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Judge halts federal rule that would have expanded overtime pay to millions of workers

By Jonnelle Marte

November 22, 2016 at 9:04 PM

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A Texas judge ruled Nov. 23 to halt federal rules that would have expanded overtime pay to more than 4 million workers. (Monica Akhtar/The Washington Post)

A Texas judge ruled Tuesday to put the brakes on federal rules that would have expanded overtime pay to more than 4 million workers.

A rule from the Department of Labor that was supposed to take effect next week would have made overtime pay available to full-time salaried employees earning up to $47,476 a year, more than doubling the current threshold of $23,660 a year.

Employees earning below that threshold would qualify to earn one and a half times pay for any time worked beyond 40 hours a week. The rule was set to go into effect Dec. 1.

The injunction from U.S. District Judge Amos L. Mazzant buys the court more time to come to a final decision on the overtime rule, which was challenged by a slew of business groups, including the Chamber of Commerce, as well as 21 states. The states and the businesses are disputing the salary component of the rule, arguing that the Labor Department does not have the authority to require that employers offer overtime to workers who earn below a certain amount.

The Labor Department said Tuesday that it was considering all of its legal options. "We strongly disagree with the decision by the court, which has the effect of delaying a fair day's pay for a long day's work for millions of hardworking Americans," the department said in a statement. "The department's overtime rule is the result of a comprehensive, inclusive rulemaking process, and we remain confident in the legality of all aspects of the rule."

When the Labor Department finalized the overtime rule in May, consumer advocates and union groups hailed the move as a major victory for low- to middle- income workers. Before the latest action, the regulation had not been updated in more than a decade. Supporters of the rule said many workers who put in 50 to 60 hours a week may end up earning less than minimum wage after all of their hours are factored in. The expectation was that the long-awaited rule, which was requested by President Obama in 2014, would boost paychecks for some workers putting in extra hours.

But the rule faced stiff opposition from small businesses, states, universities and other groups who said the higher threshold would raise costs. Instead of offering bigger paychecks, some groups predicted that they would have to switch employees from salaried jobs to hourly positions. Others said that some workers would be assigned fewer hours.

"Businesses and state and local governments across the country can breathe a sigh of relief now that this rule has been halted," said Nevada Attorney General Adam Paul Laxalt. He called the regulation "federal overreach" that could have led to job losses and created financial burdens for small businesses.

After the injunction was granted on Tuesday, some labor groups said they would keep pushing for new overtime rules. "The business trade associations and Republican-led states that filed the litigation in Texas opposing the rules have won today, but will not ultimately prevail in their attempt to take away a long-overdue pay raise for America's workers," said Christine Owens, executive director of the National Employment Law Project, a group that advocates for lower-wage workers.

Two separate lawsuits were filed against the overtime rule in September — one from a group of 21 states and one from the business groups. Their cases were combined in October.

Some small business groups said they were glad for the delay. Some states and businesses worried that the proposed threshold, which would have applied nationwide, did not take into account differences in cost of living in different areas. "The restrictive nature of the final rule ignores the diverse business models across industries in terms of how employees are compensated," Karen Kerrigan, president and chief executive of the Small Business & Entrepreneurship Council, said in a statement. "We are glad the court will give this rule the fair hearing it never received from DOL regulators."

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Jonnelle Marte is a reporter covering personal finance. She was previously a writer for MarketWatch and the Wall Street Journal.

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