Judge squelches new OT regs: Now what?
A federal judge's decision to halt, at least temporarily, sweeping new rules on overtime had not been out for two hours Tuesday night before Philadelphia employment lawyer Gina Ameci started getting phone calls from her employer clients.
"How can this happen?" they asked. "We already told our employees" about the new regulations.
"As of today, there is no law," Ameci said. "Anything is possible."
For months, employers have been dreading, but preparing to follow, new U.S. Department of Labor regulations involving overtime that would have led to pay increases for 4.2 million people, the agency estimated. The new rules would have gone into effect next Thursday.
Twenty-one states and more than 50 business groups -- in retail, manufacturing, and the hospitality industry, as well as some chambers of commerce -- had filed lawsuits to try to overturn the new regulations, and seeking an emergency injunction to block them. Lawyers had predicted that U.S. District Judge Amos L. Mazzant would deny the injunction.
The judge's decision came as a relief to organizations such as the Retail Industry Leaders Association, one of the business groups that sued the Labor Department.
Evan Armstrong, the association's vice president for government affairs, said his group "welcomes the ruling. As RILA has argued since the final rule was announced earlier this year, the [Department of Labor] overreached beyond their authority."
In a statement, the Labor Department said it strongly disagreed with the court's decision, "which has the effect of delaying a fair day's pay for a long day's work for millions of hard-working Americans. The department's overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule. We are currently considering all of our legal options."
The Labor Department had estimated that 4.2 million people nationwide who had not been able to receive overtime pay would have under the new rules. That number would include 185,000 people in Pennsylvania, 132,000 in New Jersey, and 15,000 in Delaware.
Based on their pay and duties, workers are entitled to receive overtime under the federal Fair Labor Standards Act. Those with administrative, executive, and professional responsibilities are considered exempt from the act and do not qualify for overtime unless their salaries are low. People with lower salaries automatically qualify to receive overtime no matter what their responsibilities, and are considered nonexempt.
The new regulations raised the floor for low salaries from $455 a week, or $23,600 a year, to $921, or $47,982 annually, meaning that anyone who earned $921 a week or less would be eligible to receive overtime after 40 hours. The new rules also would have adjusted the salary floor based on the economy. Duty definitions were unchanged.
In his ruling, Mazzant threw a huge wrinkle into a complicated and much litigated area of employment law: how duties affect overtime pay. He said the new regulations are "unlawful" because they solely change the salary threshold without linking it to duties.
"If Congress intended the salary requirement to supplant the duties test, then Congress, and not the department, should make that change," he wrote. The automatic salary floor adjustment is "ripe for review," added Mazzant, who sits on the bench in U.S. District Court for the Eastern District of Texas.
The regulation change and the next Thursday effective date had sent employers to their lawyers, who conducted audits of their employees, seeing which had administrative, executive and professional duties but earned below $921 a week. Those people would either have to be paid overtime or have their salaries bumped up to above $921. Some companies also wrestled with whether to lower base pay but make up annual compensation through increased overtime.
Lawyer Ameci said her clients, faced with a period of uncertainty, would now have to weigh their risks. Should they roll back new policies to save money and then face potential liability if the regulation is ultimately upheld? That risk might be worth it, she said, for nonprofits that often have people doing professional work but earning about $35,000 a year.
Clients might have told some employees who had earned just below the $921 threshold that they were getting raises to move them above the threshold, she said. Would they now take away those raises?
What about the people shifted to hourly positions and time clocks? Would they be returned to their salaried positions? Would the costs of shifting systems outweigh the salary savings?
It's unclear how the Trump administration will respond. In an August interview with the website Circa, then-presidential candidate Donald Trump said, "We have to address the issues of overtaxation and overregulation and the lack of access to credit markets to get our small-business owners thriving again.
"Rolling back the overtime regulation is just one example of the many regulations that need to be addressed to do that. We would love to see a delay or a carve-out of sorts for our small-business owners," Trump said.
In the Philadelphia region, some companies had turned to Michael Kulakowski, director of legal compliance for the MidAtlantic Employers' Association, to review their employees' status. The association, based in King of Prussia, supports hundreds of businesses in the region.
In every audit of every company, Kulakowski said, he found people with executive, administrative or professional duties earning less than the proposed floor of $921 a week.
"If someone had been been exempt for many years and enjoyed the freedom to come and go and to punch out, and now you are telling employees that they are hourly employees and they have to keep track of their time," they may consider that demeaning, he said. Also, companies had to devise timekeeping systems.