The United States Court of Appeals for the Fifth Circuit’s ruling on advisory opinions in Data Marketing Partnership, L.P., et al. v. U.S. Dept. of Labor may pave the way for California employers to more easily challenge unfavorable DLSE opinion letters in court in the future.

Last week, the Fifth Circuit ruled that opinions issued by the United States Department of Labor in response to employers’ questions about their legal opinions can be reviewed in court. The court struck down a DOL advisory opinion that improperly concluded that people who install tracking software on their phones in exchange for an ownership stake in the company were not “working owners” eligible to participate in an insurance plan regulated by federal law. The court agreed with a Texas federal court’s determination that federal benefits law covered this scheme, ruling that the DOL had arbitrarily found the plan to be exempt. 

The court found that in making its determination, the DOL opinion letter failed to reasonably consider the relevant issues and adequately explain its position. Judge O’Connor opined that the DOL’s opinion “lacks legal and factual support,” and that the agency “fails to point to a single statute, regulation, or any governing case law.” 

The Court of Appeals rejected the DOL’s claim that advisory opinions, which are only used when businesses seek guidance on specific sets of facts, are not a “final agency action” subject to court review. The appellate panel found that because advisory opinions can be legally binding on parties who request them and are not subject to further review at DOL, they should be considered final agency actions. The Court remanded the case back to the Texas federal district court for review consistent with its findings.

While this opinion contemplates federal DOL opinions, it could provide a springboard for California employers and employees to challenge California DLSE opinion letters in court. 
In conjunction with its enforcement duties, the DLSE issues “opinion letters” at the public's request, opining on the legality of wage-and-hour practices. The DLSE has issued over 250 published opinion letters since the mid-1980s on a wide-ranging set of topics ranging from on-duty meal periods to the application of AB 1066’s overtime phase in provisions to California sheepherders.  

The agency’s interpretations are often based on prior case law or existing statutes and regulations. While DLSE opinion letters are not binding as law, courts often refer to and follow them when deciding cases and sometimes treat them as persuasive authority. The Fifth Circuit’s ruling may open the door for employers to directly challenge these opinion letters on similar grounds as Data Marketing Partnership did before the 5th Circuit.  

California employers should continue to consult relevant DLSE opinions for guidance but should be wary that uncritical reliance on a DLSE’s legal position could open the door to liability and should be prepared to utilize the 5th Circuit opinion in Data Marketing Partnership L.P. if they are in a situation where they believe the DLSE Opinion Letter is not a correct interpretation of the law and want to challenge its conclusions in court. A complete list of DLSE Opinion letters is available here.