Federal Court Blocks Increased Overtime Pay for 4 Million Workers

An overtime rule that would have made more than 4 million American workers newly eligible for overtime pay was blocked by a federal court. The rule, issued by the Obama administration, was supposed to go into effect on December 1st.

The rule was temporarily blocked by the U.S. District Court in the Eastern District of Texas on the heels of 21 states suing the Department of Labor to stop the change before implementation.

Last updated in 2004, the rule is intended to counteract the effects of inflation, as an increasingly smaller fraction of workers has been able to take advantage of existing overtime regulations. Currently, the law requires employees to pay workers 1.5 times their wage for work on top of 40 hours per week.

Vice President Joe Biden summarized the purpose of the changes that were to be implemented this way:

“You’re deprived of your dignity when you know you’re working much, much harder and much, much stronger than you’re getting compensated for,” he said.

The new rules would raise the threshold when companies can deny overtime pay from $23,660 to $47,500. Those earning more than $47,500 could still be eligible for overtime pay if they do not perform managerial or supervisory duties (a so-called “white collar exemption”). The new rules  would particularly affect industries like retail or fast food, where employees are often designated as managers and made to work long hours for flat salaries.

The White House estimated that the changes would raise the pay by $1.2 billion a year over the coming decade.

Biden argued that the rules would either give employees more money or time to spend on other activities as well as with their families, especially if the employers choose to lower their additional hours rather than paying more. 

“Either way, the worker wins,” Biden remarked.

Business groups have not all come on board this plan, claiming it will increase bureaucracy and force many employers to convert salaried workers to hourly ones, reducing their hours and pay.

“With the stroke of a pen, the Labor Department is demoting millions of workers,” said David French, a senior vice president for the National Retail Federation. “Most of the people impacted by this change will not see any additional pay.”

The federal court’s injunction on the rule was cheered by the Nevada Attorney General Adam Laxalt, who led the coalition of states fighting the new regulation.

“Businesses and state and local governments across the country can breathe a sigh of relief now that this rule has been halted,” he said. “Today’s preliminary injunction reinforces the importance of the rule of law and constitutional government.”

The new regulations would cover up to 35% of full-time salaried workers, while currently only 7% are covered. The administration sees its impact mostly focus on middle to lower-wage earners. 

“This, in essence, is a minimum wage increase for the middle class,” explained Judy Conti, from the federal advocacy group the National Employment Law Project.

As the injunction on the rule’s implementation is not permanent, its fate will be decided via lawsuits, already under President-elect Trump’s administration.

Cover photo: Chipotle restaurant workers fill orders for customers on the day that the company announced it will only use non-GMO ingredients in its food on April 27, 2015 in Miami, Florida. (Photo by Joe Raedle/Getty Images)