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HR entrepreneur Mike Coffey, SPHR, SHRM-SCP engages business thought leaders about the strategic, psychological, legal, and practical implications of bringing people together to create value for shareholders, customers, and the community. As an HR consultant, mentor to first-stage businesses through EO’s Accelerator program, and owner of Imperative—Bulletproof Background Screening, Mike is passionate about helping other professionals improve how they recruit, select, and manage their people. Most thirty-minute episodes of Good Morning, HR will be eligible for half a recertification credit for both HRCI and SHRM-certified professionals. Mike is a member of Entrepreneurs Organization (EO) Fort Worth and active with the Texas Association of Business, the Fort Worth Chamber, and Texas SHRM.
I don't believe non competes are are do it yourselfers either. Yeah. I think you need to have a good attorney that you trust to to draft them. A lot of people are like, oh, I know. They're words on a paper.
Julia Gannaway:They do have particular meanings, though. So, they could definitely work with you to help solve those problems and to to work on a meaningful path going forward to protect your interest as a business as well as complying with the Texas law or other states law.
Mike Coffey:Good morning, HR. I'm Mike Coffey, president of Imperative. Bulletproof background checks with fast and friendly service. And this is the podcast where I talk to business leaders about bringing people together to create value for shareholders, customers, and the community. Please follow, rate, and review Good Morning HR wherever you get your podcast.
Mike Coffey:You can also find us on Facebook, Instagram, YouTube, or at goodmorninghr.com. This summer, federal courts delivered a number of decisions limiting the power of federal agencies in workplaces. And joining me today to discuss whether we're seeing the end of agency overreach is Julia Ganaway. Julia is a partner in the law firm of Ross Ganaway Clifton where she counsels and represents public and private sector clients. She also serves on a number of boards.
Mike Coffey:The most important to me is that she's on the board of Fort Worth HR, my local SHRM chapter. Welcome back to Good Morning HR for the 3rd time, Julia.
Julia Gannaway:Thank you, Mike. It's my privilege to be here today. So, you know, when you asked me if if I was interested on speaking on this topic, you basically had to, you know, snatch the microphone away from me, and you may have to throughout the course of this.
Mike Coffey:We've only got 30 minutes, and I know you go by the hour. So yeah.
Julia Gannaway:I know. I know. Right? So but, I do I do talk fast. But, yeah, you know, this topic is is so interesting.
Julia Gannaway:The the overview, how I look at it as if I may if I may, the cases that we're talking about today relate to the issues of courts clipping agencies' wings, so to speak. At a higher level review, it seems to be a power struggle, you know, with the agencies under as an arm of the executive branch, with the judiciary and the judicial branch. And in my opinion, these issues are heightened or come more to the fore when we have the legislative branch. Congress here, does not act or acts in a way that punts something to the agencies. And of course, congress then says, oh, I passed something, but then when they don't make effective rules, depending on who's in the in the executive, then they wanna criticize that when in fact, hey, man, the only the only thing according to the founding fathers, the only entity that can pass the laws is Congress and Congress needs to get in and do the work.
Julia Gannaway:And if they get in and do the work, maybe some of these issues are resolved. But, you know, just be thinking about the the clipping their wings, the judiciary, versus, the executive branch and interpreting the executive branches as we as we discuss these cases.
Mike Coffey:And really, that's kind of, you know, I'm I'm putting my, you know, civil libertarian hat on here, but that's really for a while, it was both the legislative branch saying, yeah, we'll let them we'll let the the administrative branch figure out the details. And then the courts with Chevron deference were doing the same thing. The courts, you know, the courts were deferring to that, you know, that, oh, we can't be experts in all these areas, and so we'll let the experts, how many times we've heard that in the last 4 years, make the decisions on the details and the rules and all of that even where Congress didn't give them the authority to expressly. And so and that's what you know, maybe maybe talk a little bit more because, you know, I'm I'm not a lawyer. I kept my soul, and I couldn't find a law school that would take me.
Mike Coffey:So there's that too. But talk a little bit about Chevron and and what it meant, you know, as far as how courts interpreted agency actions.
Julia Gannaway:Yeah. What it is and what it isn't. Right? You know, Chevron was the Chevron USA versus NRDC, the National Resources Defense Council, and it came out in 1984. It was about the Clean Air Act.
Julia Gannaway:And in that case, the Supreme Court came up with the Chevron deference. When a when a statute is ambiguous, then the courts should defer to an agency's reasonable interpretation of that law that it administers. Now it's a cornerstone of modern administrative law, and assuming that the agency has a specialized or inside knowledge of how those things work. Well, what has happened since then has been seemingly since 1984, which although I was in high school then, it seems like but a moment away, that's 40 years ago. So yet that has had a time to season and mature.
