Dim outlook for expanded overtime pay

The U.S. Department of Labor estimated that a new overtime pay rule would allow 78,000 Minnesotans to make $24.1 million more per year.

Now that a federal judge has blocked implementation and enforcement of the rule in response to lawsuits by more than 50 business groups and 21 mostly Republican-run states, the chance for those Minnesota workers to increase their earnings has almost certainly disappeared, although critics said predicted pay increases were overblown.

The new rule required employers to pay overtime to workers making less than $47,476 if they had limited executive, administrative or professional responsibilities. The old rule, which dated to 2004, generally exempted from overtime those making more than $23,660 a year.

Business groups and states argued that the new rule was an unfunded mandate that would cause employers to cut hours, not pay more. The Obama administration said it "would put more money in the pockets of middle class workers — or give them more free time."

The legal question is whether Congress gave the Labor Department the power to increase overtime eligibility based on a person's annual pay, said David Larson, an employment law specialist at Mitchell Hamline School of Law. "But that all becomes moot if you have an administration that has no intention of pursuing the rule."

Even if the Labor Department convinces the Fifth Circuit Court of Appeals to dump the injunction, chances are slim that incoming President Donald Trump will implement the new rule.

Trump's nominee for Secretary of Labor is Andrew Puzder, CEO of the company that controls Hardee's and Carl's Jr. Puzder opposes the overtime rule.

In a May Op-Ed in Forbes magazine, Puzder wrote: "This new rule will simply add to the extensive regulatory maze the Obama administration has imposed on employers, forcing many to offset increased labor expense by cutting costs elsewhere. In practice, this means reduced opportunities, bonuses, benefits, perks and promotions."

John Fossum, a professor emeritus at the University of Minnesota's Carlson School of Management, noted that Puzder's industry, fast food, "is one that is most affected by the rule. It's probably not going to happen."

For practical purposes, the overtime rule is dead. Its fate signals a change in the national approach to rebuilding the lower and middle classes. The Obama administration and most Democrats saw the overtime rule as a way to boost pay. The Trump administration and most Republicans see it as government intrusion into private business.

"It is very ironic that Trump and the Trump administration would be opposed to this given that he ran his campaign on a platform of helping working families," said Minnesota Sen. Al Franken, a Democrat who signed a friend-of-the-court brief in support of the new rule. "What we're talking about here are salaried people who are classified as managers who earn $23,000 to $47,000 a year. They're the ones who would benefit from this. They are people who are working 50 to 60 hours a week without receiving extra pay."

Republicans in the Minnesota delegation countered that businesses not weighted down by government mandates are the best way to create good-paying jobs and prosperity.

"As lawmakers, it's imperative we implement policies that help our business owners rather than forcing them to comply with more red tape that would lead to lower pay and fewer hours for millions of American workers," Rep. Tom Emmer, a Republican, said. "I do not support the Obama administration's overtime rule and am pleased about the preliminary injunction that was issued in November."

Some Minnesota private nonprofits that provide services for people with intellectual and developmental disabilities breathed a sigh of relief when the overtime rule was blocked and are fine with it dying.

"We are basically funded by the government through Medicaid," said Dave Toeniskoetter, CEO of Dungarvin, a multistate home-based caregiving operation that employs 4,500 nationally, including nearly 1,000 in Minnesota. "It was too much, too fast."

The overtime rule did not come with more Medicaid funding, said Paula Hart, CEO of Volunteers of America of Minnesota and Wisconsin. "The government was saying, 'You have to pay these people more but we aren't going to give you any more money.' "

Dungarvin, headquartered in Mendota Heights, had plans to make dozens of employees overtime-eligible in anticipation of the new rule. "When the judge issued the injunction," Toeniskoetter said, "we reversed course."

Minneapolis restaurant owner Tracy Singleton did not. When she heard about the overtime rule in May, she and her management team at the Birchwood Cafe worked up an accommodation plan that included some price increases. Then, she gathered the staff and asked some salaried workers to move to overtime-eligible hourly status while giving raises to others that kept them exempt from overtime pay. The new pay system went into effect just before the Dec. 1 deadline set by the Labor Department.

"For us it worked financially," Singleton said. "We're still able to meet out labor goals. Would we have done this on our own? Probably not."

At the same time, she thought the overtime rule "was a chance to fix things in an industry that is ripe with abuse of employees. The restaurant industry model is buy cheap, charge as much as you can and work people as long as you can."

Birchwood sous chef Trevor Acker had mixed feelings about being moved from salaried to hourly status. But he recognizes his new potential to earn more pay.

Most of all, he appreciates Singleton's commitment to her employees.

"The decision not to switch back [to the old pay system] just because the rule is dead shows integrity," he said.

Jim Spencer • 202-662-7432