WASHINGTON – Retailers lauded a preliminary injunction issued by a federal judge Tuesday, putting the brakes on the Obama administration’s new overtime rules that were set to take effect on Dec. 1.
U.S. District Court Judge Amos Mazzant issued the order as part of a lawsuit brought by the National Retail Federation and a coalition of more than 50 business groups challenging the U.S. Department of Labor’s change and expansion of overtime rules.
The coalition filed the lawsuit against the DOL, Labor Secretary Tom Perez and David Weil, administrator of the DOL’s Wage & Hour division in September in the U.S. District Court for the Eastern District of Texas, charging that the agency overstepped its statutory authority in issuing the regulation and violated the Administrative Procedures Act.
“The rules are just plain bad public policy, and we are pleased that the judge is allowing time for the case to go forward before they can go into effect,” said David French, senior vice president for government relations at the NRF. “We hope the judge ultimately finds in our favor, and in the meantime this timeout gives Congress a chance to take another look at the impact of these rules.”
“If the overtime rule had taken effect, it would have resulted in significant new costs – more than $1 billion according to the Congressional Budget Office – and it would have caused many disruptions in how work gets done,” said Randy Johnson, senior vice president of labor, immigration and employee benefits at the U.S. Chamber of Commerce. “Furthermore, the rule would have reduced workplace flexibility, remote electronic access to work, and opportunities for career advancement. This is a great result.”
The ruling effectively stops implementation of the rules until the court “determines the Department’s authority to make the final rule as well as the final rule’s validity,” the judge’s order said.
“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 agency said in response. “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 DOL’s new regulation, announced in May, will double the salary threshold of workers eligible for overtime pay to $47,476 a year from the current $23,660 a year.
The change in the salary threshold is expected to expand overtime pay and protection to an estimated 4.2 million workers who are currently not eligible under federal law. It is also expected to boost wages for workers by $12 billion over the next 10 years, according to the White House. The threshold will be tied to an index of salary growth and increase every three years.
Under the Fair Labor Standards Act, hourly wage workers are generally paid time-and-a-half for more than 40 hours a week if they earn below a certain salary, but a white-collar exemption has prevented many salaried executives, managers, supervisors and administrators from receiving overtime, according to the Obama administration. The threshold for overtime eligibility was set at $455 a week, or about $23,660 a year, in 2004.
Obama aimed to change that by bypassing Congress and using his executive authority — a lightning rod for Republicans in control of the House and Senate — to lift the floor on overtime eligibility.
“If your salary is even a dollar above the current threshold, you may not be guaranteed overtime,” Obama said in 2014 when he issued a memorandum directing the Labor Department to update and simplify the rules. “It doesn’t matter if what you do is mostly physical work like stocking shelves, it doesn’t matter if you’re working 50 or 60 or 70 hours a week, your employer doesn’t have to pay you a single extra dime, and I think that’s wrong. It doesn’t make sense that in some cases this rule actually makes it possible for salaried workers to be paid less than the minimum wage.”
Business groups immediately raised concerns about the impact the rule will have on companies, with some arguing it will hollow out the middle-management tier. Retail experts cautioned at the time that companies will have to adjust to a dramatic change in the way they classify and pay their employees as they try to minimize the additional costs.
The coalition charged in the suit that by setting an “excessively high salary threshold” for determining who qualifies as “executive, administrative and professional employees,” the rule departs from the intent established by Congress in the FLSA and consistently administered by DOL for more than 75 years.
A provision to automatically update the salary threshold very three years without requiring the regular agency rule making process or opening it to public comment is not authorized by the FLSA or any other statute, the suit argued.
In addition to the suit filed by the private sector groups, a second lawsuit was filed by a coalition of 21 states against the Obama administration challenging the new overtime rules.