Julia Gannaway:And what issue has happened is is that it seems that many courts have just instead of saying, well, you know, we don't even know if it's ambiguous, but regardless, we'll just rely on the agency kind of a thing. And so what happened here in the case of Loper Bryte is a reassertion of the the judiciary and the judge. This case involved a challenge by petitioners to a rule promulgated by the National Marine Fishery Service. So the fishermen leading the charge. Right?
Julia Gannaway:Didn't didn't have that in my bingo card. What the court said is that Chevron can't be reconciled with the Administrative Procedures Act. And that's how they do rulemaking. Right? By presuming statutory ambiguity is implicit is an implicit delegation to the to the agencies.
Julia Gannaway:As in just because it's not clear doesn't mean that the agency has any specialized expertise. And in fact, in a mic drop moment, if you will, chief justice John Roberts said, agencies don't interpret statutes. We do. And that just nailed it. I was I I was listening to that.
Julia Gannaway:Just exactly wanted to do a mind drop. I'll spare you all this because we never get sound back. But yeah. Right? I mean, it's just like we do it, not them.
Julia Gannaway:They have no special expertise. We're the courts. We're we are charged by article 3 of the constitution in interpreting the laws as congress writes them. And so they said that, you know, as an a d agency case, as any other, the best reading is all the same. The the reading the court would have reached is the the load star, if you will, to to look at it forward.
Julia Gannaway:So what is interesting, though, I found is is to remember what Chevron was and what it wasn't. Chevron was always supposed to be a 2 step analysis when it was ambiguous. If Congress clearly speaks, there's no ambiguity, no Chevron deference. And that's something that folks need to remember. Then secondly, if it were only if it is ambiguous, then you look to it if it's reasonable and comes within their authority.
Julia Gannaway:But, you know, before Lorber Bryte, the judge could always look at all of them. They many times did not. And it seemed as you read the opinion that the court was bit taking judges to task as well and said the courts always had the authority to vacate an agency rule. They just didn't do it. So now you're supposed to look.
Julia Gannaway:The court has said, you are supposed to look to single best meaning of a statute. And that is the direction that the Supreme Court has given to everyone and said effect and instead explicitly Chevron is overruled. They said, though, Chevron's being overruled is not having a retroactive effect. They're not gonna revisit 18,000, however many thousands and thousands of cases that have been determined under that, yet it will be henceforth and forward going is that Chevron deference will no longer be afforded.
Mike Coffey:And there's going to be a gold rush for attorneys challenging previous decisions. So coming up with new case law I mean, we have new you know, there's gonna be new circumstances where the precedent under Chevron is a, but that's, you know, that was really, you know, under the Loper decision may be seen as, you know, agency overreach or the court, you know, the court overly deferring to the agencies. And we'll it's gonna be a it's if I was going to law school right now, I think administrative law would be the place to to be if you really wanna have a career for the next 30 or 40 years just studying that.
Julia Gannaway:Well, in administrative law and how it impacts with the regular, you know, court statutory interpretation, which is as we've known for the last decade or so or a little more play reading. It's like, what does the statute say? Bam. That's what it is. They say what I mean to say.
Julia Gannaway:But, you know, what's important is they delegated congress explicitly delegated to agencies in many statutes, the ADA, age discrimination, ADA, Gina, Pregnant Worker Fairness Act expressly delegated rulemaking authority, but they didn't do it to title 7. They said, you know, you can make interpretive guidance, but you don't get to make rules, which is interesting because all of us are like EEOC said to do this. EEOC said to do that. And they're like, yeah. No.
Julia Gannaway:I mean, Congress didn't delegate that. So they have no substantive rulemaking power. And that's something to keep in mind for all of us doing employment law. And what is also interesting in what's I think we might talk about in a little bit is about the Department of Labor and their overtime regs and the issue and the tension there between explicit and implicit delegation to the agency interpretations. So they are also and also wanted to reemphasize that Skidmore v Swift has been reaffirmed as good law.
Julia Gannaway:It was like from the 19 forties or so. But what they said is the courts always have the final say about what the law means, but the agencies will be given what is a respectful consideration.
Mike Coffey:At my house, it's it's Skidmarks versus Haines is the main is the main problem. But but the reality is Loper doesn't really stop courts from considering information put forth by agencies. So you can still have these experts from the DOL or the Federal Trade Commission or whomever else presenting their side of the facts and their facts and their arguments and saying this is why we think this law should be interpreted this way. And the courts can't but they're not being held with a gun to their head saying that they have to, you know, that they necessarily have to defer to that. They can evaluate that in light of all the other facts and make decisions according to what their understanding of the law is.
