Tuesday’s nationwide court injunction against changes to federal overtime rules may have caught many employers by surprise, but it hardly signals the last word in the matter.
The U.S. Department of Labor has said it is considering its legal options in the wake of the ruling, which temporarily halts the Dec. 1 implementation of rules that would have made millions of U.S. workers eligible for overtime pay.
The block comes as President-elect Donald Trump is widely expected to do as much as he can to roll back or neuter regulations imposed during the Obama administration, from clean energy policies to those affecting the workforce.
While experts were saying prior to Tuesday’s injunction that Trump could not effectively overturn the new regulations if they took effect as scheduled, he was expected to seek exemptions, notably for small businesses.
How did we get here? And what does Tuesday’s injunction mean for employers?
Currently, employees earning under $455 per week ($23,660 annually for a full year) are entitled to overtime. That threshold has remained unchanged since 2004.
In 2014, President Barack Obama directed the labor secretary to make several updates to federal overtime regulations, including an increase in that threshold.
The result was a new rule that would have increased the minimum, extending overtime eligibility to those who make at least $913 per week ($47,476 annually for a full year).
Many white-collar workers are expected to be among more than 4 million workers who would be affected by the change, including 185,000 people in Pennsylvania.
The Labor Department explains how it all would work here.
Obama’s intentions included a boost to income growth, which had been sluggish. Opponents contended the rule would drive up salary and administrative costs for businesses, increasing the likelihood of layoffs.
But, as the New York Times explains, a coalition of 21 states filed suit, arguing that the Obama administration “had exceeded its statutory authority in raising the overtime salary limit so significantly.”
The states were not alone, with a number of business groups, including the the U.S. Chamber of Commerce, the National Retail Federation and the National Federation of Independent Business filing similar suits; they were later consolidated.
On Tuesday, federal Judge Amos L. Mazzant III of the Eastern District of Texas, ruled that the Obama administration had, in fact, exceeded its authority by raising the overtime salary limit so significantly, the Times noted.
Mazzant also found that the rule conflicted with the original intent of Congress when lawmakers created the Fair Labor Standards Act — which governs overtime — nearly 80 years ago.
Because the rule was applicable nationwide, Mazzant agreed with the plaintiffs that his injunction should also be applicable nationwide.
The Labor Department responded: “We strongly disagree with the decision by the court, which has the effect of delaying a fair day’s pay for a long day’s work for millions of hardworking Americans. The department’s overtime rule is the result of a comprehensive, inclusive rule-making process, and we remain confident in the legality of all aspects of the rule.”
While awaiting the department’s anticipated appeal and final outcome, employers who had spent time and money preparing to meet the changes are left in limbo.
“I’m massively surprised,” said Karen Young, president of HR Resolutions LLC, Lower Paxton Township. “I didn’t see this coming.”
Nor, Young said, did some of the labor attorneys she spoke with Wednesday morning in the wake of the news.
Talking with her clients, Young sees two approaches shaping up.
“Some clients have chosen to move forward. They already have communicated to the employees,” Young said. “For a myriad of reasons, they have chosen to reclassify the positions and the pay for those positions and move forward.”
They’re not alone, and the issue is nationwide in scope.
As The Wall Street Journal reported, Wal-Mart Stores Inc. already increased certain managerial salaries from $45,000 to $48,500 in order to avoid paying them time-and-a-half for working more than 40 hours a week.
On the other hand, some businesses were cautious to begin with, or are now slamming on the brakes.
“I have other clients who are putting everything on hold pending a final, final decision,” Young said, although there’s also uncertainty and concern among employers about what such a decision will look like and how long it might take.
Young expressed dismay with the ruling, a dismay she was hearing repeated around the region Wednesday morning.
“I believe this is a huge disservice to employers who have taken action on the regulations. A massive disservice ” she said. “And from an employee relations standpoint, it is a nightmare.”
Rick Hackman, a York-based attorney for law firm Barley Snyder, was surprised, but not shocked.
“The surprising part is that it happened so late in the process. I guess it shouldn’t, because typically that’s how the government and the courts interact,” said Hackman, who specializes in employment law. “We wait until the last minute to try to make some kind of fix, or put the brakes on some law.”
In the wake of the ruling, Hackman predicted that three things are most likely to happen:
1. Congress will step in and with a legislative fix, telling (the Labor Department), ‘Hey, you can’t do this,’ and with a Republican Congress and president, developing a gradual increase in the salary threshold for coming years.
2. The DOL will appeal the ruling, and a judge will decide that.
3. Trump, when he becomes president, will withdraw the Labor Department’s defense against the lawsuit from the 21 states.
Like Young, Hackman said his clients are left in a difficult position.
“At this point, a lot of my clients have already invested resources in making these changes,” Hackman said.
“They’ve gone through their job descriptions, and reclassified individuals as non-exempt who may have been exempt in the past, and they’ve also worked with their budget in order to accommodate increased salary for those folks who would like to remain exempt,” he added.
Overall, he added, “I really think there will be some change, it’s just a matter of when. None of the business owners and managers I’ve spoken with are opposed to an increase, it’s just the fact that it would have doubled overnight” instead of going up incrementally.
Staff reporter David O’Connor contributed to this report.