The OT Rule: Now What?

HRE spoke with a former acting administrator of the Department of Labor's wage and hour division to find out how HR leaders should proceed after a federal court judge struck down the Obama-era overtime rule.

Thursday, September 21, 2017
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This past summer, the U.S. Department of Labor published a final rule that more than doubled the salary level threshold for overtime eligibility from $23,660 annually to $47,476 a year. However, in November, a federal judge in Texas struck down the rule, which was supposed to go into effect on Dec. 1., stating that it exceeded the authority of the DOL.

After months of preparing for the new rule, some HR professionals feel unsure of how to proceed in light of the decision. To gain some clarity on this complex issue, Human Resource Executive magazine recently spoke with Alexander Passantino, a partner at Seyfarth Shaw law firm and former acting administrator of the labor department's wage and hour division, on how this scenario came about, what to expect next and the overall implications for HR. [Editor's note: This Q&A has been condensed and edited for clarity.]

HRE: What prompted the reversal of this ruling that was originally introduced under the Obama administration?

Passantino: In the early fall, two different lawsuits were filed in Texas. One was filed by a number of state attorneys general and another was filed by a group of trade associations. They had slightly different arguments. The states mostly focused on whether the DOL exceeded its authority to set the salary level where it did.

Those cases were then consolidated. A motion was filed for a preliminary injunction to stop this regulation from going into effect on Dec. 1. Right before Thanksgiving, the judge in Texas stopped the rule, saying it exceeds the authority of the DOL to set a salary level.

The DOL appealed to the Fifth Circuit Court of Appeals, but before oral arguments happened, the district court in Texas issued a final judgment that the DOL does have the authority to set a salary, but that the salary level that was included in the 2016 rule was too high [and] exceeded its authority.

HRE: So what's the current status of the regulation?

Passantino: As of right now, it's invalidated. There's no increase to the salary. We're still in a period of time where there can be an appeal. One interesting little wrinkle is if employers changed their policies to take advantage of a provision in the rule that would have allowed employers to satisfy up to 10 percent of the salary with bonuses and commissions, that's also gone away as well.

HRE: This back and forth process had to produce significant confusion for HR.

Passantino: Employers are still figuring out what they're going to do. Many were in different stages of implementation when the rule was stopped. Some already raised their salaries and reclassified employees to nonexempt status. Some actually told their employees, 'You're no longer nonexempt.' Some decided not to reduce people's salaries because of the ruling because they didn't want to take someone who had been exempt, who was then converted to nonexempt, and make them exempt again with yet another rule coming down the pike. They don't want to make decisions in a vacuum right now without knowing what that number's going to be.

HRE: Can you offer any tips on how HR professionals should move forward?

Passantino: It depends upon what you did last year. Most employers either changed the job so that the position is no longer exempt or raised the salary of exempt employees to get them over the $47,476 [threshold]. I would not necessarily decrease someone's salary and blame it on rule-making. Legally, you're completely within your rights to do that. Address those costs in a different way [because] people don't respond well when their pay gets cut.

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The other group of employees was converted to hourly status. I would have a conversation about how it has been working out. Did employees respond poorly? Would they welcome a conversion back to exempt status? You don't want to keep bouncing people around.

HRE: What's going to happen next? How will the regulation ultimately turn out?

Passantino: The ruling in Texas is either not going to be appealed by the federal government or will be appealed with the request that the Fifth Circuit not do anything with the case until the DOL finishes it rule making process.

In four years, we will operate under a new salary level that's higher than $23,000 and lower than $47,000. If I had to bet, it will be somewhere between $33,000 and $38,000.

HRE: This was a brutal process for some employers. What are some key lessons?

Passantino: That's how the regulatory process works. This is a pause in the game for everyone to step back and consider what's best for the organization. Take this opportunity to do it, because when the salary level comes out, you're not going to have that much time to implement it.

Ultimately, what this ruling does is allow employers more flexibility. They are able to maintain exempt status for more employees to account for regional variations, experience level variations and other factors when setting someone's compensation. This will allow you more flexibility to do that, so I would view this as a good thing.

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