Updated Nov. 22 at 5:50 p.m.

The Sherman Division of the U.S. District Court Eastern District of Texas granted a preliminary injunction against the new federal rule that would extend overtime protection to more than 4 million salaried workers nationwide. As a result, the rule will not take effect Dec. 1 anywhere in the nation.

Original story

Employers across the nation—including those in Montgomery County—are adjusting their compensation plans to adhere to new overtime regulations from the Department of Labor that go into effect Dec. 1.

The new rule was announced in May and will extend overtime protections to more than 4 million salaried workers who did not already qualify for overtime pay, according to the DOL. Under the rule, salaried workers who earn $913 or less per week—or $47,476 annually—will be entitled to overtime compensation.

Businesses, chambers of commerce and state officials have expressed concern about the effect the rule will have on employers and employees.

Two lawsuits have been filed against the DOL. The first was filed by more than 50 business organizations, including the U.S. Chamber of Commerce and the Texas Association of Business. The second lawsuit was filed by 21 states, including Texas.

“We are hearing from our business members and our chamber of commerce partners across the state that this rule is going to heavily affect their business,” TAB President Chris Wallace said. “What we are concerned about is if employers are going to lay off employees because they simply cannot afford to pay the wages they are being required to pay for certain jobs.”

Rule overview

The overtime law change was made at the behest of President Barack Obama to address the effect of economic inflation since the rule’s last update in 2004. Previously, salaried workers who earned less than $455 per week—or $23,660 per year—were entitled to overtime compensation.

“The white-collar exemption originally was meant for highly paid workers who had better benefits, job security and opportunity for advancement,” said Robin Mallet, DOL Wage and Hour Division director of the Houston district office. “Unfortunately the salary threshold had not changed over the years, so it has been eroded by inflation. So the final rule is bringing it back into line with inflation as it is today.”

The law provides three options for employers who are affected by the new rule. Employers can increase the salary of its employees to the new threshold, compensate employees for overtime worked at 1.5 times the employee’s regular rate of pay, or can reduce or eliminate any overtime work, Mallett said.

“We believe that the rule is going to put more money into the pockets of middle-class workers, or it is going to give them more free time,” she said. “The number of workers who are working more than 40 hours per week continues to increase.”

Provisions in the rule are also intended to prevent the future erosion of overtime protections from subsequent inflation. Starting in 2020, and every three years after that, the threshold for overtime pay will be adjusted, Mallett said.

Mallet said the rule should improve the quality of life for employees.

“We believe that there will be an improvement in work-life balance because a lot of white-collar employees are working a lot of overtime,” she said. “If people are working less overtime, then their health may improve, and also increase [their] productivity because if the employee is not working as many hours and are not as tired, it could improve morale and reduce turnover.”

Business effects

The overtime threshold increase, however, has received heavy opposition from business groups and local leaders because of concerns the rule will strain businesses and hinder job creation.

Locally, the health care and manufacturing industries could be among the most affected industries in Montgomery County, said Brian Bondy, Conroe/Lake Conroe Chamber of Commerce president.

“[Health care and manufacturing] have large numbers of employees, and you have a level of middle management that has been expected to work whatever hours are necessary to get the job done,” Bondy said. “That is where the rule becomes a little bit sticky for businesses.”

Montgomery business owner James Ward said he is not worried about the new rule because he has always paid his employees at Jim’s Hardware for overtime hours worked—including management.

“I know a lot of small companies like to classify people as management so they can work that extra time so they can work them 60 or 70 hours per week at the same pay,” Ward said. “I say, you can do that and you gain in one area, but you are going to lose overall. You don’t get as much commitment out of your personnel.”

Lawsuits, litigation

To address concerns of businesses statewide, TAB joined with other business organizations in a lawsuit against the Department of Labor. TAB  officials hope the lawsuit—along with the lawsuit filed by 21 states—will delay implementation of the rule and stop it from going into effect Dec. 1.

The U.S. District Court held a hearing for the cases Nov. 16. A ruling is expected Nov. 22, according to the Texas Attorney General’s office. As of press time, no injunction or ruling has been issued by the district court.

On Sept. 28, the U.S. House of Representatives has also passed a resolution—House Resolution 6094—seeking to delay implementation of the rule by six months until the end of March. U.S. Rep. Kevin Brady, R-The Woodlands, said the resolution was passed to delay the rule until the new presidential administration is in place.

Brady said he is also co-sponsoring a bill that would delay the rule by six months starting Dec. 1 until June.

“The rule sounds good on paper but will actually harm workers who are trying to move from hourly positions to salaried management positions so they can grow their career,” Brady said. “The purpose [of the resolution] is to kick it to the next White House administration and give Congress a chance to block this rule so that it can hopefully be re-written in a way that doesn’t harm workers and local businesses.”

The resolution would also have to be passed in the U.S. Senate before going into effect. However, according to a statement issued by the White House after passage of the resolution, President Obama said he would veto the resolution if it were to be passed by the Senate.

As a result, local business owners should prepare for the rule going into effect in December, Bondy said.

“I think any business that may be remotely concerned should get [together] with an employment attorney or accounting professional to see if they have anything to be worried about,” Bondy said. “As a business owner, you can’t wait to see if there is an injunction.”