Capital

Federal Judge Blocks the Obama Administration’s Overtime Pay Rule

To the relief of many restaurateurs and other business owners, a federal judge formally blocked the Obama administration’s overtime pay rule. Had this rule become law, over 4 million workers would have been eligible for overtime.

The Rule

This rule, which was to take effect on December 1, 2016 faced its first obstruction when a preliminary injunction put it on hold in November following a backlash of lawsuits filed by 21 states and business groups challenging the Department of Labor’s authority. In essence, the rule would have doubled the threshold that salaried employees would be required to receive overtime pay after a 40-hour work week. The previous salary limit of $23,660 was raised to $47,476, meaning that employers would be required to pay time-and-a-half to employees who worked more than 40 hours and earned less than $47,476.  

 

Restaurant’s Response

In an industry with already tight margins, this ruling would have left many restaurants with little choice but to limit employment, cut pay, alter advancement opportunities, or get managers above the overtime threshold. In restaurant circles, talk often turned to appointing certain managerial duties to lower-paid salary workers and inevitable layoffs. Positions that could be filled part-time with independent contractors were being considered. The truth is, with state minimum wage hikes and the implementation of the Affordable Health Care Act, restaurant’s labor costs are already difficult to maintain. The current industry standard is between 28 to 32 percent of total food sales with manager’s salaries set at 10 percent of the whole. This benchmark would be close to impossible to sustain if the regulation had gone into effect.

Salaried restaurant workers are aware that these types of positions require long hours, often shooting above the 60 hour mark. In many cases, they are more than willing to accept these hours and pay in a search for experience and with the intention of moving up the ranks.  If the law had gone into effect, a sous chef who was making $40,000 and working 60 hours in a work week would have made an additional $577 every week. Undoubtedly, as labor prices rose, so to would have menu prices.

 

Why the Change of Heart

According to U.S. District Judge Amos Mazzant III’s ruling which came down on Thursday, August 31, in Sherman Texas, “The department (of labor) has exceeded its authority and gone too far with the final rule.” The judge ruled that by setting the salary threshold so high, it eliminated other requirements, such as managerial duties that would normally have been exempt.

The Department of Labor responded to the federal court’s preliminary injunction with this statement: “We strongly disagree with the decision by the court, which has the effect of delaying a fair day’s pay for a long days work for millions of hardworking Americans…We are currently considering all of our legal options.” Following the court’s current decision, and in response to the current administration, the Department of Labor now plans on rewriting the overtime rules and is currently open to public comments. The Restaurant Law Center is working with the Department of Labor in order to come up with an overtime rule that is workable for both employers and employees.

 

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