Julia Gannaway:Also and it's very important you were hinting at, and I was wondering if you were gonna say it, but I wanted to make sure to reemphasize. It also gives the people who are being regulated a seat at the table, the defendants. Right? The folks that are the business owners, the companies, you know, who feel that they've been, you know, I think run over, if you will, by agencies just saying we're gonna decide what's the good of the nation for everybody. And by God, you're gonna, you know, follow along as Chevron Difference.
Julia Gannaway:Boom. This is going to be able to give people what by the people a lot smarter than me that, think about this all the time. So certainly have have envisioned this as being a way court's gonna be looking at all of it, not just hunting on the review, if you will, and giving those defendants an opportunity to have a seat at the table and present that up.
Mike Coffey:And as we're discussing this, everybody's reevaluating the impact of the North Texas. You know, gotta love you know, if you want good workplace federal law, you go to you know, and want the the courts to agree with you, you go to North Texas where we're at. Pew pew. And the the federal judge up here in North Texas issued a nationwide injunction on the Federal Trade Commission's non compete rule. That's causing tons of chaos because a lot of employers who had non competes, even valid, fair, reasonable non competes in some instances, started walking those back and preparing for this rule to take place.
Mike Coffey:I think September 4th it was supposed to take place, and the the judge shot that down. So kind of give the high level overview of of what happened there and how all this, how this Loper decision affected that and all of that. Oh, and I do need to say that that case was brought by Ryan LLC out of Dallas. Brent Ryan, who's the CEO and founder of that organization, is a friend of mine, and it was supported by the Texas Association of Business, which is the state Chamber of Commerce, and I'm on their executive committee. So just so you know what my you know, where my interests lie here.
Julia Gannaway:In case I was confused otherwise. Yeah. Yeah. Exactly. Yeah.
Julia Gannaway:In case I had lived under a rock and did not know White Coffee for the last 25 years. No. Yeah. And, it was in the Eastern District with the Lankey Chamber of Commerce. And I'm wondering if they did that for venue selection.
Julia Gannaway:Just saying, Eastern District. So Judge Brown made this decision, and she issued a preliminary injunction in July and a permanent one. She said, on 30 days, I'm gonna do another one, and she beat her own deadline. And what was super interesting is that when you're looking at the background of it, I mean and and I I have to say, I was never concerned that this rule would ever take effect. So I'm like, how does the Hong how does the administrative agency ever have authority to tell all the businesses nationwide what to do with their own business?
Julia Gannaway:I've just like, and I knew that there would be a case and someone would come up and and vindicate everyone's rights as as Ryan did. And so but the general rule is the idea with non competes. Right? We have them to protect your proprietary interest, your confidentiality, all of those information and you have to and in Texas, there it's very robust enforcement of those things, right? It's reasonable at time and reasonable in geographic scope.
Julia Gannaway:And if it's those things, and it's a particularized occupation, and it's particularly related to confidentiality, proprietary interest trade secrets, and, non solicitation. Those things are regularly upheld in the courts. Well so, you know, is it a restraint or trade on competition? Of course, it is. All of those, you know, noncompetes are.
Julia Gannaway:But, you know, congress wrote some laws about that in the late 1800, early 1900 and, you know, for what that's worth. But there's still like this FTC has been like, what is their job to do? So, you know, I think that that that what's interesting is the history of how we got here. The Obama administration urged states to take action regarding noncompetes. And then Biden, when he became a, president urged FTC to create a rule to ban the unfair use of noncompetes.
Julia Gannaway:And so they put their heads together and they ginned this out in April. But and and riot and the plaintiffs in this case brought forth a lot of good issues. The most important one, which of course the judge jumped on, which was that the FTC lacks legal authority to promulgate it. And even if they did grant it, it's an unconstitutional delegation of it. And also the part of this rule was had a retroactive impact.
Julia Gannaway:And I mean, I don't even know how you square that with the whole re re prohibition and ex post facto. But anyway, what's interesting is the court analyzed the in the, the injunction that it issued under the 4 factor test, which will revisit that in another case that we're going to have discussed in a minute. But regarding a substantial likelihood of success on the marriage, a substantial threat of irreparable harm in the absence of preliminary relief balance of equities and injunction serves the public interest. And she issued it and said the FTC Act does not expressly grant commission the authority to promulgate substantive rules regarding unfair method of competition rather the act, and this is my favorite part, limits the FTC's ability to make rules dealing with unfair deceptive practices, not unfair methods of competition. So therefore, once again, the courts clipping the agencies wing there soundly, They said that, you know, in addition, they didn't set up statutory authority to engage in this competition type stuff and that the rule was arbitrary and capricious.
