the United States. Whether the D.C. Circuit acts prior to the inauguration of a new Administration, the CFPB will remain on thin ice, and this latest regulation a heavy weight on that thin ice.
The post Monday Morning Regulatory Review – 11/28/16: Overtime Increase Rule Enjoined; Buckyballs Rule Vacated; and Agency Demarche & Prepaid Cards appeared first on Federal Regulations Advisor.