OT rule blocked, but some reap raises anyway
Few new regulations in President Barack Obama’s tenure have been as hardfought by industry as the Department of Labor’s expansion of the number of people eligible for overtime pay. The rule raises the salary threshold below which even “professional” employees must be paid time and a half to correct for decades of erosion by inflation. After years of lobbying, legal challenges and delays, most retailers and restaurateurs — the kind of businesses that employ most of the approximately 4.2 million workers who would be affected — had resigned themselves to complying with the rule when it went into effect on Dec. 1. That meant raising salaries above the new threshold of $47,476
per year or switching salaried workers to hourly and paying them overtime.
And then, a couple days before Thanksgiving, a federal judge in Texas blocked the rule — which likely kills it for good, since President-elect Donald Trump could roll it back before the legal challenge brought by 21 state attorneys general and a coalition of businesses has a chance to move forward. The Obama administration nonetheless filed a notice with the court Thursday that it would appeal the ruling.
For many businesses, however, the outcome of the court fight won’t matter. They already adjusted pay policies in advance of the new rule, and unwinding those changes won’t be so easy.
“It’s an employee relations issue,” says Chip Galagaza, a wage and hour attorney with Jackson Lewis who has advised companies on the overtime rule. Once raises have been given, he said, it’s pretty tough to take them away without a really good reason — an economic principle known as “downward nominal wage rigidity,” which keeps salaries from falling even when business is bad.
Nationally, that’s left the rule in a state of partial implementation. Businesses that made their move early are still paying higher salaries, but those that waited have little reason to proceed.
Wal-Mart Stores, for example, raised salaries for its entry-level managers from $45,000 to $48,000 to put itself in compliance with the rule in October and told Politico this week that the raises would stay put. Seattle-based Starbucks made a similar move after the final rule was announced in May because it felt boosting managers’ pay was the right thing to do for the business, spokesman Reggie Borges said. The raises also would remain.
Locally, many businesses made the same decision, including Mattress Firm.
“The modifications we made are positive for our employees, so we will move forward as planned,” said Abby Ludens, the company’s senior vice president of human capital. The regional grocery chain Randalls, which is owned by Boise-based Albertsons, also said that it had come into compliance with the new rule and wouldn’t be making changes based on the injunction.
Area universities also adjusted salaries and overtime in advance of the rule going into effect but are not making promises about the future.
“We are moving forward, but it is having a significant impact both fiscally and operationally,” said Mike Rosen, executive director of media relations at the University of Houston. “The total cost is unknown as there are numerous variables that need to play out.”
Rice University spokesman B.J. Almond declined to even say that much.
“Like many other employers, we are reviewing information relevant to this issue as it becomes available,” Almond said.
Another large nonprofit, Goodwill Industries of Houston, said that it only had to raise a few salaries and adjust processes for measuring hours and that those changes would remain in place at least until the situation is resolved either way.
Smaller businesses, like restaurants, are in a tough spot, since they operate on thin margins and can’t move money around like a Wal-Mart or a Starbucks can. That’s why Jonathan Horowitz, chief executive of Houston’s Legacy Restaurants group and president of the Greater Houston Restaurant Association, was watching updates on the legal battles closely as the date of implementation crept closer.
While Horowitz has heard that some restaurants did make salary adjustments preemptively — and are largely keeping them in place — many others decided to wait and have shelved their plans for the time being.
“Personally, while I had an idea of what my company would do if the new rule was implemented on Dec. 1 — and would have made necessary adjustments at that time — I had a strong feeling there would be at least some modification to the implementation of the rule, if not a complete injunction against its implementation,” Horowitz said. “As a result, our company did not make any changes.”
If other businesses are planning to revoke the raises they had planned to grant in order to comply with the rule, they’re not talking about it. The Woodlands-based retailer Conn’s, as well as grocer H-E-B and fast-food chain Whataburger, both of San Antonio, declined to comment on their actions in response to the injunction. Kroger and Academy Sports + Outdoors, which have dozens of Houston stores, did not respond to calls and emails.