Julia Gannaway:But man, that language, she just looked at the statute and was like, no, It can only make rules dealing with the unfair deceptive practices, not unfair methods, and that would be reserved to congress. I I thought that language was very easily understood for me anyway, and I it really resonated with me. And I think, you know, for practical guidance for the future, you know, in Texas, I felt pretty solid that our law was was robust and was going to continue even in the absence of this rule. Why I was if if it took effect, I was assuming someone would take it. But this is, again, it's invalidated the whole rule nationwide.
Julia Gannaway:But what you need to consider going forward, I think, is enter into enforceable noncompete agreements with senior executives because it really matters. I mean, if they're low pay low wage paying versus senior executives, they're the policymaker. They bring the they bring the secrets. They have those things. I mean, you know, they were have not competes for Jimmy John's sandwiches.
Julia Gannaway:I mean, you're watching to make a sandwich. Is that really trade secret stuff? I mean, not to be dismissive, but, yeah, not to be dismissive. Right? I mean, it's make the sandwich.
Julia Gannaway:But, really going forward, though, you know, think do you need one? Is it a senior executive? If you, you know, prepare notices for nonexecutives, use and strengthen nondisclosure agreements that you already have in place. And another thing, and this is for, this is another in Texas, we don't do it as much, but consider what other states they call garden leave. And what that means is you pay them as if they're on a special assignment during their terms of their noncompete.
Julia Gannaway:So it's like it's just an alternate work from home assignment type thing as a way of during the tip the the the tenure of it. Those are all different options. But for right now, if so and as long as you're in Texas, it's giddy up. We still they're they're still unimpeded.
Mike Coffey:Well and, you know, we've had 2 episodes. The very first one with our mutual friend, Jim Zeta, was on non competes and then like Liza Dolekig, whose name I'm screwing up on the back end, out of Dallas, was also on about 60 episodes ago or so to talk about non competes. It's always an issue and Yeah. Like you say, there are a lot of employers out there just just throwing them in every employment agreement that they have and it doesn't make sense and, and employees are getting smart about it. I mean, you know, I'm on Reddit quite a bit and I see on the slash anti work, subreddit and the HR subreddits people saying, hey, I got this weird job offer letter that's got this, you know, they say I can't flip pancakes for any, you know, for any other competitors, you know, for 2 years after I leave.
Mike Coffey:You know, what the hell? And so I get it, you know, there's and people are doing that. But if I'm spending a lot of money and time training somebody, I don't want them to leave in 6 months and go to my competitors with that information, that knowledge and all of that. If I'm giving them access to proprietary information, real key customer insights and things like that. If they leave, God bless them, but they need to sit on that information for a little bit.
Mike Coffey:They don't need to start applying that information to help my competitors right away. And I think there are times where that's really relevant. And as you said, let the states decide this stuff and, you know
Julia Gannaway:because, yeah, the FTC is one rule fits all. And as we all know, the principles of federalism mandate that you're the best form of government is the government that's lowest to closest to the people. Right? Laulau, the localities, the the the first, the municipalities, then the states, and then the federal government. The federal government is supposed to be under the constitution a limited form of government.
Julia Gannaway:Right? And so the power is reserved to the states to do those things. And so that also, you know, judge Brown didn't lead with that. She didn't have to because she had, you know, the plain language of the statute in her in her pocket as she's writing this opinion. But that's that to me is is another huge deal is one blanket rule, one blanket prohibition in a situation such as forming a contract with your employee that is of necessity case by case.
Julia Gannaway:Right? You know? And as you talked about, you know, when you've got information about pricing, customer sheets, pricing mechanisms, plans for the future, those kinds of things. As you get on up the the chain of responsibility, yes, those seem to be more needed, necessary, and they are necessary. Right?
Julia Gannaway:Because you can't have someone go into a competitor or open it up their own place either with your knowledge. And so there's good sound reasons for having those in effect and for leaving them at the local level.
Mike Coffey:And let's take a quick break. Good morning. HR is brought to you by Imperative, Bulletproof background checks with fast and friendly service. If you're an HRCI or SHRM certified professional, this episode of Good Morning HR has been pre approved for 3 quarters of a recertification credit. To obtain the recertification information, visit good morning hr.com and click on research credits.
Mike Coffey:Then select episode 164 and enter the keyword Loper, that's l o p e r. And if you're looking for even more recertification credit, on September 18th, I'll be hosting a free webinar entitled increasing productivity with generative AI. In this 1 hour presentation, I'll demonstrate my current favorite generative AI tools, ChatGPT, Midjourney, Perplexity, and others with practical examples of how business leaders can prudently implement them to increase productivity. This free webinar is pre approved for 1 hour of recertification credit from SHRM and HRCI, and you can register for this webinar or if you're listening after September 18th watch the recording for credit at imperativeinfo.com/webinars. And now back to my conversation with Julia Ganaway.
