A federal judge’s 11th-hour ruling that blocks new overtime pay rules means Maryland employers can keep the status quo and drop their frantic rush to meet the Dec. 1 regulations, labor and employment law experts said Wednesday.
But the ruling by a Texas judge nonetheless is likely to cause confusion for many employers who already had reclassified employees and set up computer accounting programs to track hours and comply with the federal rules, they added.
“Employers can keep the status quo. They’re not required to implement the new regulations,” said Harriet Cooperman, a partner specializing in employment law at Saul Ewing.
For employers who have already implemented the changes, legally the employer can turn back the clock, Cooperman said.
Some businesses might be excused for feeling a case of whiplash, a Baltimore employment law specialist said.
“A lot of businesses made changes to timekeeping and payroll systems,” said Julie Janofsky, an attorney at Fedder & Janofsky, LLC in Baltimore. “They may have to reverse course now if the rule is not going to go into effect.”
Some employees who have gotten raises to be classified as exempt so companies won’t have to pay them overtime now may be in for a rude awakening.
“Practically, if you’ve raised an exempt employee’s salary so they meet the minimum threshold, then it’s going to cause a big morale problem for employees if the employer says we’re rescinding the salary increase,” Cooperman said.
Under Maryland law, employers in that situation can do so with one pay period’s notice.
The regulation sought to shrink the so-called “white-collar exemption” that allows employers to skip overtime pay for salaried administrative or professional workers who make more than about $23,660 per year. Critics say it’s wrong that some retail and restaurant chains pay low-level managers as little as $25,000 a year and no overtime — even if they work 60 hours a week.
Under the Obama administration’s rule, those workers would have been eligible for overtime pay as long as they made less than about $47,500 a year, and the threshold would readjust every three years to reflect changes in average wages. The U.S. District Court in the Eastern District of Texas agreed with plaintiffs that the rule could cause irreparable harm if it wasn’t stopped before it was scheduled to take effect next week.
The injunction may be made permanent and completely vacate the new regulations, or the injunction may be lifted to let the changes proceed, upon further judicial review. The Department of Labor could appeal Tuesday’s ruling with the Fifth Circuit and potentially at a Supreme Court that includes some appointees by incoming President Donald Trump.
For now, if employers have reclassified employees as nonexempt, rescinding the new classification and changing a new pay system might not make sense until a final decision is made.
“Employers may want to continue that for at least for the time being because I think we will know pretty quickly what’s going to happen with the preliminary injunction,” Cooperman said.
That said, employers who found that their employees were misclassified as exempt but are not employed in an executive, administrative or professional capacity, must proceed with reclassifying those employees. The injunction does not speak to that part of the rule.
“That’s always been the law,” Cooperman said.
The Texas court granted the nationwide preliminary injunction, saying the Department of Labor’s rule exceeds the authority the agency was delegated by Congress.
“Businesses and state and local governments across the country can breathe a sigh of relief now that this rule has been halted,” said Nevada Attorney General Adam Laxalt, who led the coalition of 21 states and governors fighting the rule and has been a frequent critic of what he characterized as Obama administration overreach. “Today’s preliminary injunction reinforces the importance of the rule of law and constitutional government.”
The Department of Labor said the changes would restore teeth to the Fair Labor Standards Act, which it called “the crown jewel of worker protections in the United States.” Inflation weakened the act: overtime protections applied to 62 percent of U.S. full-time salaried workers in 1975 but just 7 percent today.
The agency said it’s now considering all its legal options.
“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 labor department said in a statement. “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.”
The ruling dealt a major blow to the Obama administration’s effort to beef up labor laws it said weren’t keeping pace with the times.
Opponents fought hard against the rule, saying it would increase compliance costs for employers who would have to track hours more meticulously and would force companies to cut employees’ base pay to compensate for overtime costs that kick in more frequently.
“This overtime rule is totally disconnected from reality,” said Karen Kerrigan, president and CEO of the Small Business and Entrepreneurship Council. “The one-size-fits-all doubling of the salary threshold demonstrated ignorance regarding the vast differences in the cost-of-living across America.”
The injunction takes political pressure off the incoming administration at an opportune time, according to labor law professor Ruben Garcia of UNLV’s Boyd School of Law. With no new overtime changes kicking in Dec. 1, Trump can accept the status quo and won’t have to risk angering workers by walking back overtime benefits shortly after employees start receiving them.
His administration could choose to make its own rule changes through the lengthy administrative process. Or Congress could amend labor laws.
The impending rule wasn’t front and center in the presidential campaign, but Trump did tell the news site Circa in August that he would love to see a delay or carve-out for small businesses in the overtime regulation. Republican House Speaker Paul Ryan was more vocal against it, saying it would be an “absolute disaster” for the economy and was being rushed through by Obama to boost his political legacy.
The Associated Press contributed to this story.
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