Just a week before the U.S. Department of Labor’s new overtime laws were to take effect, a federal judge blocked the Obama administration rule governing overtime pay, imperiling one of Obama’s strategies for boosting wages.
U.S. District Judge Amos Mazzant agreed with 21 states and a coalition of business groups that the rule is unlawful and granted their motion for a nationwide injunction.
The rule, issued by the Labor Department, was to take effect today, Dec. 1, and would have doubled to $47,500 the maximum salary a worker can earn and still be eligible for mandatory overtime pay. The new threshold would have been the first significant overtime rule change in four decades.
It was expected to touch nearly every sector of the U.S. economy and have the greatest impact on nonprofit groups, retail companies, hotels and restaurants, which have many management workers whose salaries are below the new threshold.
What does this mean for employers? This development has created a good deal of uncertainty for employers going forward. For now, employers will not be required to increase salary levels to $47,476 for exempt employees, or reclassify employees paid less than that threshold as nonexempt.
Employers may have already taken the steps to comply with the new salary requirements, including reclassifying positions or granting raises. Other employers may have recently reclassified employees whose duties did not historically meet the exempt standards, and those changes should remain in place.
Employers will need to determine whether their changes should have been in place all along, or if they were specific to the new salary requirement. Further, employers will need to decide if rolling back already-announced or implemented measures, especially salary increases, is the best course of action in light of employee morale and other concerns.
So what happens next? The Labor Department can appeal to the 5th U.S. Circuit Court of Appeals and hope for the best considering that this court has blocked other recent executive actions. But even if the rule survives the legal challenge, it could be upended by legislation passed by Congress or withdrawn by President-elect Trump’s Department of Labor.
So while this injunction provides temporary relief from the obligation to increase wages or reclassify workers, the question is not settled.