Mike Coffey:So a lot of employers who want to be, you know, they wanted to be ahead of the game on this and make sure that they were in compliance when, you know, when the rule came in effect, in September, have sent have already sent notices out rescinding their existing non competes. What should they do at this point? I mean, is are those going to be binding now? You know, if they send out a letter saying, hey the Federal Trade Commission, Lena Khan, who hates businesses, has put out this new rule and, and we're going to come, you know, we're not going to fight it. So, you know, your non compete is going to be, you know, basically ineffective null and void in September.
Mike Coffey:What are those companies? Have they shot themselves in the foot by acting prematurely, or is there a way for them to continue to enforce their noncompetes?
Julia Gannaway:Well, I would think it would matter. And, of course, this is the lawyer answer. It depends. It depends on what they wrote in their statements. You know?
Julia Gannaway:Did they say based on the rule as of then when the rule takes effect, it happens? And if they do that, the rule didn't take effect. So, bam, it's not rescinded. I would hope that that was maybe their approach when they wrote the notices, right, saying when this rule goes into effect, that is gonna operate as to do this. We show Texas also has that Trade Secrets Protection Act to to to have relied on, but I would look to the language of that and see in those situations what those memos actually said.
Julia Gannaway:And then if if they did completely rescind it, consider entering in a new agreement with them and say, oops. It didn't we were trying to get ahead of it, but, they they this rule has been vacated. So because it's the the law is as it was before, we're going to expect you to enter into another one and then boom. That's what you that's what you'll need to do.
Mike Coffey:And if they've made the mistake of bringing up a former employee from their non compete, then maybe they should probably this is not a do it yourself job. This is probably a let's go talk to our lawyer and see if what we did truly releases that person from their noncompete, or are
Julia Gannaway:there ways for us to call back? Yeah. Right. Was it a formal contract procedures? And if so, let's problem solve.
Julia Gannaway:And a lawyer would be very helpful in that with a lawyer helping to problem solve to get to to work around that dilemma. When you do try to you know, it's it's a it's very unfortunate for businesses today when we have such a sense of changing and unease. You know, we should be able to have the rules the same, and and it shouldn't matter to such a degree, but the it would be helpful if if we had more uniformity and more consistency. That was the word that I was, searching for. But if they do find themselves in that situation, this is I I I don't believe non competes are are do it yourselfers either.
Julia Gannaway:Yeah. I think you need to have a good attorney that you trust to to draft them. A lot of people are like, oh, I know their words on a paper. They do have particular meanings, though. So, they could definitely work with you to help solve those problems and to to work on a meaningful path going forward to protect your interests as a business as well as complying with the Texas law or other states' law.
Mike Coffey:And you mentioned how these agencies as administrations change, their positions change. I mean, Weingarten with the NLRB for years was the issue. Depending on whoever was in power, it would be one of the early decisions that they would make to reinstate or eliminate the Weingarten rule. Go search the wiki on that if you're not familiar with Weingarten. But the MLRB just kind of got slapped down by a Supreme Court decision regarding Starbucks.
Mike Coffey:And it's all right in line with this, okay, we've got this, you know, the the new sheriff in town is actually the old sheriff, and he's taking his badge back. And the courts are saying this is our territory. So talk a little bit more about, what what the Starbucks ruling, really means in in all this context.
Julia Gannaway:Yeah. Talk about clipping some wings. Right? Right? I'm like, Starbucks versus McKinney.
Julia Gannaway:And, what happened was the effect of this supreme court decision is it made it more difficult for the National Labor Relations Board to bring injunctions at stopping and or mandating things in the interim while they determine through their agency process what or if, an unfair labor practice occurred. In this case, a background was, Starbucks termed 7 employees for violations of company policy.
Mike Coffey:And and just for the record, that violation of company policy was after the store was closed, they let the news media in with cameras into a closed retail environment, which is a violation of policy across the board. You don't bring people in after we're closed. I mean, that's that on its face seems like a no brainer. Yeah. Yeah.
Mike Coffey:Right. I'm putting the I'm a putting a boot in your green apron on your way out, if you if you do that.
Julia Gannaway:Well, because any work is not gonna allow you to allow a news media in without management owner approval, period.
Mike Coffey:Right.
Julia Gannaway:So it's it's all of those things. Right? You you're not authorized just because you have a key to the place to let anybody else have access to it. So so they filed the union filed the charges with the National Labor Relations Board, and they said, oh, they've done an unfair labor practice by firing these 47 people. And so the general counsel issued the complaint alleging they engaged in a lawful termination.
