Many employees across the nation eagerly anticipated the implementation of the U.S. Department of Labor‘s so-called Overtime Final Rule, which was issued in May and would greatly impact retail companies, nonprofits, hotels, and restaurants – in short, any business that employs workers with salaries below the new threshold.
However, those hopes diminished when U.S. District Judge Amos L. Mazzant III of Sherman, Texas issued a preliminary, nationwide injunction last week blocking what was to be a signature achievement of the outgoing Obama administration: Raising the salary threshold indicating eligibility from $23,660 to $47,476 per year, ensuring protections to 4.2 million workers.
In San Antonio, the injunction has been met with mixed responses from a number of small businesses, associations, and chambers of commerce including the Texas Association of Business and the North San Antonio Chamber of Commerce.
Those in favor of the rule say it would improve worker productivity and work-life balance and put more money in the pockets of middle class individuals who work more than 40 hours per week without extra compensation.
A number of companies and business leaders, however, disagree. They argue that the rule would force them to increase payroll budgets, hire more part-time workers, lay off staff, or shift employees from salary to hourly positions.
“We believe all employees deserve to be compensated for their work but the requirements in this governmental rule were excessive and have unnecessarily burdened small businesses, potentially forcing them to demote or lay off workers in order to meet the threshold mandated,” North San Antonio Chamber of Commerce Chairman and partner at BDO, USA LLP Gary Hoyack stated in a news release Monday.
North SA Chamber President and CEO Duane Wilson also released a statement, supporting Hoyack and adding that the overtime rule would stretch organizational resources and “deter the spirit of corporate volunteerism that makes our communities so great.”
According to the North SA Chamber, the injunction reduces potential negative impacts for employers and provides opportunity to find a more measured approach.
“We are appreciative for Judge Mazzant making what we feel is a decision that will protect our small business members,” Wilson added. “We look forward to continuing to create the best business climate and work environment possible for all.”
San Antonio Chamber of Commerce President and CEO Richard Perez agreed, saying that the “challenge was not the desire to make a change, but rather the scale of the change itself, from $23,660 to $47,476.
“Regulation change must involve the business community from the outset in order to maximize the opportunity for success,” he said.
The rule was scheduled to take effect on Dec. 1 but was temporarily halted last Tuesday by Mazzant. According to the Obama administration, current overtime regulations are “outdated” and “have not kept up with our modern economy.”
The Fair Labor Standards Act says that individuals may be exempt from overtime pay if they fall under the executive, administrative, or professional duties umbrella. The proposed overtime rule, Mazzant argued, “creates essentially a de facto salary-only test.” In other words, the Labor Department cannot decide which employees are eligible based on salary levels alone.
“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,” the Labor Department stated. “The department’s overtime rule is the result of a comprehensive, inclusive rule-making process, and we remain confident in the legality of all aspects of the rule. We are currently considering all of our legal options.”
Representatives from Fuerza Unida, an organization founded 26 years ago when a number of San Antonio garment workers lost their jobs after the local Levi Strauss factory closed, think the overtime rule would provide a more equitable system for workers.
“A lot of people are working extra hours and not getting paid,” Fuerza Unida Co-Director Petra Mata told the Rivard Report in Spanish Wednesday. “There is a lot of need and people want to work more or need to work more to have a stable economy in their family. There are patrones (bosses) that are very abusive toward their employees, making them work extra and paying them regular time.”
Companies always end up benefitting more than the workers do, Mata added.
“A law is needed to protect the worker regarding all these topics,” she said. “They are the ones that advance businesses in the country.”
Mazzant’s decision marks a victory for 21 states and more than 50 business groups, including the U.S. Chamber of Commerce that filed lawsuits in September and claimed the new rule would surmount to forced layoffs, shift changes, increase regulatory burdens, lower wages, and increase government costs in their respective states.
The states involved in the lawsuit claim that Congress has the exclusive authority to set minimum wages and that the requirement to allow public comment was also ignored.
“If Congress intended the salary requirement to supplant the duties test, then Congress and not the Department should make that change,” Mazzant stated in his ruling.
The Labor Department stated that it followed all federal procedures in addition to evaluating more than 270,000 public comments.
Many employers already had reduced hourly pay or increased salaries, scheduled pay structure changes, or encouraged employee time tracking in anticipation of the new rule. The injunction has consequently irked many businesses that took these precautionary steps.
Trinity University Economics Professor David Macpherson, whose research focuses on trade unions, pensions, wage discrimination, and industry deregulation, said that President-elect Donald Trump and the Republican-controlled Congress would have likely blocked the overtime regulations regardless of Mazzant’s injunction.
Indeed, the overtime rule is another way to increase wages, he said, but it may bring unintended consequences. Macpherson said the overtime rule would have less of an impact than people think because businesses would find ways to avoid or thwart the new regulations by shifting people to part-time positions or lowering their wages.
“Let’s say you made $10 an hour before,” he said. “What (employers will) do is give you $8 an hour and give you the overtime.”
Macpherson cited his current research on the Affordable Care Act as a comparable example. Many firms that don’t provide insurance to workers have to pay more taxes, he said, and compensate by reducing employees’ hours.
“To think employers won’t respond to that is crazy,” Macpherson said. “McDonald’s is going toward kiosks in their restaurants, others have iPads where you can order now. There are ways to avoid low-skilled workers if they get too expensive.”
The same avoidance tactics, he added, would likely apply if minimum wage was raised to $15.
“Imagine the impact it would have,” Macpherson said. “It sounds great, but firms with higher costs will want less low wage workers. The people you get rid of are least skilled workers – those who need the job the most.”
Macpherson added that nurturing a more educated workforce is the most effective way to combat the low wage problem.
“In the long run, the best way to increase low wages is to give (workers) more skills so they are more productive and will get paid more by employers.”