Texas judge blocks Biden’s overtime pay rule

A Texas federal judge has granted an injunction to halt implementation of the US Labor Department’s new overtime rule for the state of Texas just before it was set to go into effect on July 1. Whilst it is limited to the state of Texas, the case adds to the uncertainty around the future of Biden’s overtime pay rule at a national level ahead of the US presidential election. We’ll speak to a US lawyer about that.

The rule is one of the Biden administration’s major employment policy wins designed to expand time-and-a-half pay protections to 4 million workers who were previously ineligible, but it is opposed by many US businesses as unaffordable. That’s the position of the state of Texas itself, as an employer, arguing the change would drive up payroll costs and destroy its budget.

As Bloomberg reports, Judge Sean D. Jordan of the US District Court for the Eastern District of Texas granted Texas’ request for an injunction on Friday. He wrote: “In sum, Texas has established that all factors weigh in favor of granting a preliminary injunction. Texas is likely to succeed in showing that the 2024 Rule is an unlawful exercise of power, Texas will be irreparably harmed absent an injunction, and the balance of equities and the public interest favor preventing unlawful agency action.”

The decision is a partial blow to the agency, which said the rule was needed to ensure the lowest earning workers were being paid fairly for their time, but it is not the only legal challenge to the rule. There are further challenges being brought by a coalition of business groups in the Eastern District, with another pending in the Northern District. 

The implementation of the rule takes a phased approach. So, an increase in the minimum salary threshold from $35,568 to $43,888 on 1 July with a further rise to come on 1 January 2025 to $58,656. Thereafter, the rule requires automatic increases to the threshold every three years based on a set formula. 

Given the legal challenges to the rule and the prospect of Biden losing the election on 5 November there is a lot of uncertainty over the future of the rule so what, if anything, should employers be doing now? Earlier I caught up with US lawyer Scott Le Blanc who joined me by video-link from Wisconsin to discuss it. First the background: 

Scott Le Blanc: “So I mentioned in 2016, right before the election, about the same time in 2016, one of the big issues in labor and employment law was that the Obama administration had proposed a pretty substantial jump in the minimum salary level that it takes in order to classify an employee as exempt from overtime requirements. So just a quick background on how that works in the US context. Every US employee is entitled to overtime pay at time and a half for hours that they work over 40 in a given week, unless they can qualify as exempt from those requirements. To be exempt requires two different things. First, the employee's duties have to meet a duties test, and second the employee has to make a minimum salary per week. At the time, the Obama administration had proposed to raise that minimum salary to about $47,000 a year. So, that was what we were dealing with the Trump administration. When they came in they quickly got rid of that number and then substituted their own number which was $35,568 and that rule passed because they have the support of the Trump administration and that's been the minimum salary to this day. So, what we have right now is a very similar situation where the Biden administration has proposed to raise that minimum salary first, to $43,000, from $35,000 - that’s effective this summer, July 1 of the summer - and then a more substantial jump at the end of the year to $58,000. I think the Biden administration's hope is that they're trying to do this in a more graduated fashion to maybe avoid some of the blowback that happened when the Obama administration proposed it in 2016 but, obviously, if there is a change in power in November, I would not be surprised at all if the very same thing happens which is the Trump administration at the Department of Labor decides they're going to back off of those requirements. The interesting thing about those requirements also, Joe, is in our experience most clients that actually treat employees as exempt are already paying their folks at least $43,000, if not $58,000 hours a year. Typically that minimum salary requirement isn't what hangs up employees, usually it's the duties part of that test but one feature of this Biden administration rule is that there's now sort of an automatic escalator clause that would kick in continued increases to that amount every, I think, three years or so. So, it'll be interesting to see what happens with this one. Obviously, this one could also very much, like the non-compete rule, could be subject to challenge in court, and it could be invalidated that way, but a change in power in Washington would be one thing that would bring this train off its tracks.”

Joe Glavina: “The rule means higher costs for employers so what are the options? What’s the advice to clients?”  

Scott Le Blanc: “Right so, you know, when you have an employee that otherwise meets the duties test for exempt employees but might not meet this new minimum salary threshold the employer has two choices. Number one is that they can increase the employee's salary in order to meet that minimum salary test. So, employers could decide they want to get ahead of the rule and start raising people's salaries in order to meet test’s requirements. The second would be to convert these exempt employees to non-exempt which means that they would have to start tracking their hours worked and then being paid for hours worked over 40. Either of those are potential options to employers but I think our advice, again, is this wait and see approach. I actually think there has been a court challenge. So it may go into effect, you know, we might have an injunction case prior to the first part of this rule going into effect on January 1 but certainly by the end of the year, when this when the second more substantial part of this test is going to kick in, we'll know which party is going to be in power and so before we start giving employees potentially a $13,000 a year increase in order to meet these requirements< I think we're going to want to know whether or not this rule is going to stick.”

This issue is one of three key employment-related issues which are up-in-the-air pending the outcome of the presidential election. The other two are the FTC’s non-compete rule and the proposed expansion of concerted protected activity both of which we’ve covered in this programme in the last fortnight. We’ve included links to both programmes in the transcript of this programme. 

LINKS
- Link to HRNews programme: ‘Employers taking wait and see approach before US election.’
- Link to HRNews programme: ‘Uncertainty over FTC’s non-compete rule as US election approaches’