Obama Legacy Already Crumbling As Federal Judge Blocks Overtime Rule

Ever a big fan of unilateral "rule changes," back in May of this year Obama and the Department of Labor implemented a new overtime regulation that was set to take effect on December 1st.  The rule change called for increasing the minimum salary threshold at which employers would have been required to pay overtime to workers from $23,660 to $47,476, or a mere 101%.  The rule would have required employers to pay time-and-a-half to salaried workers making less than $47,476 per year for any time worked in excess of 40 hours per week.  According to the Wall Street Journal, the new regulation would have cost employers about $2BN per year.

But, all that changed today when a federal judge in the Eastern District of Texas signed a preliminary injunction (attached at the end of this post) temporarily blocking the rule from taking effect next week to allow more time for litigation.  Of course, the delay will be viewed by the Plaintiffs, and many employers around the country, as an outright victory as it likely postpones any final decisions until Trump takes over over the White House in January.  And with Trump already signaling his intentions to roll back many of Obama's "job-killing" regulations we suspect this one will get moved to the top of his list.   

The National Federation of Independent Business (NFIB) praised the court's decision as a huge victory for small business owners, 44% of which they claim would be directly impacted by the rule change.

“This is a victory for small business owners and should give them some breathing room until the case can be properly adjudicated,” NFIB President and CEO Juanita Duggan said in a statement.

 

The NFIB claimed that 44 percent of small businesses employ at least one person who would have been subject to the higher overtime pay.

 

Duggan said the NFIB would continue to fight against the rule, which she said would raise small business expenses by forcing them to pay their employees overtime.

Of course, the "political hacks" (as Trump refers to them) in the Department of Labor have asserted that the impact of this simple "rule change" would all accrue to the benefit of employees as American corporations and shareholders would simply allow the increased costs to flow straight through to their bottom lines.  Per the DOL:

  • Put more money into the pockets of many middle class workers—or give them more free time.
  • Prevent a future erosion of overtime protections and ensure greater predictability.
  • Strengthen overtime protections for salaried workers already entitled to overtime and provide greater clarity for workers and employers.
  • Improve work-life balance.
  • Increase employment by spreading work.
  • Improve workers’ health.
  • Increase productivity.
Overtime

 

But, as our readers certainly understand, in the real world these increased regulations inevitably just lead to higher unemployment over the long-term as the higher costs simply make returns on automation and mechanization capital projects that much more attractive.

As the Wall Street Journal points out, employers have spent the last 6 months frantically trying to figure out how to comply with the new rule amid uncertainty as to whether or not it would survive multiple open lawsuits and/or a Trump reversal once he takes over the White House in January.  While some companies had already taken actions to comply with the new law, it is now looking increasingly like those actions were premature.

U.S. employers have spent months adjusting employee schedules, job duties and pay ahead of a new overtime rule that takes effect Dec. 1.

 

The regulation, which makes millions more workers eligible for overtime pay, was intended as one of President Barack Obama’s signature achievements, and a way to meaningfully raise incomes for people in front-line roles in retail, food service and beyond.

 

The fate of the rule, however, is far from assured as it faces both a strong challenge in the courts and, in Donald Trump, the president-elect, who has vowed to roll back business regulations.

 

Employers who have made or are considering big changes in their workforce—either by raising managers’ salaries to the newly set threshold for overtime pay or eliminating job categories like assistant manager—say the uncertainty is adding to the challenge of preparing for the rule.

 

The Labor Department rule will require employers to start paying overtime to workers earning salaries of less than $47,476 a year—a threshold the business community says is too big a jump from the current $23,660, which was last updated in 2004. Some workers whose salaries exceed the threshold can qualify for overtime pay depending on job duties.

Per the Department of Labor, the overtime rule change would impact 4.2mm workers across the country with California, Texas, Florida and New York bearing the brunt of the impact.

Overtime Rule

 

The Department of Labor even created this lovely propaganda video to sale everyone on the merits of Obama's latest regulation...which we're sure cost taxpayers millions of dollars.

 

Meanwhile, the CEO of Fazoli's beautifully illustrates our point above that the practical implementation of "rule changes" imposed by "political hacks" is often very different than what's expected.

Fazoli’s Chief Executive Carl Howard said his restaurant chain couldn’t afford to raise salaries for its 125 assistant general managers to the new threshold. (They generally earn in the low $30,000s, he said.) Yet, he wanted them to continue working 45 hours a week, as they do now, without cutting pay.

 

So Mr. Howard will make them hourly employees at rates low enough to fund a 45-hour week, including five hours of overtime at time-and-a-half.

How many times will the uninformed left try to impose new regulations that actually hurt the people they're trying to help before finally learning the error of their ways?