The injunction against the overtime rule makes zero sense

November 28th, 2016 at 6:00 am

Just days before it was to go into effect on December 1, a federal judge in Texas blocked the Obama Administration’s update in overtime pay from taking effect. The upshot is that millions of workers who should receive time-and-a-half pay when they work over forty hours a week are now at risk of losing that extra income.

The judge’s injunction was based on legal reasoning which, given historical precedent, makes no sense. Essentially, he argued that the Labor Department, which issued the rule, lacks the authority to establish a core component of the Fair Labor Standards Act overtime standard: the salary threshold below which workers must be covered by OT. Since the salary rule has been a central determinant of overtime pay for over 70 years, and was previously updated by various past administrations, the implication of the judge’s logic is that the federal government has been breaking the law for a very long time.

Instead, the court leans heavily on the so-called “duties test,” wherein employers are supposed to classify workers’ eligibility for overtime pay based on the tasks and responsibilities of their job. But this emphasis fails to understand both the importance and the efficiency of the salary test, a point Ross Eisenbrey and I stressed in work that helped lead up to the Obama administration’s rule change. In 1940, the Labor Department underscored this point: “the final and most effective check on the validity of the claim for exemption is the payment of a salary commensurate with the importance supposedly accorded the duties in question.”

Later, in 1958, the department called the salary test “an index of the status that sets off the bona fide executive from the working squad leader, and distinguishes the clerk or subprofessional from one who is performing administrative or professional work.”

Far from being subservient to the complicated duties test, the simple salary test has, as Eisenbrey and I argued in 2014, “become increasingly important over the years as a bright-line indicator of which employees are clearly exempt and which are not. However difficult it might be to judge whether an employee’s primary duty is truly that of an executive or exempt administrative employee, an employee and her employer can easily determine the level of the employee’s pay. The salary level is the clearest, most easily applied test of exemption.”

Unlike the Texas court, those of us who worked on updating the salary threshold did due diligence to set it at a reasonable level. The figure below shows that, by raising the threshold to $913, the revised rule only partly reverses the extent to which inflation has eroded the threshold since the 1950s (for some reason, the judge mistakenly lists both $921 and $913 as the new threshold in his order; only the latter number is correct). The update sets the threshold lower than the 1975 level in today’s dollars, when it was last adequately set to capture most workers whose duties at work fit into the spirit of the FLSA.

 

Sources: DOL, BLS (CPI-RS)

Sources: DOL, BLS (CPI-RS)

In our earlier work, we evaluated the management and supervisory responsibilities of workers by salary level and found that those with such duties consistently earned well above the new threshold, and conversely, those earning below the threshold had largely nonsupervisory responsibilities.

In other words, from its inception, there’s always been a salary test for a simple, sensible, intuitive reason: it’s the best way to determine executive, administrative, and/or professional status for most salaried employees. It prevents employers from evading overtime payments by misclassifying workers who don’t have real managerial responsibilities.

The duties test recognizes that some workers above the threshold, based on what they do on the job, should also get OT. But it was never intended to preclude or preempt the salary test.

Strangely, in a footnote, the judge appears to realize that his attack on the salary threshold implicates every Department of Labor since the OT rule was introduced, and tries to back out of that corner by arguing that his unprecedented view on the salary test refers only to the new rule: “The Court is not making a general statement on the lawfulness of the salary-level test for the EAP exemption. The Court is evaluating only the salary-level test as amended under the Department’s Final Rule.”

Again, this makes no sense. Either the salary test is now and has always been a valid part of the law or it isn’t and it never has been.

The test’s history and purpose clearly suggests that it is core to the purpose of the overtime standard. Millions of workers—men and women who were just about to get paid for working extra hours for which they should have been paid a premium for years now—depend on a higher-level court reversing this nonsensical ruling on appeal.

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12 comments in reply to "The injunction against the overtime rule makes zero sense"

  1. Jim Cupper (former Ridgefield neighbor) says:

    I am truly impressed with your work. (Had dinner with Jim & Deb last night)


  2. Bob Palmer says:

    It makes sense to consider the salaries test a bright line as you said and the duties test as an exception to it that would give overtime to some employees earning more than the salaries maximum based on their nonsupervisory duties.

    This was settled long ago, before I was born, and i am outraged that some conservative jurists rewrote the law. Is this what we can expect after Trump replaces Scalia on the Supreme Court with another ideological conservative? This is ominous not only for labor,but for everything.


  3. Toni Ritchie says:

    I agree that the salary minimum is a key part of the exempt testing and also agree that it needed to be raised. However, regardless of inflation, attempting to almost double the threshold in one move doomed its chances from day one. In all of my professional circles, I am hearing story after story of disgruntled former salaried individuals who were converted to hourly because of the law (and will be left hourly since the injunction came through so late in the game.) They are not happy and do not feel that the law made their lives better. They lost all of the flexibility that came with being salaried and in many cases will not see a penny of additional income. Some were demoted out of entry or mid-level management roles and others are facing overtime caps. Had the threshold been increased to $30,000 or $35,000 I think it could have accomplished a big chunk of what it needed to do without as much damage to those who were properly classified as exempt all along.


