"With Overtime Expansion Stalled, What's Next for Employers?" RestaurantOwner.com

December 6, 2016

With Overtime Expansion Stalled, What's Next for Employers?
Restaurant Startup & Growth

As most employers have by now heard, the planned expansion to overtime eligibility scheduled to take effect at the beginning of December was put on a hold by a federal judge, pending the outcome of a law suit challenging its legality.

For the employers who prudently prepared for compliance with the new rule by adjusting pay structures and increasing salary levels of affected employees, the temporary halt puts them in a bit of an awkward place. 

The flip side of this, of course, is that employees who were demoted from salary to hourly as a result of the rule might be delighted to learn they will be reinstated as salaried employees, and again be able to enjoy the predictability and status that goes along with such designation.

Regardless of which course you opt for, it is not likely to be a smooth road. Accordingly, employers should focus on being honest about the uncertain regulatory landscape ahead, and inform employees that any changes made are made in pursuit of the twin goals of compliance, and sustainable business practices. In order to make the best call for your restaurant, you need to know the difficult road ahead the regulation now faces. 

Overtime Expansion and the Three-legged Stool

The eventual implementation of the overtime expansion will be determined by three separate challenges it now faces. Each challenge represents a leg holding up a stool. Failure to surmount any one of these challenges leads to the death of the regulation (or the collapse of the stool). 

Leg 1: Congress

Since the regulation was initially proposed, the Republican controlled Congress has made no secret of the fact it desired to end it. From their perspective, the onerous financial burden caused by the regulation would lead businesses, especially small businesses, to cut jobs rather than absorb the cost of paying overtime.

There was an added concern once the rule was slated for implementation on December 1 that most companies simply would lack the knowledge or capacity to comply. This is not entirely unfounded. As an employment lawyer, I can say first hand that compliance is tricky. Where companies are not operating with a great deal of profit margin, tough decisions will have to be made and they often will be made without the benefit of counsel or other costly compliance experts.

Accordingly, the House of Representatives passed a bill in an effort to delay implementation of the regulation six months, giving business owners more time to comply. The Senate passed a similar measure. The Obama administration, however, was not going to sign the bill so it was thought the congressional measures would be brushed aside. There simply were not enough votes to overcome a veto by the President.

With the election of Donald Trump, however, Congress found a potential ally in the future Whitehouse. Indeed, provided none of the other two legs of the stool takes down the regulation first, it appears likely that Congress will propose to kill the regulation entirely since a veto from the President is no longer anticipated. 

Leg 2: The Law Suit

The federal law suit filed by 21 states and numerous business organizations, which led to the initial injunction stalling the overtime expansion, still must play out. While the granting of an injunction should not be taken as a reliable indicator of a claim's ultimate success, the strength of the party's claims requesting an injunction is one factor a judge considers before granting it.

The law suit raises several compelling arguments revolving around the primary issue of whether the Department of Labor actually has the authority to implement such a dramatic change to the overtime salary level without the consent of Congress.

The case largely involves complicated issues of administrative and constitutional law, but suffice it to say it is not without merit. A reasonable judge could easily conclude the Department lacked authority to craft the regulation in the manner it did, and strike it down completely.

The relative merits of the law suit notwithstanding, the case has really already gone a long way in ending any hopes of implementing the regulation by delaying it beyond the term of President Obama. Indeed, even if the Department of Labor prevails, the two other legs of the stool represent significant threats to the regulation due, in large part, to the election of Donald Trump. 

Leg 3: President Trump

Leg 1 discussed briefly how Trump can prove detrimental to the regulation merely by not getting in the way of Congress' attempts to end it. That said, he can also play a more direct role in its demise.

With control of the presidency comes control of the Department of Labor, an agency helmed by a Presidential appointee. During the campaign, Trump spoke on several occasions of his desire to roll back economic regulations. 

Dealing a knockout blow to the overtime expansion by instructing his Department of Labor to scrap implementation would be one way he could immediately show he was serious about the promises he made on the campaign trail.

The caveat here, of course, is that it's difficult to determine precisely how Trump will behave once he assumes office. He has been inconsistent on a number of policy positions during the campaign so the question becomes, which Trump is showing up to govern? That's an answer not many of us have at this point. 

Looking Forward

The fate of the overtime expansion underwent a monumental shift in about a two week period. Between the election of Donald Trump and the continuation of a Republican controlled Congress on November 8, and an injunction on November 23, the expansion went from being a foregone conclusion to -- in my opinion -- dead in the water.

That said, if the tumultuous course this regulation has tracked has taught us anything, it's that certainty in the law can be elusive. Prudent business owners should continue to mitigate risk by generally preparing for the implementation of the regulation, though perhaps in a more hypothetical sense.

Be honest and up front with your employees about the obstacles you're facing, and the fact that it is largely out of your hands. Unless you're prepared to absorb a fair amount of cost, or have already started down that road, refrain from making concrete statements or allocating too many resources toward compliance until the likely outcome of the regulation becomes clearer. As we make our way through early 2017, that clarity should become more apparent. 

This article was originally posted on Restaurantowner.com in Restaurant Startup & Growth.

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