Responding to the Overtime Injunction
Author: Robert S. Teachout, SHRM-SCP, HR Crossroads Communications
Employers find themselves in a regulatory limbo as a result of the injunction that prevents the US Department of Labor from implementing and enforcing its new overtime rule.
Employers will fall into one of three categories:
- Those that communicated with their employees about classification or wage changes and had implemented those changes;
- Those that communicated with their employees about classification or wage changes but had not yet implemented those changes; and
- Those that had neither communicated with their employees about classification or wage changes nor implemented changes.
Regardless of the category in which it finds itself, an employer will need to make decisions on how to proceed regarding employee classifications and wages pending the final outcome of the overtime rule. The difference will be in what steps may need to be taken.
The peculiar circumstances make consultation with a qualified employment law attorney a necessity. Open and clear communication with affected employees being critical, an employer also should involve its human resources department in planning and executing a communication plan. If a small business does not have its own HR department, the services of an HR consultant should be considered.
If Changes Already Have Been Implemented
With the temporary injunction in place, the current overtime rules remain in effect, including the current salary threshold of $455 per week ($23,660 per year) for exempt salaried employees.
Employers that already have informed employees of and followed through on salary increases or changes in classification from exempt to nonexempt are the most impacted by the injunction. Employers in this situation will need to weigh carefully whether to leave the changes in place or to roll them back.
In reviewing their options, such employers should consider:
- The cost of the salary increases or overtime pay;
- The effect of a roll-back on employee morale;
- Whether communications about changes may have created a legal contract;
- Whether the employer is operating in a state that already has a higher minimum salary threshold, which lessens or negates the effect of the new federal threshold; and
- The cost of undoing changes made in the payroll system, and how quickly those changes could be re-implemented if the overtime rule is upheld.
An employer that reverses any pay increase or status change allowing an employee to be paid overtime may find itself with legal complications. Communications may have inadvertently created a perceived contract. When considering this option, it is important to obtain sound legal advice beforehand.
If the employer chooses to roll back the changes, it also should carefully monitor and record affected employees' work hours. In the event the overtime rule is upheld, it may be retroactively effective and the employer will be required to make payment for all overtime hours worked since December 1.
Whichever choice the employer makes, it is important that the decision and the employer's reasoning be clearly communicated to employees.
If Changes Have Been Communicated But Not Implemented
Employers that already informed employees of planned changes in employees' pay or classification but had not implemented those changes before the injunction took effect also have choices to make - wait and see what happens before implementing the changes or move forward with planned changes.
When reviewing their options, such employers should consider:
- The cost of increases in salary increases or overtime pay;
- The effect of not implementing announced changes on employee morale;
- Whether communications about changes may have created a legal contract; and
- Whether employees' current exempt classification is legally sound.
If the employer chooses to wait for a final determination on the overtime rule before moving ahead with changes, it should carefully monitor and record affected employees' work hours. In the event the overtime rule is upheld, the employer likely will be required to make retroactive payment for all overtime hours worked since December 1.
Whichever choice the employer makes, it is important to communicate the decision and the employer's reasoning to employees.
If Nothing Has Been Communicated or Changed
Employers that had not yet taken steps to comply with the new overtime rules - by making wage and classification determinations, developing overtime work strategies or discussing changes with their employees - may be thinking that they are in the clear now that the injunction has halted the changes and the current rules remain in effect. If the injunction ultimately is upheld and the new rules are permanently enjoined, then they will be right.
There remains a risk for these employers, however, if the new overtime rules are upheld by the courts and the new administration does not reverse them (a process that probably would take several months). In that case, there is a possibility that the rule would be declared effective retroactively to the original effective date of December 1, 2016.
Employers should take precautions in the event the new overtime changes become effective, by:
- Monitoring and recording all overtime hours worked by currently exempt salaried employees paid between the current $455 per week and the new $913 per week salary threshold;
- Analyzing workplace metrics to find ways to limit overtime hours through scheduling changes or shifting job duties;
- Evaluating which currently exempt employees' job duties could be restructured to allow them to be reclassified as nonexempt; and
- Reviewing employee roles to determine whether employees currently classified as exempt actually meet the duties test to qualify for exemption.
All these tactics are part of an effective management strategy and can contribute to improved margins, regardless of any overtime rule changes. Incorporating these suggestions will help an employer to maintain or improve customer service and production levels while controlling overtime costs.
Communicating With Employees
Previous communications with employees about changes in classification and pay due to the overtime rule changes should be carefully reviewed. If those communications created a perception that the employer promised the pay raises or that overtime would be paid, employees may sue on the basis that the employer created a contractual obligation. In such cases, an employer's best option is to keep any changes in place, but shape the expectation that future raises may be smaller. This will allow the cost to be absorbed over the next few years.
Moving forward, an employer should continue to inform employees about the status of overtime and classification changes due to the ongoing court case. These communications should be approached strategically. An employer should:
- Designate HR to provide information and answer questions from managers and employees;
- Develop written communications that clearly explain what is happening and why, whom it affects and how, and whom to contact with questions; and
- Create talking points and a consistent approach to answering questions, and train HR and managers on using the talking points.
Having a communication strategy in place will help to control the message and reduce employees' anxiety caused by the injunction and the uncertainty of the situation.