In a major victory for the restaurant business, a federal court in Texas has spared employers from having to pay overtime starting Jan. 1 to millions more of their salaried employees.
Starting that day, restaurants would have been required to pay time-and-a-half wages to all salaried workers with a base annual compensation of up to $58,666. Only employees above that pay threshold could be expected to work more than 40 hours a week without additional compensation.
Currently, salaried employees are not entitled to overtime pay unless they earn less than $43,888 annually. The regulatory change would have made millions of additional workers eligible for the higher scale.
The decision also blocks the U.S. Department of Labor (DOL) from resetting the eligibility threshold every three years, a provision the restaurant industry blasted as costly and a potential source of considerable confusion.
The ruling came Friday in a case brought by the Texas Restaurant Association (TRA), the litigation arm of the National Restaurant Association and a number of other business groups representing labor-intensive industries.
They argued that DOL lacked the authority to base overtime eligibility solely on salary levels. The 1930s legislation that provided the department with authority to set overtime rules did not even mention compensation as a potential determinant of who should be eligible for overtime rates.
Rather, the Fair Labor Standards Act suggested that the key criterion should be the sort of work a salaried worker is assigned. They needn’t be paid like an hourly wage earner if their duties were truly executive, administrative or professional in nature, according to the law. It carved out an exemption for those presumed white-collar workers.
The loophole is known as the EAP exemption.
Nevertheless, because the assessment of a salaried employees’ duties is highly suggestive, DOL has traditionally relied on hard and fast salary levels to determine who is eligible for overtime. In the instance of the new rule that was set to take effect Jan. 1, pay levels were set as the only determinants. EAP considerations didn’t figure into the calculation.
The U.S. District Court for the Eastern District of Texas agreed with the plaintiffs’ argument that the nature of a salaried employee’s work should factor into a determination of whether the individual is eligible for overtime pay. The court vacated the DOL’s rule.
“The Texas Restaurant Association is proud to deliver another win for not only restaurants, but all businesses across the U.S. thanks to a lawsuit that we filed in federal court in Texas with our partners at the Restaurant Law Center challenging the DOL’s invalid overtime thresholds rule," Emily Knight, CEO of the TRA, said in a statement. "Today’s ruling creates some much-needed regulatory certainty, helping small businesses in particular refocus on serving their customers and employees as we enter an important holiday season.”
"During the past five years, the average operator’s labor costs have gone up more than 30%. Michelle Korsmo, CEO of the National Restaurant Association, declared in a statement. "The challenge to recruit talented managers is already pushing salaries higher, ensuring that good employees are making more."
The association's legal arm, the Restaurant Law Center, was a co-lead of the Texas suit.
A rewrite of federal overtime regulations was already widely expected to come from Donald Trump’s DOL. The returning president showed during his first administration that he was willing to lift or revise regulations that employers chronically blasted as burdensome. The overtime rules set under President Biden are widely anticipated to be a target of the new administration.
Update: A comment from the Texas Restaurant Association has been added.
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