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Labor Department Unveils New Overtime Pay Requirements (2)

March 7, 2019, 10:34 PMUpdated: March 7, 2019, 11:50 PM

The Labor Department March 7 unveiled a long-awaited proposal to make more workers eligible for overtime pay.

Workers who make less than about $35,000 per year would be automatically eligible for time-and-a-half pay for all hours worked beyond 40 a week, under the Trump administration’s proposal. That’s up from the current threshold of $24,000, but not as high as the $47,000 mark proposed by the Obama administration in a stalled regulation.

The proposal doesn’t establish automatic, periodic increases of the salary threshold as the Obama proposal had. Instead, the department is asking the public to weigh in on whether and how the DOL might update overtime requirements every four years. The proposed rule also doesn’t tinker with the current “duties test,” a checklist used to determine whether workers making more than the salary threshold are supervisors, not entitled to overtime wages.

The salary threshold was last increased in 2004, during the George W. Bush administration. The DOL is using the same economic methodology used to reach that standard, which the department officials say should protect the proposal from litigation.

But the proposal is still likely to be a target of legal challenges from business groups concerned about rising payroll costs and worker advocates who say the department isn’t going far enough to expand overtime pay. The Obama proposal, blocked by a judge in a 2017 decision that’s still on appeal, was expected to make some 4 million workers newly eligible for overtime. The Trump administration says 1 million workers will be newly eligible under the proposed rule.

The overtime question has been watched closely by businesses in a wide range of industries. CBS Television Studios recently agreed to pay nearly $10 million to settle a class action for unpaid overtime. Bank of America Corp., Chipotle, and T-Mobile US Inc. are among other companies recently entangled in similar suits.

The department is seeking public comments on the rule. It’s in a race with the clock to review those comments within 60 days and publish a finalized version of the rule before the 2020 election, so that the regulation will be more difficult to scrap if a Democrat wins the White House.

Lawsuits Likely

The new salary threshold is lower than the Obama-era proposal, but not as low as some worker advocacy groups feared. The department also opted not to vary the threshold based on regional or other costs of living differences around the country, an idea largely opposed by large business and worker groups.

The stage is now set for potential court challenges.

Critics say the long delay in updating overtime requirements and a loosened duties test have narrowed the pool of employees who get time-and-a-half pay.

Those who want the DOL to fight to save the Obama proposal say the department hasn’t done the analysis to justify backing away from the proposed rule.

“Without any updates to the duties test, this is a really flawed rule,” Economic Policy Institute Senior Economist Heidi Shierholz told Bloomberg Law. “Millions of workers who would have gotten overtime protections under the 2016 rule that was exhaustively researched will not be covered by this rule.”

“I think there’s no way that this will not face legal challenge.”

Shierholz was a Labor Department official in the Obama administration.

A current DOL official told Bloomberg Law that the general overtime methodology has “stood the test of time.” The DOL is “very much confident this is an appropriate methodology for purposes of updating our salary threshold,” the official told Bloomberg Law.

The business and management side had a more welcoming approach to the proposal. Roger King, the senior labor counsel for the HR Policy Association, and Tammy McCutchen, a Littler Mendelson attorney and former Bush-era Wage and Hour Division official, called the regulation a solid compromise between business and labor.

It’s a shame the DOL chose not to update the currently confusing “duties test,” which will still be a problem for employers, Mark Neuberger, an attorney with Foley & Lardner LLP, told Bloomberg Law. Many of those standards are outdated and not in tune with the realities of the 2019 workplace. Streamlining them could lessen a lot of needless litigation for employers, he said.

Democrats in Congress plan to soon introduce legislation that would restore the Obama overtime proposal.

Some small and local businesses will also likely bristle at the new salary threshold, arguing that it may require them to cut jobs to meet payroll. Larger businesses that operate in multiple states—including some that updated overtime policies in advance of the Obama rule and kept the changes in place after the rule was blocked—are more likely to be able to absorb the new payroll costs.

Any lawsuit challenging the salary threshold could raise a complicated legal question that many inside and outside the DOL would rather leave unanswered: Does the department have the authority to base overtime eligibility on any salary level? The federal judge in Texas who shot down the Obama rule said the department focused too heavily on the amount of money workers make, instead of their jobs.

To contact the reporters on this story: Jaclyn Diaz in Washington at jdiaz@bloomberglaw.com; Chris Opfer in New York at copfer@bloomberglaw.com

To contact the editors responsible for this story: Cathleen O'Connor Schoultz at cschoultz@bloomberglaw.com; Terence Hyland at thyland@bloomberglaw.com