Mike Coffey:And the general counsel just so everybody understands that at the National Labor Relations Board, the general counsel has all a lot of power. There and he's the general counsel is not just simply making recommendations to the board. That's probably one of the strongest positions in the administrative state as as that general counsel to the NLRB.
Julia Gannaway:In the feds. Yes. Absolutely. Because they're the ones who determine to bring charges and go to court. You know?
Julia Gannaway:So they make broad policy making statements. The board, of course, which is supposed to be divided with Republicans and Democrats depending on who's the president and the numerosity of of the board, and it's board 5. And but the general counsel is appointed generally, usually. I think there was a a dispute about that in the past, but the that's a very powerful job, and they're the ones who are issue a lot of statements, and they're responsible for the enforcement are. And the the NLRB is like the adjudicatory part.
Julia Gannaway:So, really, though, the the board petitioned the Western District of Tennessee for preliminary injunction to mandate Starbucks had to reinstate the 7 employees for the duration of this charge, which is, in fact, as an employer, is a big fat punch in the face. Right? You're trying to control your work environment and make sure these are company policies. I need to enforce them. But then the NLRB, if they're granted this injunction, in this case, they were granted the injunction by the trial court, which means you gotta bring them back and look at them and they're, you know, likely doing this, if not to your face
Mike Coffey:Right.
Julia Gannaway:Then your back has turned. So that's that that is a big deal. Right? And the Western District Court applied a 2 pronged. Was there reasonable cause to believe there was an unfair labor practice and was then just was the injunction just in prompt?
Julia Gannaway:So they found a lowered standard to issue an injunction, only a 2 factor test. And they said, yes. We agree that that's the standard, and they granted 6th 6th circuit, which again, not Texas, agree. And Starbucks argued all through the layers of the court that the 4 factor test happened, which is we addressed earlier in our in our talk today. And so, you know, succession on the merits, suffer irreparable harm in the absence of preliminary relief, balance of equities, and public interest.
Julia Gannaway:The Supreme Court, the Supreme's reversed the 6th Circuit and Justice Thomas issued the opinion. And the court said there's no statutory language that's that allows a court to apply a lower preliminary injunction test. It didn't say anything. In the absence of them saying anything, the courts have a 4 factor standard injunction test, preliminary injunction test. So there you go.
Julia Gannaway:Plain language of the law doesn't say it, so didn't say it, so we're not gonna find it. And they also said that the statutory context of the law did require courts to defer to the NLRB. So I e, you know, hit effect saying, you know, there's no deference to the NLRB to determine what's what's just and proper or what's appropriate. Rather, you know, catching a theme here that courts are gonna sec are gonna say, no. We're not gonna defer to an agency to determine what that is.
Julia Gannaway:Rather, it requires that the court is not required to afford deference for the NLRB on these types of hearings. So they've just flat overturned it.
Mike Coffey:And in reading about this case, I was just even shocked that even under the the 2 pronged test, that the just that the stand that on its face, the court basically agreed with it or you know with the NLRB that it's likely that firing these employees for letting people in the restaurant after it was closed was an unfair labor practice. If that's the standard of an unfair labor practice, we're all employers are gonna have troubles down the road. I was I was shocked that it even made it that you know, that they even granted the injunction based on those facts.
Julia Gannaway:Well, because it's not Texas. So I think Yeah. Yes. Well, because here's the deal. It's a it's a unionized environment, and they're passing out trying to get unions.
Julia Gannaway:So what what happened was not the violation of their what instead, I would imagine, not counsel in that involved in any way, but that the NLRB's focus was what were they doing before and what had they done before? What have they done with the union made them mad about this? So they're and they were inviting news media to help them in their union argument. Again, it's like and had the company fired other people who had done that. So I.
Julia Gannaway:E. Retaliation is what I'm thinking may might have been some of that evidence which caused the court to lean that way. But, you know, I just I don't know. I find that even all of that is why there was no substantive textual guidance that said, who says there's a 2 factor test? You just made it up.
Julia Gannaway:Your agency made up the standard that you had to do, and now the courts are saying, uh-uh. You gotta do what everybody else has to do when they want a preliminary injunction under 10 j, and and you got to do the 4 factors. And you gotta prove the 4 factors or you don't get that preliminary injunction because reinstating those people during the pendency of an NLRB hearing, that's yours. I mean, those kids could be graduating from graduate school by then, you know, or doing whatever there else they did with their careers. But, you know, the takeaways here, you know, what what I was thinking about in that process is employers that, you know, may have unfair labor charges need to be aware of this, but I would presume that every employer in Texas has been fully aware of this.
