December 2016 Newsletters
Last week, a federal judge in Texas blocked the Department of Labor's final rule doubling the salary level used to determine whether employees are classified as exempt from overtime under the Fair Labor Standards Act (FLSA). The rule, which increases the salary level for exemptions from $23,660 to $47,476,
ct tomorrow. District Judge Amos Mazzant issued his ruling in a lawsuit brought by 21 states and several business groups. The injunction prevents the rule from taking effect nationwide pending the court's decision on the merits of the case against DoL.
Regardless of repeal, the ruling will still have a lasting impact on the Department of Labor’s power in relation to setting overtime rules. Specifically, the court ruled that the DOL overstepped its rulemaking authority under the FLSA when it set a “de facto” salary requirement. The DOL rule, the court argues, sets a minimum salary test that effectively supplants the duties test.
The court did not go so far as to say that anysalary requirement violates FLSA. The prior salary rule is still effective at $455 per week. The court argues that the original salary level was purposefully low so as to screen out employees who were clearly non-exempt without having to go through the exercise of determining if the employee meets the duties test.
A copy of the ruling can be found here: www.txed.uscourts.gov/d/26042
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As expected, the CFPB has filed an appeal for a rehearing en banc on the PHH Case we discussed a couple weeks ago. A rehearing en banc allows an entire court to reconsider a decision made by a panel of three judges. As a recap: PHH is a financial services corporation operating out of New Jersey*. The CFPB imposed a $109 million penalty for PHH’s practices related to their captive mortgage reinsurer** and Section 8 of RESPA. The CFPB made an interpretation about the practice related to Section 8 RESPA prohibitions, applied it retroactively and filed an administrative adjudication claim against PHH in 2014. The case has been ongoing since that point and on October 11, 2016, the D.C. Court of Appeals made the following rulings:
The structure of the CFPB, wherein there is a single director that can only be removed for cause, is unconstitutional since it violates Article II of the Constitution;
Statutes of limitations apply to the CFPB’s enforcement actions;
RESPA language allows for captive mortgage re-insurance arrangements if the mortgage reinsurers were paid no more than the reasonable value of the services they provided; and
The court admonished the CFPB for attempting to apply interpretations retroactively.
As noted in our previous article, the decision made the president-elect a critical part of the CFPB’s management. President-elect Trump has widely touted his plan to undo Dodd-Frank and therefore, there has been wide-spread speculation that the CFPB director is far more likely to be removed under this D.C. circuit precedence. It, therefore, comes as no surprise that the CFPB has utilized their ability to request a rehearing en banc, allowing for a possible reversal of the decision that the structure of the CFPB is unconstitutional. The CFPB argues in their November 18, 2016 petition that the D.C. court’s panel “fundamentally” misinterpreted RESPA and that they incorrectly held that RESPA allows for mortgage reinsurance kickbacks. The CFPB also argued that the panel misinterpreted the court case that allows for independent agencies and carves out the exception to Article II of the Constitution. Thus, the CFPB takes issue with both the panel’s decision that the CFPB structure is unconstitutional and also, that the CFPB was not able to implement their interpretation of RESPA section 8 retroactively. There is no guarantee that the D.C. Circuit Court will grant this petition but this is definitely still the case to watch. A decision by the court not to rehear this case would solidify the current decision and would call into question the likelihood of Richard Cordray’s long-term tenure as director. On the other hand, a decision to rehear gives the court an opportunity to undo this groundbreaking precedence in limiting the CFPB’s scope when issuing enforcement action
*PHH provides mortgage services to financial service firms and operates under a number of names. These include PHH Home Loans, Axiom Financial, Coldwell Banker Home Loans, First Capital and Sunbelt Lending Services, among others.
**Mortgage reinsurance is a variation of captive reinsurance where the subsidiary of a lender collects at least a portion of the mortgage insurance premiums and also shares in payments of any losses for their own loans.
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