    • L.A. Gee says:

      This is my spouse’s exact current issue. They changed her title and effectively demoted her position. This has caused a large drop in pay and “perks” she no longer is privy to as an hourly employee. Now she’s penalized for even taking an hour to see my kids teachers (4 hours vacation time for every hour). I personally don’t feel these laws are made this way by accident. I fully believe that what is happening to my spouse and others was exactly the intended consequence.


  4. Mathew Binkley says:

    It makes sense in the larger scheme of things. It would look bad for the GOP if Trump entered office and repealed a pay raise which benefits many of his voters *after* they had already started benefiting from it. But if you prevent it from taking effect in the first place, they are much less likely to scream about losing a benefit they never got a chance to benefit from.


  5. Smith says:

    This is symbolic of the failure of Obama’s presidency.
    1) The NLRB was left shorthanded and unable to implement any policy of the Administration until well into Obama’s second term. It left the president appearing weak, and displayed a disregard and negligence of labor issues, despite the fact jobs and inequality were central issues of his tenure.
    2) The failure to successfully fill the NLRB was a prelude to the Supreme Court fiasco. It emboldened Republicans, as the president’s weakness in forcing a timely accommodation to make appointments was fully exploited when it counted most.
    3) George W. Bush made significant pro business changes to the rules, without so much as a peep from Democrats (at least as I recall).
    4) Clinton gave a special salary threshold to tech workers to make sure they could be safely exploited.

    Elections have consequences. As Trump said to Hillary in the debate, “You’ve have all these ideas, then why haven’t you done it?”

    I brought up the subject of exempt status even before this blog did. The whole idea of exempt status is big phony excuse to exploit workers. Being entitled to time and a half doesn’t mean the employer has to demote workers, make them punch a clock, or deny them scheduling flexibility. The fact that some employers react this way needs to be anticipated and countered in some way.
    Office workers are the new factory workers, everyone is a professional. What’s needed is a campaign to end exempt status, period. Mr. or Ms. work at non manual labor person, are you stupid or something? Do you like working for free? Are you so easily willing to give up something organized labor fought for and died for 100 years ago? But of course this shows that labor practice is legislated and regulated by government. It’s not negotiated in union contracts. $15/hour minimum used to be a pipe dream, but now a reality in Ca and NY. But the dynamic of doubling pay is much different from those working full time being robbed of a few hours of unpaid time each week. Plus who doesn’t want to be a professional or manager?


  6. jim ward says:

    The move is purely political. Trump is against the increase in the salary threshold. By not allowing it to take effect, as was mentioned, it does not require him to roll back a benefit that workers have already begun to receive. Would it have made a difference if the increase had been phased in gradually? I doubt it.


  7. karimpootam says:

    What do you think of this paper which argues that the overtime pay rule will have adverse consequences:
    https://ppe.mercatus.org/system/files/Boudreaux-Overtime-Pay-Regs-v2.pdf


  8. Fred Donaldson says:

    A WAPO story today (I dislike WAPO, but don’t mind referencing it when it suits my argument) included statistics on workers’ occupations by whether college grad or not. It indicates that our companies are designating more and more workers as management, when they are just workers with extra duties.

    The proof in the article is that twice as many high school grads are designated as retail management as retail workers. Three people – call one the manager and another the assistant manager. No overtime. What a deal! What a way to screw workers.

    It happens in every industry. Recall giving tiny raises so editors were management and then we could work them overtime every day without overtime pay.


  9. Vince says:

    It’s worth remembering that the primary purpose of overtime laws is NOT to reward extra work, or benefit employees who work longer hours. Rather, the primary purpose is to discourage employers from requiring overtime, by making it cheaper (by comparison) to hire more employees. In certain higher level positions, that doesn’t make sense, which is why we have the “white collar exemptions.”

    Separately, there is a very small percentage of workers whom this law appears to impact negatively. As some of the commenters above suggest, employers are now eliminating some of the flexibility and prestige that employees’ exempt status enabled. The short response to that is: you were probably misclassified as exempt, illegally, because (i) your “primary duty” was probably not an exempt duty (few are); and (ii) the salary threshold has been so low for so long that employers have relied on not needing to pay overtime to eligible employees, because they are “salaried.” The new regulations made it objectively more difficult for employers to misclassify you. That’s it. Changes to your status, prestige, duties, and workplace flexibility are not at all made necessary by this change.


    • Jared Bernstein says:

      Great points, especially “you were probably misclassified…” I strongly suspect that happens a lot more than most people realize.


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