Julia Gannaway:And in fact, because in Texas, unions are the exception rather than the rule. Qualified Texas practitioners are gonna be all over this law. They're gonna know this law, and it's they're gonna be all over it. So theirs is is get yourself a good lawyer on those things, but they're gonna know this and probably have all of the pleadings ready to go for you, you know, so don't don't don't worry about that. I think I think we're good in Texas.
Mike Coffey:And we've we're up on time, but I wanna hit this last case. Tips Oh, got it. Have been a big been a big topic and both presidential candidates are pandering to, their audiences by saying, we shouldn't tax people's tips, which as somebody you know, it's just another way of getting income. So, it seems grossly unfair to say, okay, because you're getting paid off the books, you don't have to pay taxes. I mean, that that somebody else is paying you is still income to you.
Mike Coffey:Now, the reality is most people who are relying on tips as a big part of their income aren't making a lot of money, aren't paying probably any taxes and may well be getting more tax credits than they're than they're actually paying into the system. So it's really not going to make a giant difference either way. But there was all of that said, there's the tip credit that allows under the FLSA an employer in the hospitality realm where somebody is making a large piece of their income through tips, as long as that employee is the employer is paying them at least $2.13 an hour and their tips at least to make up to whatever the minimum wage is at any given time.
Julia Gannaway:You said ginormous 7.25.
Mike Coffey:Yeah. 7 yeah. And and but in most at least at the places I eat, I when I talk to my, you know, my favorite servers, they're doing much better than that. Yeah. Which I also understand why they don't want to get taxed on it.
Mike Coffey:You know, why would you want to get taxed on $22, 23, $25 an hour? But there was a there was a rule in there that the the DOL I think came through it said you have to do if you do more than 20% of your effort is not related to the work that you're getting tipped for basically. So rolling silverware, maybe bussing tables things like that, then you don't the employer doesn't need that tip credit and you've got to pay this person 7.25 plus whatever their tips are. So talk am I even describing the tip credit right? Because it kind of confuses me, but and then what the how did the the 5th Circuit use Loper in that in that decision?
Julia Gannaway:5th Circuit had another mic drop, I gotta say. You know, because the DOL rule came out in December 28, 2021, and there was, like, boatloads of litigation all over the place, spawned it all over the place. And so the u the 5th Circuit unanimously vacated the rule. What happened, the rule had, they had said that in order for an employee to claim a tip credit, employer to claim a tip credit, an employee can spend no more than 20% of their time a week or more than 30 minutes straight on non tip work. Well, how's someone gonna, you know, the I I can't imagine how they thought that was gonna be enforced, but notwithstanding that, they just, in their infinite wisdom, decided that's what's fair and that's what we're gonna you know, this is this is how we are now determining our own jurisdiction.
Julia Gannaway:So, again, following the theme of the day, the 5th circuit determined the rule violated the Administrative Procedures Act in two respects. The first is that the rules contrary to the clear statutory text, plain language, and they said the court rejected the the final rules disaggregation of a tipped employee's occupation from a single job into discrete component tasks subject to time limitations. Reports said there's no support in the FLSA for this dividing things up into such minute tasks. They said the final rule is so granular in dividing and divvying up component tasks, a single occupation could quickly break apart implausibly into many many. So they said instead of, like, the whole idea of the tip credit was an occupation, not the components of it.
Julia Gannaway:So then they said, they're making up these arbitrary the these these things dividing up an occupation into unspecified and things that were not contemplated by the the statute. And secondarily, they said that it was arbitrary and capricious in the percentages of the duties because they said that that, the final rule replaces the congressionally chosen touchstone of the temp credit analysis, the occupation with 1 of the Department of Labor's making, the time sheet. And as to untipped work, the final rule again ignores such work's clear connection to the occupation itself, and instead elevates its lack of connection to tipping. The final rule is a completely different approach to the tip credit and therefore out the door. And I think that is so welcomed by the restaurant industry, and it is, they vacated it.
Julia Gannaway:So it is, when they vacated the rule that has a nationwide effect. So they could petition the entire 5th Circuit to rehear the case. Good luck with a different result. Yeah. Majority of the court circuit the circuit courts would have to agree to do it, or they could have petitioned the Supreme Court.
Julia Gannaway:My guess is that they're gonna go back to the drawing board as far as the DOL, because I don't know that they would anticipate having a different outcome in the Supreme Court given Loper Breit, given given what they've clearly stated in there, certainly, if not before, certainly in 2020.
