Labor Department overtime rules important for employees
Last week, a federal judge in Texas shocked many across the country by halting the Obama administration’s overtime rule update, which, had it gone into effect as scheduled on Dec. 1, would have ensured that 12.5 million more Americans would be protected by the Fair Labor Standards Act’s guarantee of time-and-a-half overtime pay when they work more than 40 hours per week.
Despite what some corporate lobbyists would have you think, the judge’s out-of-left-field decision to derail the update is utterly inconsistent with the entire history of the overtime rule—and helps neither workers nor their employers.
Federal laws and rules dating back to 1938 make clear that workers are overtime-exempt only if they qualify as executive, administrative, or professional (EAP) employees. Based on long-standing rules put in place by Frances Perkins, our nation’s first labor secretary and the architect of the Fair Labor Standards Act, EAP exempt status is determined by two necessary factors: the nature of employee’s job duties, and whether their pay exceeds a designated salary threshold.
The Obama administration sought to update the second half of that test—the “salary test”—by raising the exempt salary threshold to $47,476—up from a meager $23,660. While a far cry from the salary threshold set in 1979, which then covered 69 percent of the salaried workforce, the updated threshold would cover one-third of salaried workers, a substantial increase from the mere 8 percent who are currently covered. Millions of workers in retail, food service, and other industries, many of whom are denied overtime pay based on the inherently subjective “duties test,” would benefit.
In issuing a preliminary injunction, the judge essentially ruled that the Labor Department entirely lacks the authority to establish or raise any salary floor for overtime exemption. Among the many problems with this ruling is that it contradicts the entire regulatory history of the overtime exemption, which since 1938 has included both a salary test and a duties test. Congress has amended the Fair Labor Standards Act numerous times in the intervening decades, and it has never once sought to change the two-part exemption test.
If, as the judge suggests, a salary test is against Congressional intent (which he divined by consulting dictionaries from 1938 rather than the Congressional record), then Congress would have made that clear in its 1961 amendment to the EAP provision. Instead, it specifically instructed the Labor Department to update the EAP rule, which had a salary and duties test, “from time to time,” essentially ratifying the department’s approach.
From a business perspective, it’s troubling that the judge would attack a core mechanism that employers rely on to determine whether their employees are exempt from overtime pay. Unlike the job-duties test, which leaves significant room for interpretation, the salary floor serves as a clear, bright-line test for overtime eligibility, protecting workers from abuse, ensuring consistency across companies and industries, and limiting risk and human resources nightmares for employers. Indeed, the Human Resources Policy Association, one of the leading voices for corporate America, urges that the overtime rule have “clear lines distinguishing between exempt and non-exempt employees,” noting that the duties test is “riddled with ambiguities and imprecisions” that make it hard to apply.
Absent the salary test, virtually every decision an employer makes about covering or exempting employees would be inherently subjective—opening businesses up to greater potential legal liability and leaving workers vulnerable to exploitation. That kind of uncertainty not only creates more work in the hiring process—a burden particularly hard to bear for small businesses—but inevitably leads to more costly, profit-eating lawsuits—which no one, least of all employers, could claim to want.
This is all to say nothing of the impact of the injunction on the many companies that have already spent months preparing for the regulation to move forward. For example, Walmart—a corporation that is not exactly known as a champion of workers—gave its entry-level managers an 8 percent raise to bring them above the new threshold to account for the proposed rule.
Such companies—along with their employees—are now left in a confusing limbo, complicated by a Republican Congress and the impending inauguration of President-elect Donald Trump, who is considering potential Labor secretaries who have been very critical of the overtime rule in spite of its overwhelming popularity among voters.
But as much of a headache as this will likely create for employers, the real blow, of course, is to the millions of working-class Americans making less than $47,000 who are unjustly denied overtime pay—the very people that a President Trump, as well as many of the politicians who would block the ruling, have promised to help.