Private Plaintiff Brings Class Action Lawsuit Based on Enjoined Department of Labor Overtime Regulations in Alvarez v. Chipotle Mexican Grill Inc.

June 12, 2017
Last May, the U.S. Department of Labor issued new overtime regulations that substantially increased the required salary threshold in order for employees to be exempt from overtime under the “white collar” exemptions. The regulations were supposed to go into effect December 1, 2016; however, on November 22, 2016, a federal judge issued a nationwide preliminary injunction preventing the Department from enforcing its new overtime rules. Nevada v. U.S. Department of Labor, --- F. Supp. 3d ----, 2016 WL 6879615, at *9. (E.D. Tex. Nov. 22, 2016). The Department appealed and that appeal is currently pending before the Fifth Circuit.  Since the Trump Administration came into office, the Department has requested several extensions in the briefing schedule.

In our November 29, 2016 memorandum on the preliminary injunction, we noted that although the preliminary injunction enjoined the new overtime rules, there was nevertheless at least a theoretical risk of retroactive liability for employers who chose not to comply, if the injunction were lifted and the rules later came into effect. Last week, a lawsuit was brought against Chipotle Mexican Grill Inc. (“Chipotle”), which illustrates some of the risks that exist for employers unless and until the overtime rule is permanently enjoined or revoked.

Prior to the Department’s overtime regulations, Chipotle classified apprentices as overtime exempt. On or around November 14, 2016, in anticipation of the Department’s regulations, Chipotle converted apprentices from overtime exempt to hourly employees and began paying them overtime. On or around December 12, 2016, in reliance on the Nevada court’s preliminary injunction, Chipotle re-classified apprentices as overtime exempt and converted them back to salaried employees. Alvarez v. Chipotle Mexican Grill Inc., No. 17 Civ. 4095, Compl. ¶¶ 10, 25–27, 35–37, ECF No. 1.

On June 7, 2017, Carmen Alvarez, a Chipotle employee, filed suit in the District of New Jersey alleging, among other things, that she and other similarly situated Chipotle employees were improperly classified as overtime exempt under the Department’s overtime regulations. Ms. Alvarez principally argues that the Nevada court only enjoined the Department’s enforcement of its overtime regulations; she claims that it did not prevent the regulations from going into effect, and thus does not preclude private enforcement by “persons not party to the Nevada case.” Id. ¶¶ 32–33.  The complaint also challenges the applicability of the overtime exemption on other federal and state grounds. Id. ¶¶ 50–59.

The Alvarez lawsuit demonstrates that risks remain for employers given the uncertainty surrounding the preliminary injunction. Although the Nevada court ordered in definitive terms that “the Department’s Final Rule . . . is hereby enjoined” “on a nationwide basis,” 2016 WL 6879615, at *9, the Alvarez complaint asserts ambiguity. Also, the Fifth Circuit on appeal could vacate or reverse the injunction, or the district court could decline to adopt a permanent injunction. On the other hand, the Trump Administration may not continue to pursue the appeal, and the Department may rescind its regulations by notice-and-comment rulemaking. Employers who elect not to implement the new overtime regulations at this time should consider keeping accurate records of the hours worked by any employee whose classification would be affected by implementation of the new regulations.

Wages and Overtime