Court Blocks Federal Overtime Rule, Effectively Killing It

Nov. 27, 2016
Employers argued the new regulation would negatively impact workers and the economy.

A federal judge issued a temporary restraining order preventing the new federal overtime regulation from going into effect on Dec. 1, which has resulted in killing it.

The rule was challenged in court by 21 state governments and more than 50 associations that represent employers in a wide range of industries.

Their lawsuit said that the U.S. Department of Labor exceeded its statutory authority and violated congressional intent by setting the $47,476 annual minimum salary for workers to be exempt from overtime and decreeing that amount would automatically increase every three years.

This effectively renders the overtime changes dead because President-Elect Trump’s new administration can be expected to drop the federal government’s case defending the rule or settle in favor of the employers, and eventually rescind the rule along with others that were established as the result of executive orders issued by President Obama.

The federal court action is only the most recent decision handed down by district courts located in Texas that have frustrated President Obama’s plans. Other Texas district courts have blocked his immigration amnesty executive order and most recently stayed DOL’s “Persuader” rules from going into effect.

Adopted at the behest of unions, the “Persuader” rule would have required companies to file reports with DOL and would be publically available, revealing any arrangements and payments made with outside labor consultants and attorneys.

DOL was quick to express its unhappiness with the most recent court decision blocking the overtime rule, declaring, “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.”

A spokesman for the U.S. Chamber of Commerce said, “We are very pleased that the court agreed with our arguments that the Obama administration’s new overtime rule was unlawful and stopped the rule from taking effect.”

Another group that was party to the lawsuit, National Federation of Independent Business, also hailed the court action. Juanita Duggan, NFIB’s president, called the injunction “a victory for small business owners and should give them some breathing room until the case can be properly adjudicated.”

David French, senior vice president for government relations at the National Retail Federation, one of the employer groups that sued, commented, “The Labor Department’s overtime changes are a reckless and aggressive overreach of executive power, and retailers are pleased with the judge’s decision.”

He added, “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. 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.”

NRF pointed out that research conducted for it found that the rule would force employers to limit hours or cut base pay to make up for added costs. “This would leave most workers with no increase in take-home pay despite added administrative costs,” the federation said.

The new overtime standard was announced in late August by DOL and employers were scrambling to change their payroll systems and policies to meet the new standard by the Dec. 1 deadline.

Many businesses, including retail giant Walmart, also grumbled about the court injunction coming so late in the process because they had already put the new standard in place and it will cost even more to change their payroll systems and policies again.

If it had gone into effect, the new overtime standard would have required employers to pay overtime to many of their employees who were previously defined as exempt. In announcing the rule DOL and President Obama said an additional 4.2 million workers nationwide would benefit by coming under the overtime rule for the first time.

Under the rule, the minimum salary threshold for employees to qualify for overtime pay under federal law would rise to $913 per week, or $47,476 annually, more than double the current limit of $455 per week, or $23,660 per year.

The dollar amounts contained in the standard also would be indexed for inflation, resulting in automatic increases every three years.

The DOL overtime requirement does not apply to commercial truck and bus drivers because Congress delegated regulation of their wages and hours to the U.S. Department of Transportation. Until earlier this year it was assumed that this applied only to drivers in interstate commerce. However, a federal appeals court held this past May that drivers who “rarely or never crossed state lines” are not covered by the Labor Department overtime rule because they work in safety-affecting jobs and could be reasonably expected to drive interstate routes.

Opponents of the Labor Department’s action argued that employers would respond by demoting some employees and by choosing not to hire new employees or promote others.

The Congressional Budget Office reported recently that canceling the overtime changes would benefit consumers by avoiding price increases that would come if companies had to pay their workers more.

Real family income would be $2.1 billion higher without the changes in 2017 alone, and even families that would have had an increase in overtime earnings would have a net gain, CBO pronounced.

Although CBO estimated that the new rules would extend overtime eligibility to an additional 3.9 million workers, it found that only about 900,000 of those employees currently work enough hours to actually receive overtime pay, or 0.6% of the U.S. workforce. In addition, those workers would make only an extra $650 a year, CBO concluded.

About the Author

David Sparkman | founding editor

David Sparkman is founding editor of ACWI Advance (, the newsletter of the American Chain of Warehouses Inc. He also heads David Sparkman Consulting, a Washington D.C. area public relations and communications firm. Prior to these he was director of industry relations for the International Warehouse Logistics Association.  Sparkman has also been a freelance writer, specializing in logistics and freight transportation. He has served as vice president of communications for the American Moving and Storage Association, director of communications for the National Private Truck Council, and for two decades with American Trucking Associations on its weekly newspaper, Transport Topics.

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