Industry News | January 6, 2017 | QSR Exclusive Brief

What is the Future of the Overtime Rule?

Savvy employers know this is not just a budget issue, but a morale issue. Thinkstock

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After a Texas district court placed an injunction that will halt the Department of Labor’s new overtime rule days before it was set to take effect, restaurant operators are left in limbo deciding how to proceed.

Under the Fair Labor Standards Act, employers would be required to pay overtime wages to most salary workers earning less than $47,476, up from the current salary limit of $23,660. And for many restaurants, plans may have already been in place for the original December 1 implementation, and possibly even communicated to employees.

Labor and employment lawyer Tim Garrett of Bass, Berry & Sims talked to QSR about the possible future of the overtime rule and what employers can do during an uncertain period.

How should operators proceed in the interim, given various stages of where their plans could be?

It’s been our consistent advice that those who have already announced and implemented changes either in salaries or in classifications, should probably stick with those and not attempt to undo them, which would likely be more disruptive.

What we have seen some employers do, for those who increased salaries as a result of the anticipated rule, they may announce to those (affected employees) that 2017 may be no-raise, for example. Essentially, it’s to set expectations for what may happen in 2017 depending on what may happen with the overtime rule.

For those who had announced but not yet implemented changes, it’s sort of a mixed bag. A lot of the people, particularly in areas like fast-food restaurants, nonprofits or small businesses where the budget constraints or the margins are really, really tight or they were doing the classifications only because they were being forced, we’ve seen them postpone those changes, even though they were announced because they really are existential budget crisis issues. Now, if they’ve done it, announced it and implemented it, it’s awfully hard to undo those.

If employees had an expectation of the rule being implemented, what effect could that have on relations or morale and what could restaurants do to improve that?

The savvy employers know this is not just a budget issue, but a morale issue. With those who are announcing it, if it was an existential budget issue, it is going to the heart of whether they continue to operate or whether they really can continue to employ the number of people they have. And some small businesses were facing that.

Some have said: “We’ve announced it. Employees were relying upon that. We’re going to go ahead and proceed with the announced changes because we can do it without really threatening jobs and without creating a budget crisis for us.”

Those that are facing the real tough spots and have decided for that reason not to implement it, I think transparency is best ... because the morale issue is real. The more transparent and candid employers are with employees, the more that credibility gap can be lessened or even eliminated.

Also, did they announce it because of the rule taking effect? And if that were the case, they don’t really feel like they were misleading folks to say the rule is not going to take effect now, so that’s why we’re postponing it. It’s (saying) “look guys, we were doing this only because we were being required to by the law and that’s no longer the case, so we’re going to halt the announced changes and wait and see what happens. The reason is that because we were having to evaluate budget issues like not hiring more people, maybe having to lay off and do drastic things with labor costs that we really don’t want to have to do. We find it more troubling than to postpone what we had announced.”

What are the benefits and drawbacks of changing employee status during this period?

The drawbacks are the same in the interim even if the rule had taken effect. You’ve got morale issues with some employees who know feel as though they their jobs are not as prestigious, that they’re not as valued. You have some employees who have not typically had to track hours who are now being required to track hours, and it can be as minimal as they no longer have access at home to email and other company systems.

The other drawback for doing it during the interim, when we’re not really sure what’s going to happen with the rule, is operators may be claiming they had to do it and they don’t really have to do it, so they’ve got some budget issues they’ve decided to take on even though it’s not legally required.

There are some upsides. Some people will be pleased if they’ve been reclassified that they’re being paid for their overtime hours and so they’re not as concerned about the prestige issue or tracking hours.

What is your assessment of how the ruling may play out?

It’s very fascinating timing wise. The Department of Labor has filed an appeal. They have asked for expedited briefing so they want this appeal on a fast track but even on a fast track, the appeal will not be completely briefed before the Fifth Circuit until after the Trump administration takes office. We really don’t know what to expect from a Trump administration, so it will be fascinating to see how they play this out.

They could decide, as an administration, to drop the appeal. They could decide to try to settle it. They could decide to agree to a permanent injunction and then go back through the Department of Labor’s rule making process and decide, “we’re going to reassess in a more business savvy way how to update these regulations in a way that’s not so onerous on businesses.”

Another possibility is that the Department of Labor continues to proceed with the appeal and the Fifth Circuit may disagree with the lower court. If that happens, I would anticipate that the rule would still be delayed in its taking effect.

You also have the possibility of another legislative move. It won’t happen under the Obama administration, but there was a bipartisan bill to try to phase in increases in the salary level over a period of time and it is possible that that legislation may be offered in the new Congress in a bipartisan fashion. If that happens, then Congress can implement what it deems to be an appropriate definitions of the exemption, at least as it relates to salary.

By Alex Dixon

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