A federal judge struck down the U.S. Department of Labor’s overtime-threshold increase, and hoteliers are hoping the labor department takes a more moderate approach to the next proposed increase.
REPORT FROM THE U.S.—A federal judge’s ruling that the U.S. Department of Labor overreached its authority in setting a new overtime-salary threshold for salaried employees has hoteliers breathing much easier now.
The hotel industry joins other U.S. employers in waiting to see what the labor department will do next given the amount of public support for an increase of some degree to the threshold, which has sat at $23,660 since 2004. The rule would have increased the threshold set in 2004 to $47,476 starting 1 December 2016.
What the ruling means
U.S. District Judge Amos Mazzant III ruled the labor department overreached its authority in setting the new overtime threshold for salaried employees. Mazzant previously issued an injunction against the rule one week before it was supposed to go into effect.
In his ruling, the judge expressed that the increase in the salary threshold essentially eliminated the duties test portion of determining whether an employee is eligible for overtime, said Andria Ryan, partner at law firm Fisher & Phillips.
“It more than wipes away the duties test,” she said. “It’s emphasizing salary over duties.”
The decision is appealable, she said, but it’s unclear whether the labor department will pursue an appeal. The department has put out a request for information, acknowledging concerns about doubling the threshold amount and asking three questions: whether there should be different salary levels for three major white collar exemptions, if the threshold should increase automatically over time and, if so, how often.
There was no question regarding different threshold amounts for different areas of the country based on the local cost of living, Ryan said.
Congress gives authority to the labor department to increase the threshold, she said. The request for information is the first step in the rule-making process, to be followed by the drafting of another proposed rule. Then the department puts out the draft for public comment.
It’s likely the labor department will propose a more moderate salary threshold increase, she said, but it would likely take months before it drafts a proposal. The threshold hasn’t increased in years, she said, and it currently sits below the poverty level for a family of four.
Support for the decision
Some legal experts had said that the new rule wouldn’t stand up under scrutiny, so the judge’s decision didn’t come as a surprise to Bob Habeeb, president and CEO of First Hospitality Group.
To be prepared, however, his company did review its exempt workforce and made some adjustments based on different criteria, but no across-the-board changes, he said.
The income threshold hasn’t been addressed for some time and is due for revision, he said, but the logical step might be a graduated increase to 10%.
“The issue with the huge step proposed by the prior administration is that it was so significant, it would push a lot of people out of salaried jobs,” he said. “That wasn’t ‘doing them a favor,’ as most appreciated the security of salary.”
For smaller select-service hotels, the proposed change would have been detrimental for companies and employees, said Beau Benton, president of LBA Hospitality. Smaller hotels need the flexibility of staffing to have managers cover shifts as needed in low-occupancy periods, he said.
“Also, there is a certain pride and recognition that goes with being a salaried employee,” he said. “We were worried as to this effect on employees if they were now taken back to an hourly position.”
In preparation for the new rule, LBA computed new hourly wages for certain positions based on calculations of assumed average hours worked and the overtime effect, he said, and it was prepared to give raises to employees who were near the threshold. However, the company decided to hold off on putting that plan into action until the rule took effect.
“I think we made the right decision,” he said. “Nothing would have been gained to make the decision until there was a final ruling.”
Benton said he would be in favor of a reasonable adjustment to the safe harbor, and then indexing that amount going forward. Some employers could abuse an artificially low threshold to take advantage of their employees, he said.
“The minimum salary needs to be a livable wage, and by indexing the amount, we would not see a huge jump that impacts business in planning and staffing,” he said.
The American Hotel & Lodging Association sent out a statement to its members explaining the judge’s decision. The organization had joined with other national and state organizations in filing a lawsuit against the previous overtime threshold.
The AHLA is now asking its members to complete a survey to help it fulfill the labor department’s request for information, which has a deadline of 25 September.
“Moving forward, AHLA will continue to work closely with Secretary of Labor Alexander Acosta and his team in providing them data and input on what could constitute a more reasonable update our nation’s overtime laws,” AHLA President and CEO Katherine Lugar said in the statement.