Employers Wrestle With Whether to Cancel Overtime Rule Plans

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By Ben Penn

Nov. 23 — A federal judge’s unanticipated decision to block the Labor Department’s overtime rule has employers scrambling to determine whether they can reverse compliance plans.

“Without question, the court’s ruling has caused a lot of businesses to have to consider how they’re going to spend their Thanksgiving holiday as they develop their plan for how to communicate with employees about these tumultuous events,” Brett Bartlett, co-chairman of Seyfarth Shaw LLP’s national wage-and-hour litigation practice group, told Bloomberg BNA Nov. 23.

“So many businesses have already communicated that changes will be made, or changes have been made already, and unwinding what’s been done or talked about with employees is a fertile ground for risk of claims,” said Bartlett, who is a partner in the management law firm’s Atlanta office.

Many employers, attorneys and workers weren’t expecting the judge to grant a preliminary injunction, preventing the DOL’s new salary threshold for overtime exemption, which would’ve doubled to $47,476 a year, from taking effect Dec. 1. The companies that already started complying early by bumping up salaries to maintain workers’ exempt status won’t likely take back those raises, several attorneys said.

But for employers that had communicated to employees that a change was coming, but hadn’t gone live with the adjustment, the decision is far less clear.

These employers “are exploring the option of holding off on implementing those changes to see where the dust settles,” Alfred Robinson, a shareholder with Ogletree, Deakins, Nash, Smoak & Stewart P.C. in Washington, told Bloomberg BNA Nov. 23.

The government is expected to appeal the injunction soon, although an appeals court is unlikely to have time to decide before the next administration. At that point, President-elect Donald Trump’s DOL and the Department of Justice could drop their defense of the rule, but that isn’t a foregone conclusion.

Wal-Mart Probably Keeping Raises

Business responses to the injunction will hinge on the state of their preparation for the rule.

For instance, the largest U.S. employer, Wal-Mart Stores Inc., began complying three months early by raising starting manager salaries to $48,500 from $45,000. Wal-Mart expects to preserve the raises.

“We are reviewing the court’s ruling, but we don’t anticipate making any changes to what we’ve already shared with our associates,” Kory Lundberg, a Wal-Mart spokesman, told Bloomberg BNA in an e-mailed statement Nov. 23.

Other major national retail chains also bumped up wages to maintain employee exemptions, just without publicly announcing the strategy, Evan Armstrong, vice president of government affairs at the Retail Industry Leaders Association, told Bloomberg BNA in October. Reached Nov. 23, less than 24 hours after the judge put the rule on hold, Armstrong said it’s premature to assess how RILA’s mostly large retailer members will react.

“I would still think it would be difficult for those who have implemented different thresholds or raises to roll those back,” Armstrong told Bloomberg BNA. “They’re all sort of digesting the decision here and seeing what the next steps are. I’d be surprised if they attempted to roll back.”

If Wal-Mart doesn’t change its mind and the overtime rule becomes permanently vacated by the courts, the outgoing DOL leadership would still have succeeded to a certain extent in lifting wages for retail managers nationwide.

Other Employers in Tricky Spot

But Wal-Mart’s size and financial resources puts it at a unique advantage. For many other employers, the options are knotty.

Some companies, particularly those with workers making well below the $47,476 level, had informed workers they’d be switched to nonexempt hourly status and become eligible for time-and-a-half pay starting Dec. 1.

“There are some employers who maybe reclassified workers as nonexempt and the employees are not happy with the classification,” Jeffrey Brecher, a principal at Jackson Lewis P.C. in Long Island who heads the management firm’s national wage-and-hour practice group, told Bloomberg BNA. Now that the rule won’t take effect next week, these employers would be more likely to return workers to their previous status, he said.

The toss-up decision comes for businesses that communicated a forthcoming salary hike or reclassification to workers but hadn’t gone live with it. “For those employers, I think it’ll be a much bigger split,” Brecher said. “Some will go forward anyways, because of the employee relations issues and the complications with flipping after they’ve just communicated.”

The companies that had yet to inform employees of any changes or that were still contemplating how to adjust to the rule may gain the most from the injunction.

“Obviously this does benefit more nimble, smaller employers who have not taken measures to implement changes, so they can postpone that,” said Robinson, who was acting Wage and Hour Division administrator under President George W. Bush.

To contact the reporter on this story: Ben Penn in Washington at bpenn@bna.com

To contact the editors responsible for this story: Peggy Aulino at maulino@bna.com; Terence Hyland at thyland@bna.com

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