Mike Coffey:And for those who really think this is an unfair practice to pay people, you know, a a a lower minimum wage and then let tips make up the difference, because I personally love going to Europe and not feeling compelled to tip and knowing that, you know, this this great server is, you know, when I when I find them in Europe, which is rare, the servers in America are much more incentivized to be sweet and lovable and act like they can bear bear your company for that hour that you're sitting at their table. There's you know, it's a very different world over there. It is. It is. But but if people don't like that rule, there's an easy answer.
Mike Coffey:Go to congress and make them do their jobs. Change the law. Create a law that says this is what the rules are, but let's quit relating relying on the agencies to do that. And I wish we had time
Julia Gannaway:I know. I know. Of it. Hunting on it. It's like, oh, this is a hard thing, and I'd rather run for reelection.
Julia Gannaway:Really? I mean, their job is to write the laws, do the hard work. That's what we put them in the office for.
Mike Coffey:Well, they haven't even followed a regular budget process in 2 decades. So, don't get me started about all of the problems with congress because they're doing the best they can given the circumstances we've given them to operate in. And so but, anyway, that there's a number of lawsuits out there about the the FLSA overtime rule, and we don't have time to get into it. But I what what's the over under? What do you think?
Mike Coffey:You know, we've already got, you know, phase 1's already in in place on on, you know, the the salary limits to determine if somebody's exempt or nonexempt, and then the next one goes up in January. Do you think we'll see that or do you think there'll be a challenge that's heard, this fall at some point that may result in another injunction? What we'll pull a crystal ball out here.
Julia Gannaway:Yeah. I'll pull the crystal ball. I I think that the area of the law that's more ripe for challenge is certainly the escalation principle, if you will, that they've adopted as part of this. That one that's what got struck down with Obama, right, in the eastern district of Texas back in the day, Prime and Zant, when they said, no. Nobody says you can crystal ball this and say in 3 years, your your salary should be tied to something that's no.
Julia Gannaway:That's overreach. So they validated that one. And then this one, they tried to nestle it back in. And the the one that I think that in the 5th Circuit, there's this Wirtz case that was from 1966. And in the 5th Circuit, the law of the 5th Circuit is is that the DOL acted within its authority, setting both the definitions of what it meant to be white collar and with the salary.
Julia Gannaway:There's still a case that's on appeal right now of Mayfield versus DOL. It came out of Texas, and their argument is and certainly, it it the trial report rendered this before Loper Breit, but certainly, I expect it to be a more robust challenge and certainly that this circuit will consider this as well. And that did congress delegate them to set a particular amount of money to be paid? Because what, you know, the FLSA says is do they do the duties, and and are they paid on a salary basis? Now, what is that amount?
Julia Gannaway:And then that's gonna focus that's gonna drill back into the Administrative Procedures Act. They have, factual basis for when they did these things, that they get all the stakeholders to talk, all of those things. I think it's gonna continue. I think I think it's gonna give it new life to some challenges. The one in Texas that matters as far as the July one was the state of Texas.
Julia Gannaway:Ken Paxton's student. They said the state of Texas doesn't have to do with its employer, but everybody else does. And so as, as in January, I think I think we can expect more of those, and I think it will be it'll be interesting to see what, what happens. I am when I work with my clients right now, I've advised all of the folks with whom I work, the employers. I'm like, hey.
Julia Gannaway:These are the things that are coming out. Do we need to look at anybody? And most of my clients have said, we're already paying them in that amount. So it has not been a challenge to the folks that I work with, but, it's probably it can be very challenging for others as far as as, that amount of money to be considered salaried and ex a salaried exempt. So my crystal ball is I think there's gonna be more because they gave us a lot to unpack.
Julia Gannaway:You know? We had a lot to unpack and and then they dropped on this at the end of this at end of June 2024. So I think I think very smart lawyers will figure out ways to bring up arguments that might resonate with judges. Well Keep your ears keep your eyes peeled.
Mike Coffey:We'll see what happens. But that's all the time we have. I thank you. Thank you so much, Julia, for for coming coming back on and and digging through all this with us.
Julia Gannaway:Oh, I loved it. Thank you.
Mike Coffey:And thank you for listening. You can comment on this episode or search our previous episodes at goodmorninghr.com or on Facebook, Instagram, YouTube, or believe it or not, TikTok. And don't forget to follow us wherever you get your podcast. Rob Upchurch is our technical producer and you can reach him at robmakespods dotcom. And thank you to Imperative's marketing coordinator, Marianne Hernandez, who is the only one who has my actual TikTok password.
Mike Coffey:So thank you, Marianne, for getting us on TikTok. And I'm Mike Coffey, as always. Don't hesitate to reach out if I can be of service to you personally or professionally. I'll see you next week and until then, be well, do good, and keep your chin up.